K92 Mining Inc

Key Reasons for Speculative Buy

Quarterly Production Performance

K92 Mining Inc. reported a record quarterly production of 44,304 gold equivalent (“AuEq”) ounces, comprising 41,702 ounces of gold, 1,278,492 pounds of copper, and 37,613 ounces of silver. With over 80% of the lower end of its annual production guidance achieved in the first nine months of 2024, the company remains well-positioned to meet its full-year operational targets. The reported cash costs were $584 per ounce of gold, and all-in sustaining costs (“AISC”) stood at $941 per ounce, significantly outperforming the company's 2024 guidance range of $820–$880 per ounce for cash costs and $1,440–$1,540 per ounce for AISC.

Operational Efficiency and Metallurgical Recoveries

The company achieved record metallurgical recoveries in Q3, with gold recovery reaching 95.3% and copper recovery at 95.1%. Notably, September marked record monthly recoveries of 96.5% for gold and 95.9% for copper, surpassing the recovery parameters outlined in the Updated Integrated Development Plan, which estimated recoveries at 93% for gold and 94% for copper. Additionally, K92 processed 104,992 tonnes of ore and mined a total of 112,333 tonnes, with long-hole open stoping operating as designed and 2,190 meters of total mine development completed. The reported head grade for the quarter was 13.8 grams per tonne (“g/t”) AuEq, consisting of 13.0 g/t gold, 0.58% copper, and 13.0 g/t silver, marking the highest AuEq head grade since Q4 2020.

Strong Financial Performance

K92 ended the quarter with a robust cash and cash equivalent position of $120.3 million, excluding $20.3 million in restricted cash. Under the terms of the Trafigura loan agreement, the company can convert restricted cash into unrestricted cash on January 1, 2025. During the quarter, K92 accessed $20 million of unrestricted cash, leaving $60 million available for future drawdowns. The company also implemented commodity price risk mitigation measures by purchasing put contracts for 12,500 ounces of gold per month for nine months at $2,400 per ounce, ensuring downside protection while maintaining exposure to potential price increases.

Record Revenue and Profitability

K92 reported record quarterly revenue of $122.7 million, alongside a record net income of $46.5 million or $0.20 per share. Operating cash flow before working capital adjustments also reached a record $61.0 million, equivalent to $0.26 per share. Furthermore, the company achieved record quarterly earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of $78.9 million or $0.33 per share. Sales for the quarter included 45,248 ounces of gold, 1,615,185 pounds of copper, and 46,062 ounces of silver. Gold concentrate and doré inventory as of September 30, 2024, stood at 1,887 ounces, reflecting a reduction of 3,082 ounces from the previous quarter.

Advancement of Stage 3 and Stage 4 Expansions

Significant progress was made on the Stage 3 and 4 Expansions, with 63% of the growth capital either spent or committed as of September 30, 2024. The company successfully transferred the construction of the 1.2 million tonnes per annum (“mtpa”) Stage 3 Expansion Process Plant to GR Engineering Services, with commissioning targeted for the second half of Q2 2025. Most long-lead-time equipment has arrived on-site, with the grinding circuit construction being the most advanced. Underground operations continue to progress, with two raise bore rigs operational and the first raise completed to improve mine ventilation. Additionally, the contract for the river crossing construction was awarded on a largely lump-sum fixed-price basis, with growth capital commitment increasing to 69% as of October 31, 2024.

Updated Integrated Development Plan and Expansion Scenarios

Subsequent to the quarter-end, K92 released its Updated Integrated Development Plan (“Updated IDP”) for the Kainantu Gold Mine, effective January 1, 2024. The plan outlines two expansion scenarios: the Stage 3 Expansion Definitive Feasibility Study (“DFS Case”) and the Stage 4 Expansion Preliminary Economic Assessment (“PEA Case”). The DFS Case focuses on increasing throughput to 1.2 mtpa, doubling the current Stage 2A throughput. It involves constructing a standalone 1.2 mtpa process plant, with an estimated after-tax net present value (“NPV5%”) of $680 million at $1,900 per ounce of gold, rising to $1.2 billion at $2,600 per ounce. The PEA Case envisions a further expansion to 1.8 mtpa by operating the new plant alongside the existing 600,000 tpa plant, projecting an after-tax NPV5% of $2.3 billion at $1,900 per ounce of gold, increasing to $3.5 billion at $2,600 per ounce. The Stage 4 Expansion aims for peak annual production of 484,692 AuEq ounces in 2034, with industry-leading cash costs and AISC over a 14-year mine life.

Technical Observation (on the daily chart):

KNTNF's stock price has successfully surpassed a declining trendline resistance zone and is on an upward trajectory, suggesting the possibility of near-term gains. The 14-day Relative Strength Index (RSI) is above the midpoint, adding to the positive outlook. Furthermore, the stock is currently positioned above its 21-day and 50-day Simple Moving Averages (SMAs), which are likely to act as immediate support levels amidst price fluctuations in the near term.

As per the above-mentioned price action, recent key business, financial updates and technical indicators analysis, a ‘Speculative Buy’ rating has been given to K92 Mining, Inc. (OTC: KNTNF) at its current market price of USD 7.30 as of February 12, 2025 (7:15 am EST).