metals & mining k92 mining inc. - skanderbeg capital · 2019-09-27 · tyron breytenbach,...

Tyron Breytenbach , P.Geo, (416) 943-6747, [email protected] Cameron Magee , Associate (416) 943-6749, [email protected]

M E T A L S & M IN IN G

September 27, 2019 K92 Mining Inc.

Growth + Grade = Conviction Buy

Unless otherwise denoted, all figures shown in US$ We are using a 0.77 US$/C$ conversion rate

Recommendation: Buy Target Price: C$4.00

Company Statistics: Stock Symbol: KNT – TSX Price: C$2.22 Share Outstanding:

Basic: 199.2 MM Fully Diluted: 224.7 MM Management: 21.9 MM

Market Cap: C$442.3 MM Cash: $20 MM High – Low (52-Week): C$2.67 – C$0.67 Resource: 3.1 MMoz Au EV/oz Resource: $142/oz Au

Company Description: K92 is on a rapid growth trajectory at its 100% owned Kainantu U/G mine that underpins a 405 km2 prospective land package. The project stands out for its ultra-low AISC ($618/oz in H1/19) driven by grade (11.8 g/t AuEq resource grade). While the Papua New Guinea (PNG) address comes with some risk, the specific circumstances at Kainantu (mature land use and proximity to coast) are lower risk than assets further inland.

During the past twelve months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for K92 Mining, Inc.

Disclosure statements located on pages 22 – 24 of this report

Impressive Ramp-Up: K92 has diligently re-started the Kainantu mine in PNG (went commercial in Q1/18) to deliver a strong cash flow profile (>$20 MM mine cash flow) in its first year of re-started production.

Rapid Growth Trajectory: The scale of the opportunity dramatically shifted when K92 discovered “Kora North” in May, 2017 which boosted grades from 8 g/t to >20 g/t AuEq over the past year. K92 is outlining a widening epithermal system with years of resource growth potential. A stage-2 expansion to 145 Koz/yr is already underway and Cormark sees runway to turning Kainantu into a ~250 koz/yr operation with a class-leading cost and growth profile.

Exploration Untapped: While we derive our base NAV from currently defined resources only, we show that the epithermal/porphyry system is immature in terms of modern exploration outside of the production centre.

High Quality Management: Management has exceptional technical depth, “big company” experience and has already shown a solid track record of execution in emerging markets including PNG.

Buy Rating: We can’t believe we missed the story thus far, K92 has a FCF yield of 20% in 2021, comparable to our highest quality coverage names like Roxgold (Top Pick, C$2.00 Target) but also has outsized growth potential (a rare combination). As a result, we rate the stock Buy as we believe the quality of the asset and management offset the jurisdictional risk.

2019E 2020E 2021E 2022E 2023E Base Case Au Price ($/oz) $1,350 $1,350 $1,350 $1,350 $1,350 Funded Phase 2 NAV C$3.33 Funded Phase 3 NAV C$5.44

SEPTEMBER 27, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE, ASSOCIATE 416·943·6749

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Kora North Discovery Supercharges The Mine More Than Doubles Grade & Width: The two major drivers of profitability in U/G

mining (grade and width) were bumped into a new bracket with the discovery of Kora North in H1/2017. Prior to its discovery, K92 had been running on a mine plan grade of 8 g/t AuEq at the Irumafimpa deposit. In addition to better grades (PEA mine plan average grade of 11.3 g/t AuEq), Kora North is 2-4x the width (averaging 3-4 m) of the prior zone (Irumafimpa) and shows much stronger vein continuity.

Recovery/Geotech Also Better: In addition to better grades and width, Kora North Zone, and Kora (both are intermediate sulphidation deposits) are hosted in more competent rock than Irumafimpa (low sulphidation) which was challenging as a result of elevated clay content. This allows for more efficient mining. Metallurgical recovery at Kora and Kora North is tracking to 93-94% Au vs Irumafimpa which hovered around 80% as the clay host interfered with metal recovery.

