Karora Resources (KRR) – Reduced Gold Royalty Frees Up Beta Hunt Mining

Karora Resources Inc.
  • TSX: KRR
  • Shares Outstanding: 114M
  • Share price C$3.99 (14.09.2020)
  • Market Cap: C$575M

Karora Resources (TSX: KRR), formerly RNC Minerals, is a gold producer that is focussed primarily on the acquisition, exploration, evaluation and development of precious metal properties. It aims to become the next sustainable and high-quality mid-tier gold producer, allowing investors to leverage the current gold bull rush through strong, consistent production and exploration upside.

The company’s primary operations are the Beta Hunt Underground Mine and the Higginsville Gold Operations (HGO) including the Higginsville Open Pit mines and 1.4Mtpa Higginsville mill. Karora Resources also holds a 28% interest in the Dumont Nickel Project: one of the world’s largest undeveloped, permitted and shovel ready nickel sulphide deposits, though it may be looking to cash this in soon to better abide by its new gold focussed nature.

Matthew Gordon talks to Paul Huet, July 2020

Karora Resources is now a really encouraging investment proposition. Having guided 90,000-95,000oz gold at the start of the year, with an AISC of US$1,050-$1,200/oz that could fall to US$1,000 with the introduction of the ore sorter, the company is now starting to experience a revaluation. By focussing on gold, Huet has completely changed things. Investors can expect to hear the relatively inexpensive ore sorter testing results in the near future. 20-25% of waste should be removed, drastically increasing the feed grade to the mill, increasing the margin, and giving Karora options regarding how best to move forward.

Karora Resources, with projected total gold production of 90,000-95,000oz, and that’s excluding any exciting contributions from coarse gold occurrences at Beta Hunt. Moreover, Huet and his team expect coarse gold in 2020 based on their interpretation of the Beta Hunt shear zone/Lunnon Sediment intersection horizons. The AISC looks a solid if unspectacular US$1,050-$1,200 per oz, but the introduction of an ore-sorter could bring this number below the magic US$1,000/oz. Moreover, plenty of exploration upside is expected with coarse gold now a real possibility, especially considering Karora’s interpretation of the Beta Hunt shear zone/Lunnon Sediment intersection horizons.

By buying back the Morgan Stanley Royalty at HGO, Karora has unlocked an unexplored 1,800km2 land package. The Pioneer deposit, Two Boys extension, Paleochannel extensions, Baloo-Sluth trend, and Zuleika parallel mineralised structures all look like they could add value to the company’s bottom line. The royalty had stood for decades and, in the long-run, it is worth tens of millions to the company. Karora Resources can now profitably fill the Higginsville Mill, and in a gold rush environment that is undoubtedly the name of the game.

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Huet recently oversaw a share consolidation for the company, enabled by strong gold production figures, which clearly has the best interests of retail investors at heart. It is a 1:4.5 rollback, and it neatens up the share registry ahead of what Huet plans to be a growth phase. This growth phase will be driven by both exploration, and acquisitions like Spargos Reward, recently obtained for US$2.86m from Corona Resources… a brave transaction right now… 😉

The acquisition adds higher-grade ounces to the Karora’s feed for its mill, and it indicated to Maverix Metals that the company would be playing hardball over the Beta Hunt royalty renegotiation, having already slowed down operations to a crawl there.

The recent news has regarded this particular topic. Having quashed any legacy issues with its name change, and in a move that investors have been waiting in anticipation for, Karora Resources has agreed a renegotiated royalty package with Maverix Metals. Maverix agreed to reduce its royalty on Beta Hunt gold production from 7.5% to 4.75% from July 1, 2020. While 4.75% is still a substantial royalty on gold at this time, it is considerably better than 7.5%, an inflated figure negotiated at a time when the market didn’t care about gold and Dumont was the focus. In terms of remuneration, Karora will pay US$5M along with issuing 35.1M shares at C$0.506 to Maverix. The US$5M will be paid in two equal instalments; one was paid on the closing of the renegotiation, one will be paid in January 2021.

Mining at Beta Hunt hadn’t been all that ecnomic for Karora Resources in the past. Maverix’s former 7.5% combined the the state royalty totalled a whopping 10%, rending beta Hunt much less profitable than the company’s other properties. Considering the entire company is worth just over C$550M, the C$30M total it had paid in royalties since acquiring Beta Hunt was undesirable to put it mildly.

Now Karora Resources is free of this burden, it can get back to mining more freely at Beta Hunt, and investors hope they will be seeing some more of that infamous coarse gold from the coarse gold pockets, which put the company on the map in the first place.

With its average grade of c. 3g/t, Beta Hunt’s economics are attractive, but I think the coarse gold is the key to unlocking value; the market loves excitement, and Karora Resources could be delivering excitement in spades. Huet and his team will be looking forward to stacking up its inventory with even more ore to feed its mill.

The company is now cashed-up with a revitalised balance sheet and free cash flow to burn. There are a huge number of options for Huet to consider moving forward, and in light of the exemplary job he has done so far, I have no doubt he will make the right decisions and choose the right path. These are exciting times at long last for Karora Resources shareholders.

Company Website: https://www.karoraresources.com/

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