Kingston Resources (ASX.KSN) Presentation, FNN Online Investor Event, October 2021


Kingston Resources Limited (ASX:KSN) Managing Director Andrew Corbett provides an update on its Misima Gold Project located SE of PNG in the Coral Sea, with a recently upgraded resource of 3.8 million ounces (current reserve is 1.35 million ounces) of gold, project economics and plans to fast track development following sale of its WA based, Livingston Gold Project to Metal Bank (ASX:MBK) for $10m.
 
Thanks Clive, and thanks for pointing out the transaction yesterday with Livingston. I’m going to spend today talking about Misima, but I’ll just quickly comment on that and encourage people to go into the announcement yesterday. So it’s a Greenfields exploration project that we owned in Western Australia. And we sold that yesterday to a company called Metal Bank for up to $10 million. So, I encourage everyone to go and have a look. It’s got 50,000 ounce resource on it, so we think it’s a very accretive deal for shareholders and we still have exposure with milestone payments, which will contribute for that $10 million transaction.

So today I’m going to talk about Misima. It’s been our cornerstone project since 2017 and we continue to focus primarily on it as we advance the project to development. There’s a great picture there of, basically, over the old operation. Misima produced gold for 15 years, which I’m going to talk to you about today.

So where is Misima? Basically, you can see it’s an island off the coast of PNG, about 600K east of Port Moresby. Very vibrant community, over 20,000 people live on Misima, and it’s been producing gold for well over a hundred years, which we’ll talk to today. And Kingston, see Misima as our cornerstone project to build, basically, a mid-tier gold producer. That is our aim. We do want to see gold being poured at Misima as soon as we can. We have an experienced management team, which I’ll cover, with a lot of building and operating experience, so a history of developing projects.

So just looking at where Misima is, just a little bit more detail. You can see it’s the island down here in the south, over 7 million ounces of endowment to date. The islands are very active in terms of mining and operations. You can see up if we look northwardly here, Simberi both producing gold, in fact, both looking at expansions. And so companies are investing in PNG as we speak. Most importantly, Woodlark has recently commenced construction of their gold project. They’re the closest to Misima, a hundred nautical miles north of Misima, and they’ve recently completed equity and debt funding for that project. So PNG is producing a lot of gold and copper and will continue to do so for a long time.

Our PFS which we published, feels like a long time ago now, but only November last year. We had basically, come out with some great set of numbers. You can see there. So our current resource, which has been recently upgraded is 3.8 million ounces of gold. Our current reserve is 1.35 million ounces, that has not been upgraded yet, and that will be done by March next year. Obviously a big chunk of silver as well, which we take as a nice credit. It gives us a credit of well over a $100 an ounce at the moment. So the PFS came out with a production run rate of an average 130,000 ounces for 17 years, and an all-in sustaining costs of 1159 per ounce. So low cost, long life, and well, that’s a good production starting point. 130,000 ounces, we do consider that the starting point. We aim to lift both the production and the mine life. Excellent set of economics, $822 million pre-tax NPV, about $535 million post-tax, IRR 33%.

This was all done at US$1600 gold price, and today obviously the gold price is US$1800. So those numbers have improved there. The substantial upside still at Misima the resource will continue to grow. The reserves definitely will grow, and I can say that with confidence just on the back of the recent resource upgrade. So we’ve increased the indicated ounces by 39%. So we have two and a half a million ounces now in the indicated category. And as investors know, that can be converted to a reserve into a mine plan. And it’s extensively de-risked because of the mining history of Misima and the island.

So just briefly on the capital structure. Board management, so Mick Wilkes is our chairman. He was the former managing director of OceanaGold. Mick has built for gold and copper mines himself all over the world, has extensive PNG experience.

I’m a mining engineer, with 25 years in mining and equity markets experience. Stuart Rechner is a geologist, and Tony Wehby has a finance background, but he was also chairman of AMI Aurelia when they built the Hera gold project, New South Wales. So Tony’s got building experience as well. Very supportive family office, high net worth shareholders, they’re Winchester, Delphi, Farjoy. All long-term holders and have been shareholders, and believe in the Misima gold project for a long time. Current EV is about $50 million. So, obviously that’s our most reported cash number there, in the end of June. And that doesn’t include the Livingston transaction, which we just announced yesterday. Market Cap is about right there, at 21 cents today.

So just like all projects, we live and die by our people and our sustainability approach. How we treat our employees, how we treat our land owners, and how we treat the environment and community are key for us. Obviously, a strong focus on safety. We are managing with a COVID management plan in PNG right now. It is problematic for us, but there is a bit of a light at the end of the tunnel. It feels like the case counts in some… Well, particularly where we are, seem to be plateauing and settling down. And we’re successfully continuing our operation with our current management plan in place. We are significant PNG employer. We’re well over 90% of our people. And we continue to focus on PNG employment. We only have two ex-pats that fly in and out of the project. Otherwise, our technical team are all PNG based, very well-trained scientists and geologists.

Environmentally, we obviously operate under the PNG CEPA, so the Conservation and Environmental Protection Agency, and have done very well in that front in terms of have a strong support with CEPA, and we continue to talk to them about the redevelopment of the project. And that’s one of the advantages of Misima in that environmentally, it’s very well understood. We are actually not going into new areas. We are looking to open up areas or mine in areas that have previously been disturbed. So that’s a considerable advantage for us. And community support, as I said earlier, Misima has been producing gold for well over a hundred years, and it will continue to do so for a very long time. So, the community understands gold mining and is very focused on basically having a large scale project rebuilt.