New Zone Already Bearing Fruit: K92 has pivoted at an impressive pace and will have doubled the plant capacity by Q4/19 as it finalizes Phase 2 (400 ktpa).

Phase 2 Expansion Is Incredibly Capital Efficient: The stage 2 expansion has estimated incremental PEA capex of $14 MM to return an NPV5% of $559 MM (at $1,300/oz Au and $2.90/lb Cu). While the stock has garnered significant attention, we believe this truly impressive stat is not yet reflected in the share price. Incremental pick up in NPV is >$140 MM for Phase 2.

Our Model Based On Phase 2: Our initiation model is based on a twinned PEA model for Phase 2 with minor tweaks to the cost estimates based on our coverage comp sheet. In general, we add a layer of conservatism to the PEA assumptions. Despite these modest cautious revisions, the stock appears very undervalued on our base case (0.57x spot ($1,503/oz) NAV)

Organic Growth To 200-300 koz/yr: A new resource is anticipated in H1/20 and we will show why we are confident that K92 can organically grow into a mid-tier producer with ~5 MMoz of resources.

Figure 1 KNT Price Chart

Source: BigCharts.com (September 26, 2019)


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What Is Kainantu Today Scale: At exit Q2/19 the Kainantu plant was running at 416 tpd and processed grades of 16.7 g/t Au and 0.34% Cu to produce 19 koz AuEq for the quarter (annualized rate of 76 koz/yr) at AISC of just $681/oz. The mill is largely through the Phase 2 expansion described in the 2019 PEA.

Mining: The ramp-accessible U/G mine makes use of both Cut & Fill and Long Hole stoping (Kora North is only L/H) but the improving width and continuity of the new resource will drive a larger component of long-hole mining in future. K92 also expects to increase the number of sublevels from 3 to 7 by exit 2019 as the mine becomes more efficient. The primary ventilation system was recently commissioned which along with de-bottlenecking of the ramp has allowed for an expansion of the mobile mining fleet. Since all known zones are located at higher elevations than the portal, gravity plays a huge role in material movement and dewatering and this will become even more important as the Phase 3 expansion (i.e. to 800 Ktpa) is evaluated in 2020.

Processing: The flowsheet is robust and low-tech. Crushed ore (conventional 2-stage crush) goes through a ball mill prior to a floatation circuit which creates a concentrate grading 265 g/t Au and 6.3% Cu (in Q2/19). The recent introduction of a gravity circuit (commissioning complete) has been a “no-brainer” as testing has shown up-to 60% of the gold can be recovered by gravity which will also take pressure off the float circuit and increase overall capacity and payability. This was an easy upgrade as the newer zones have a higher coarse gold and free gold content. Total Au recovery in Q2/19 was 93.2% Au. The existing tailings dam has 4MMt of capacity left which is sufficient for the PEA mine plan that we model.

Surface Infrastructure: The mine is currently powered by hydro with full diesel power backup. The mine office and plant are located along a 10 km gravel access road that connects to the Lae-Madang Highway and the mine portal is located 6.5 km from the plant via another gravel access road. The project is 180 km by road from the town of Lae on the coast which is the second largest centre in PNG (~100,000 people) and is also the shipping terminal for the mine concentrate. Access is excellent for PNG and while the topography is rugged it is nowhere near as challenging as assets further inland (e.g. Porgera) and there is a 15-20 km wide “sub-valley” where the camp and plant are located. The mine area is also relatively low precipitation (2.50 m /yr vs >6.0 m/yr at Porgera)

Current Resource: The Oct, 2018 resource update outlined a total resource of 3.1 MMoz at 11.8 g/t AuEq (all categories) and the PEA mine plan outlined a 13-year mine life processing of 4.89 MMt at 9.0 g/t Au and 1.30% Cu (12.3 g/t Au and 0.64% Cu in years 1-5).

2019 Guidance: The outlook for 2019 was recently upgraded to 72-80 koz AuEq at AISC of $720-$760/oz AuEq (from 68-75 Koz AuEq ay $780-820/oz AISC).

Balance Sheet: Following a C$20.7 MM bought deal in July (Cormark was included in the syndicate), K92 holds $20 M in cash. The proceeds of the bought deal were used to eliminate a $12.5 MM contingent resource-linked payment to Barrick and allows K92 the freedom to explore the Kainantu project at will. K92 also has a $15 MM loan with Trafigura, linked to a concentrate off-take deal. The loan has a 2-year term, is unsecured, requires no hedging and was completed at competitive interest rates. The loan was previously convertible at C$1.82/sh but that condition has been removed.


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Figure 2 Operational Performance Strong – Since Going Commercial In Q1/18

Source: Company Reports

Phase 2 Expansion To 145 koz/yr Solidly Underway

NPV/Capex Ratio Is Outstanding: As outlined in Figure 3, the Phase 2 expansion to 145 koz/yr can be funded for just $14 MM in capex. That returns a difference in NPV5% (at $1,300/oz Au) of $144 MM.

Mill Expansion: The mill expansion includes an already commissioned gravity circuit, secondary crushing, more flotation cells and improved configuration/de-bottle necking. This will double throughput to 400 ktpa. K92 benefits from a process plant that was oversized for its original application by prior operators and most of the expansion work was done outside of the comminution circuit.

Mine Expansion: Mine improvements are already underway with an expanded fleet largely arrived at site. K92 has also completed a gravity de-watering system and upgraded the U/G power supply. Ongoing expansion work includes a ventilation upgrade, new offices/workshop and delivery and commissioning of the remaining mining fleet (3 of 11 pieces of equipment are undelivered). The mine has already started to ramp up to 1,100 tpd as more equipment is in operation.

Surface Infrastructure: Current camp capacity is 600 people the mess and recreational facility are being upgraded.


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Figure 3 Incremental NPV / Capex Ratio

10.29x

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Figure 4 Kora North - On-Par With Recent “Disruptive” Discoveries

5 g/t6 g/t

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23 g/t 23 g/t

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Island Gold (Alamos) Forsterville (KirklandLake)

Eagle River (Wesdome) Kainantu (K92)

Pre-Discovery Post-Discovery Source: Cormark Securities Inc., Company Reports

We Twin PEA With Minor Conservative Revisions

We have stuck closely to the 2019 PEA given its recent publication date and this study is the basis for our target NAV of C$3.33 at our LT gold price of $1,350/oz. Our spot NAV based on phase 2 is C$5.44.

Our full list of inputs and assumptions is below but the major variance is that we went more conservative in terms of the pace of sustaining capex.


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Figure 5 2019 PEA Model Vs. Cormark Model Stage 2 - PEA

(2018)Stage 2 -

Cormark Est.Stage 3 -

Cormark Est.

Mine Plan InventoryTotal Ore Mined (Kt) 4,900 4,900 13,500Mineable Inventory (MMoz AuEq) 1.8 1.8 3.8

GradesLOM Gold Grade (g/t Au) 9.0 8.9 7.7

Avg. Grade First 5 Years (g/t Au) 12.3 12.1 10.8

LOM Copper Grade (% Cu) 1.30% 1.28% 0.95%Avg. Grade First 5 Years (% Cu) 0.60% 0.64% 0.56%

LOM Silver Grade (g/t Ag) 20.0 21.1 15.2

LOM AuEq Grade (g/t Ag) 11.0 11.3 9.4

Production ScaleOre Throughput (Ktpa) 400 400 800Mine Life (Years) 13 13 19

Gold Recovery Rate (%) 92% 93% 94%Copper Recovery Rate (%) 94% 92% 92%

Avg. Annual Au Produced (Koz) 98 101 165Avg. Annual Cu Produced (Klbs) 9,258 9,921 13,741Avg. Annual AuEq Produced (Koz) 120 126 199

Capital ExpendituresExpansion Capex (US$MM) $13.6 $13.6 $113.6LOM Sustaining Capex (US$MM) $202.4 $202.4 $408.3LOM Avg. Run-Rate Capex (US$MM) $16.4 $16.4 $27.3

Operating ExpensesMine Plan Avg. Unit Opex (US$/t) 157 159 138Avg. Unit Opex First 5 Years (US$/t) 163 167 161Cash Costs US$/oz AuEq) $429 $512 $516AISC Cost US$/oz AuEq) $615 $633 $624

After Tax & RoyaltiesNPV (5% Discount) (US$MM) $559 $508 $902Gold Price (US$/oz) $1,300 $1,350 $1,350Silver Price (US$/oz) $15.00 $16.00 $16.00Copper Price (US$/lb) $2.90 $3.00 $3.00



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Geological Review A partial explanation for why we missed the meteoric rise of the K92 story is that the original mining target (Irumafimpa) was fairly complicated and disjointed. The deposit was narrow, complicated and widths were highly variable over typical drill spacing (i.e. over 50 m +). That being said, Irumafimpa was partially developed and easier to access and permit initially.

Recall that Kainantu is an epithermal vein system made of multiple veins and zoned in a fashion typical of this style of deposit. All the reader needs to know is that the new target horizons (Kora and Kora North) are much more continuous, wider and also higher grade. See Figure 6.

The explanation for this change in geology is evolving but it appears that the porphyry “engine” of mineralization (i.e. the heat and pressure source) is closer to the Kora North Zone. This statement is supported by the fact that Cu grades pick up as one moves to the south of the deposit indicating proximity to the intrusive/porphyry source.

The Kora North deposit (1.11 MMoz AuEq at 12.6 g/t) is hosted in two veins (K1 and K2). Of interest and visible in Figure 7 is the vertical shoots of exceptionally high grades (>15 g/t Au) likely controlled by a vertical chimney-like cross structure.

Figure 6 Kora North (Now Mining) Vs Irumafimpa (Previous Mining)



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Figure 7 Long-Section – Grade/Width/Continuity Increases To South


Untapped Exploration Upside Points To 4-5 MMoz By 2020

The long-section at Kainantu shows the “gaps” between known resources. These areas are in fact wide open for resource delineation. Specifically, the area gap between Kora North and Kora, Eutompi and Irumafimpa simply represents lack of drilling coverage not lack of mineralization.

This is one gradational gold system that evolves from high-to-low to sulphidation in nature as you move north. The abrupt end of the resource model is likely an artifact of limited drilling coverage.

For example, the PEA assumes that Kora North is mined first (since it is located adjacent to the Irumafimpa U/G mine infrastructure) and that the mine develops into Kora in year 5. However, the Kora North Zone now has >100% more drilling than when the last resource was run, and it is likely to contribute significantly more than resources previously expected as the various zones will merge into one deposit.

Zooming into the K1 and K2 veins at Kora North, drilling outside of the resource blocks already confirms that the zone is open for expansion. See the long-section in Figure 8.

Current drilling from surface is targeting the data gap between Kora North and Kora.

The near-mine exploration will dictate the potential for a Phase 3 expansion which would involve a twin inclined to expand the tonnage capacity of the current U/G development (Figure 9) to support an >800 ktpa ore rate.

K92 has 5 rigs active on this front and expects to update resources in Q1/20 which will determine if a PEA for Stage 3 can be drafted to boost capacity to 200-250 koz/yr AuEq. Based on our discussions with Management to date, it is confident that


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the current 145 koz/yr AuEq rate is very likely to expand to >300 Koz/yr AuEq and we are looking for an updated resource of 4-5 MMoz next year.

In addition to scaling up the U/G mine, K92 is also looking at the potential to open-pit Irumafimpa. Recall that this deposit is composed of several discrete veins with the surrounding rock package carrying grades of 1-2 g/t AuEq. While this deposit was problematic to mine U/G, it could be very amenable to O/P extraction.

Figure 8 Multiple Drill-Confirmed, Near-Mine Targets



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Figure 9 Conceptual Twin Incline Opens Up Tonnage Capacity


Figure 10 Phase 3 Conceptual Growth Chart

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Regional Exploration Also Of Interest

In addition to targets adjacent to existing mine infrastructure, the 405 km2 package hosts several known vein sets outside of the Kora area. The Kora itself also extends >1 km outside of the lease.

Most notably, the “Judd” vein which occurs parallel to Irumafimpa and Kora and has a mapped strike length of 2.5 km. Prior intersections include 3 m at 278 g/t Au and 0.21% Cu.

With all these epithermal targets are under evaluation, there is also some thought being given to searching for the porphyry mineralization driving the high-level epithermal deposition. Hole KTDD0001 was drilled by K92 specifically to investigate a nearby porphyry (“Blue Lake” target) and intersected 175 m of anomalous mineralization (0.28 g/t Au and 0.22% Cu) .

While that interval is not ore grade, it is highly diagnostic of a porphyry system nearby (based on the alteration pattern) and deserves further attention. Given K92’s focus on mostly U/G, high-margin, low capex operations. We expect the company will JV out a more costly non-core deep drilling campaign. Newcrest (NCM:AX, Not Rated) is already active in PNG and are world renowned experts in exploring for blind porphyries and would seem a natural partner.

In the near term, K92 has planned a modest fence of deep holes (1,000 m long) at Blue Lake, spaced 200-500 m apart. This will give the company a better idea of the target prior to investigating and pricing a farm-in deal.

In addition to the Blue Lake porphyry, the company has multiple other intrusives further afield that are worth testing. These are outlined in Figure 13 and includes “Yompossa” where BHP drilled 60 m at 0.3% Cu and 0.1 g/t Au from 105 m downhole.

Figure 11 Judd Vein - Summary



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Figure 12 Camp-Scale, Multi-Style District Project


Figure 13 Porphyry Targets



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Geographical Risk Discussion

Lowlands Vs. Highlands: While our understanding of the politics and social dynamic in PNG continues to evolve, we understand that the country can be broadly divided into the “low-lands” and the “high-lands” based on topographical challenges. The topography also drives a difference in the level of infrastructure development (vastly better in the lowland/coastal regions), climate and population/language distribution. The highland based population is very heterogeneous in terms of language and culture and in many cases has been completely sheltered from western contact until the late 1900s. Importantly, the Kainantu mine is located closer to the coast (in a 15-20 km wide valley) where topography is less challenging and the area is more settled, land use is more uniform and established and the risk to the natural environment is lower. As a result, it is vastly easier to operate and establish support for a mine.

Lease Agreement Good Until 2024: Following the change in Prime Minister, PNG has re-evaluated its lease agreement with the Porgera Mine (owned by Barrick and Zijin). It is worth noting that these discussions at Porgera were catalyzed by Barrick seeking a new 20-year lease extension which was the first time the new administration was able to discuss the issue and in many ways this event drove the recent change in leadership.

Recent Events At Porgera Impacts Stock: The Porgera news knocked K92 from what appeared to be a new share price base of >C$2.40 share. We view this as a buying opportunity as the headlines drove profit taking in a stock that was up more than 5x over a two-year period (other PNG exposed miners were relatively unaffected by the news) and we believe the event flushed out pent-up sellers such that we like the new entry point (See Figure 14). Below we outline why these headlines are unlikely to derail our thesis over the long term.

Recent PNG Hydrocarbon Deal Provides Comfort: In early September, the government of PNG announced it would honor a fiscal deal signed by Total SA and the former prime minister. This $13 BB expansion will proceed according to the original agreement with minor adjustments around the edges, including the commitment to source a portion of its contract suppliers from local PNG entities. We view this as a big win for industry and the PNG government and shows that sanity and rule of law prevails despite some early, off-script commentary by isolated politicians. On this point, we note that K92 already prioritizes the hiring of locals with >90% of the >500 employees coming from the local community.

Summarizing Our View: The bottom line for us is that K92’s concessions are not up for re-negotiation for a number of years and that while the noise out of stray politicians has boosted the risk profile of resource companies operating in PNG, that risk has not played out in the multi-billion-dollar LNG space. We also believe the higher risk profile is largely justified by the ultra-high quality of the asset and the peer-leading organic growth profile and somewhat priced in via the recent sell-off. The most relevant risk factor to keep an eye on in the short term is competition among local clans for land of ownership. There is a process to deal with these historical disputes and K92 monitors the issue carefully.


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Figure 14 KNT Price Chart - 2017 to present


Figure 15 Locational Advantage – Close To Coast And Infrastructure

Source: Cormark Securities Inc., Thompson Reuters


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Proven Management Full Management bios are outlined on page 18 but we highlight the very relevant corporate experience. In particular, CEO Jon Lewins has >35 years of experience in project development and operations, much of it in challenging jurisdictions. He was previously GM of gold division of MIM Holdings.

The K92 team has combined PNG experience of >100 years.

The board boasts a very well-rounded mix of geological, operational and capital markets expertise and will allow K92 to grow organically into a mid-tier producer if the exploration program continues to deliver, the Management team can step up to the challenge.

Valuation Phase 2 NAV of C$3.33: Our NAV is heavily weighted to the Phase 2 mine plan (C$2.93/sh) with balance sheet items (C$0.06/sh) and exploration upside (C$0.34/sh) making up the remainder. We assume no further equity issuances are required to complete the Phase 2 ramp-up. Based on this conservative and funded base case, K92 is trading at 0.67x NAV at $1,350/oz and 0.57x spot NAV ($1,503/oz.

Phase 3 Would Boost NAV To >C$5.00: Cormark believes that the project already hosts sufficient resources and growth potential to support a larger production rate. This would be done by conceptually twinning the existing ramp and leveraging gravity via an ore pass and conveyor system to improve ore flow. This scenario may also include an open-pit at Irumafimpa as previously discussed and a likely mill upgrade to 800 ktpa. Assuming this scenario requires $100 MM in initial capex (primarily to upgrade the mill/tailings and install a dual access) the NPV5% increases from $559 MM to $906 MM at $1,350/oz. This will be an important upside driver for K92 and will be evaluated in H1/20. Our NAV at $1,350/oz assuming Phase 3 is a go, would drive a >C$5.00 NAV based on a 800 ktpa operation producing 239 koz/yr at $615/oz AISC.

FCF Yield Is Peer-Leading: It is rare that we can reference FCF yield as a valuation metric and K92 is one of the elite group of junior gold producers with a substantial yield. At 12% in 2020 (20% in 2021), the company ranks alongside ROXG, SGI and TGZ. Figure 18.


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Figure 16 NAV Breakdown At $1,350/oz US$MM US$/Share

AssetsKainantu (100%), PNG - NPV5% 507.5 2.26Land Package - 405 Kha at $500/ha (25% prospective) 50.6 0.23Irumafimpa - 438 Koz at $20/oz 8.8 0.04

Corporate AdjustmentsCurrent Cash 20.0 0.09Cash from Warrants/Options ITM at Target 9.5 0.04Debt (19.9) (0.09)

Net Asset Value CAD C$748.8 C$3.33

Basic Shares Outstanding (Current) 210.1ITM Options and Warrants Outstanding 14.58Fully Diluted Shares Outstanding 224.7

Current K92 Share Price C$2.22

Price/NAV 0.67xPrice/CF (2020) 6.1x


Figure 17 NAV Comparables At $1,350/oz

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During the past twelve months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for these companies



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Figure 18 2020 FCF Yield (at $1,350/oz)

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Start With Buy Rating, C$4.00 Target

The Kainantu mine has the potential to vault K92 to mid-tier status and given the robust FCF profile expected to be generated by Phase 2 we believe the funding options will include a combination of debt, mine cash flow and equity.

Few junior producers have a real FCF yield and even fewer have a robust growth profile comparable to K92 which we expect could touch 240 koz/yr by 2022.

We rate the stock Buy and launch with a C$4.00 target based on a 1x spot NAV multiple. We would buy the stock on the recent pullback as the headlines out of Porgera are unlikely to represent a new status quo.


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Appendix A: Management & Directors John Lewins – CEO & Director

Mineral engineer with +35yrs of global experience (Africa, Australia, Asia, N. America & former Soviet Union) at project development, operational and corporate level. Former GM of MIM Holdings, MD of Platinum Australia and Executive Director of African Thunder Platinum SA. Became CEO of K92 in Aug 2017; previously COO.

Justin Blanchet – CFO

Previously CFO of several TSXV-listed mining companies. Mr. Blanchet has +15yrs of financial reporting, audit, treasury, business development, and regulatory compliance experience in the mining industry and has worked on international projects throughout the world. Mr. Blanchet is a Canadian Chartered Professional Accountant and a U.S. Certified Public Accountant (Washington).

Warren Uyen – Senior VP Operations

Mining engineer with +30yrs experience in Australia & Asia, with expertise in open pit & UG (project development & operations). Joined K92 from MacMahon Holdings Limited (GM Underground Operations) and previously was GM at Eldorado’s White Mountain Gold Mine in the People’s Republic of China.

Chris Muller – VP Exploration

Dr. Muller is a geologist with +20yrs of global experience (Mongolia, Indonesia, Ghana, Australia, China and PNG) in open pit and UG mine and near-mine exploration, resource and mine geology. Mr. Mueller has +10yrs experience in PNG and joined K92 from the Morobe Mining JV (Newcrest/Harmony) as Geology Manager/Principal Geologist at Wafi-Golpu where he discovered its porphyry deposits.

David Medilek – VP Business Dev & IR

Mining professional with +12yrs of mining capital markets, corporate strategy and technical experience. Joined K92 with a diverse skill set, including Equity Research Analyst at Macquarie Group Limited, Mining Investment Banker at Cormark Securities Inc. and Mining Engineer at Barrick (Western Australia). Mr. Medilek is a licensed Professional Engineer in BC, Canada and CFA® charterholder.

Philip Samar – VP Government & Community Affairs

Mr. Samar has spent 20 years through to 2015 working for the Mineral Resources Authority (MRA) of Papua New Guinea, the government body responsible for regulating the exploration and mineral sector. In his last six years as Managing Director. Mr. Samar had a significant leadership role within the country and has regularly interacted with multiple mining industry stakeholders including: government, international organizations, landowners and foreign investors.

Tookie Angus – Chairman

Independent mining industry business advisor with +40yrs experience focused on structuring and financing significant mining ventures internationally. Former Chair of B.C. Sugar Refinery Ltd. and Nevsun, Director of First Quantum, Canico Resources, Bema Gold, Ventana Gold, and Plutonic Power.

Ian Stalker – Director

Mining executive with +45 yrs experience in Europe, Africa, PNG and Australia. Managing Director of Helium One Ltd. Former CEO of K92, LSC Lithium Corporation, UraMin, Brazilian Gold, Berkeley Resources, and Niger Uranium. VP at Gold Fields. Mr. Stalker has successfully managed eight projects through feasibility to construction.


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Graham Wheelock – Director

Geologist and mining executive with +40 yrs experience in gold and diamonds, operating in +55 countries, largely with Anglo American and De Beers. Co-founder of Gem Diamonds (LSE), former acting GM at De Beers Namaqualand Mines (South Africa) in the head office leading the industrial intelligence team for the global mining industry.

Mark Eaton – Director

Experienced investment professional with +20yrs experience in equity capital markets, focused on the resource sector. Held the position of MD Global Mining Sales at CIBC, Manager of US Equity Sales at CIBC, and former Partner and Director of Loewen Ondaatje McCutcheon Ltd. Mr. Eaton is the current Executive Chairman and former CEO of Belo Sun Mining and has served as director or executive of several mining companies.

Saurabh Handa – Director

Chartered Professional Accountant with diverse senior experience in finance, mergers and acquisitions and multi-jurisdictional public company disclosures. Currently Principal of Handa Financial Consulting Inc. Previously was CFO of Titan Mining Corp., VP, Finance of Imperial Metals Corp., CFO of Meryllion Resources Corp., CFO of Yellowhead Mining Inc., Controller for SouthGobi Resources Ltd. and Senior Staff Accountant at Deloitte and Touche LLP.


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Appendix B: Risks To Target The following is a list of the most common risks that apply to the stocks mentioned in

this report. Generally, these risks apply to all companies in varying degrees.

Commodity Price Risk: Our short- and long-term commodity price assumptions are made based on detailed research, and viewed to be reasonable based on current information. However, the timing and magnitude of commodity price fluctuations are always a significant risk that, in most cases, strongly affects the value of mining and mineral exploration/development companies focused on a specific commodity. The primary metal exposure of the companies in this report is to gold and silver; however, some may have exposure to metal products such as copper, zinc, and nickel, and the prices of these metals may affect their valuation.

Cost Risk: Both capital and operating costs may be affected by changes in input prices (fuel, steel, chemicals, etc.) and by relative currency changes. Companies may be at risk of unexpected cost escalation as a result of these potential threats.

Financing Risk: Companies with large growth plans or exploration companies with no free cash flow may require external capital to continue with exploration programs and develop new mines. In order to finance these endeavors, equity or project dilution may be taken in order to fund the equity portion of the capital costs if the project is to be developed. Shareholders may also be subordinated by lenders in order to finance an exploration project.

Geopolitical Risk: This risk deals with policies such as permitting and tax laws that are managed by governments of a jurisdiction (country, state, province, etc.). These policies usually affect mining companies more than exploration companies. Generally, developing countries are seen as being more risky because of the potential of a quick change in power to drastically change policies. Developed countries have their geopolitical risk issues, and jurisdictions and powerful environmental lobbies can also make mining or exploration difficult.

Technical Risk: Ore reserve and resource risk is a technical risk that is derived from the subjective nature of geological interpretation. Engineering-based forecasts are by nature imprecise, and unexpected risks include events such as earthquakes and strikes. Such events could materially affect the value of shares.

Regulatory Risk: The mining industry is highly regulated, and as such, changes in the scope of environmental practices can have a significant impact on the cost and viability of mining operations.

Exploration Risk: In some cases, the market may build in expectations for exploration success before the actual exploration work has taken place. In the event that results do not meet the market’s expectation, the company’s shares may be negatively affected.


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Recommendation Terminology

Cormark’s recommendation terminology is as follows:

Top Pick our best investment ideas, the greatest potential value appreciationBuy expected to outperform its peer groupMarket Perform expected to perform with its peer groupReduce expected to underperform its peer groupTender clients are advised to tender their shares to a takeover bidNot Rated currently restricted from publishing, or our recommendation is under review

Our ratings may be followed by "(S)" which denotes that the investment is speculative and has a higher degree of risk associated with it.

Additionally, our target prices are based on a 12-month investment horizon.

Disclosure Statements and Dissemination Policies

A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on our web-site at: www.cormark.com

Analyst Certification We, Tyron Breytenbach and Cameron Magee, hereby certify that the views expressed in

this research report accurately reflect our personal views about the subject company(ies) and its (their) securities. We also certify that we have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.


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Figure 19 K92 Mining Inc. - Disclosure Chart



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Figure 20 Roxgold Inc. - Disclosure Chart


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metals & mining k92 mining inc. - skanderbeg capital · 2019-09-27 · tyron breytenbach,...

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