So what does it look like? You can see here, there’s a picture of the previous operating plant. Now that’s been rehabilitated, so it’s no longer there. We do need to rebuild that plant. But why we show this picture, is because it gives you a great feel for the location and the environment that we’re dealing with. We will be building our processing plant on the same location. We will be driving up and down that same haul road you can see on the hill. And we will be mining in basically the same pit that Placer mined for 15 years.

So we have scale. It is a big project. It has previous history. The mine continues, or the island continues to produce gold. It is brown fields in nature, so it is well understood in terms of metallurgy mining. So that’s significantly de-risk. Most importantly, Placer produced 3.7 million ounces of gold over 15 years at an average cost of US$218 per ounce. Now, obviously, gold price and costs of both very different, but Placer’s gold price averaged $300 per ounce US. And we’re obviously sitting here today at US$1800. So the economics look great for us in terms of what the mine did before, and what our feasibility study is telling us now.

So just recapping on the pre-fees and we’ll then talk about the definitive study, which is underway. So, as I said, it already has a 17 year mine life. You should be expecting that to grow and get longer, because we have significantly increased the resource. In September, our production rate base case is 130,000 ounces, we will be looking to try and grow that. In terms of revenue and cashflow, obviously, we’re updating all those numbers on the DFS now. NPV I’ve pretty well covered. Most importantly, it’s actually quite capital light in terms of a large scale gold project and there’s a lot of reasons for that, and it’s a lot to do with geology, location, it’s very soft rock, it’s coarse grind. It doesn’t take a lot of energy to basically crush grind this and liberate the gold. So that’s key for what drives the economics, but also lowers the upfront capital to build the project. So they are all good sets of numbers, which are helping into the DFS.

So where we are today, most importantly, our metallurgical program is complete. Our geo-tech program’s complete. We are finishing off our site works, and our engineering design is underway. We’ve delivered the new resource, which will go into the mine plan. And all of this is on track to a completion in March next year. So you should be looking for a definitive feasibility study, completed set of environmental, social impact assessment and a new reserve. And that reserve is really important, because our current reserve, we’re one of the largest reserves on the ASX, gold reserves that is, for an undeveloped projects and we’re probably very likely to be the largest as we progress this DFS and come out in March next year. So the project is big and continues to grow.

Just looking at the deposit. The main deposit is Umuna. It’s about three kilometers, three and a half kilometers long. It’s a big project, big pit. Average drill depth is only down to 119 meters, which is very interesting. So demonstrates that the project remains open at depth. It’s open to the east, it’s open to the south and open to the north. And some fantastic drill holes, you can see there, it has width, it has grade, it bulks out to be a relatively modest grade resource and reserve once you mine it, but you can see there are going to be pockets of higher grade. I mean, 84 meters at seven grams. If we can announce those numbers today, that would get everyone’s attention.

So, this pitch is good, this expiration strategy, because it gives you a feel for what the island looks like. You can see Umuna orebody, this is the main mineralized corridor. There is a section to the north, which is near four kilometers long, which is basically untested and needs to be explored. You can see we’re building the processing plant down here in the south. This is that haul road I spoke to earlier. It’s a very simple project in terms of complexity. It isn’t complex and it leverages off the historical infrastructure. So the port is built. The airport is in place. There is a highly skilled workforce, and basically, logistically it’s very good place to operate. And expiration wise, there are multiple targets. Our focus right now is cashflow and building the project. So we’re going to do a little bit less exploration over the next year, as we advanced the project for approvals.

Community support, I have touched this already, but you can see we’re well over 90% PNG national employees right now, a lot.. 80% of them are Misimans, 20% are PNG nationals and a couple of ex-pats. So that works very well for us. They’re highly trained, they’re skilled operators, they work as FIFO miners already for the other companies, but also, technically very well trained.

So why Kingston? Why are we presenting the story today and talking to people? Obviously, it’s a great time to be building a gold company. Gold price is excellent. And if we were ready to fund the project now, we’d be very comfortably able to do this at this current gold price. And importantly for shareholders or investors, is the valuation metrics. You can see from these charts, we are one of the largest resources and we trade at a very attractive EV per ounce. And we’re also one of the largest reserves and trade at a very attractive EV per ounce of reserves as well. And you can see what I talked about earlier, we’re already the third largest reserve in the developers and explorers. And we expect to grow our reserve actually towards that 2 million ounce number as we progress the feasibility study. So the metrics are good. The valuations excellently, in our mind, and the story’s well de-risked as we continue to develop the DFS.

So in summary, Misima is an exceptional opportunity for Kingston as shareholders. It is a large scale project. It already has a long mine life. And we expect to lift the production above that 130,000 ounce run rate, ideally we can get it towards that 150, 160,000 ounces per annum for 20 years. So that’s a great position for any junior company. The DFS and the ESIA is well advanced. You should be expecting that by March next year. And as I said, that’s when the reserve will come as well. Its significantly de-risk. The history, the proven margins operated at 39% EBIT margin for 15 years. So basically you should be looking for those sort of numbers second time round. And it ticks all the boxes, geologically, and historically with the production, with the right management team with building experience.

As I said, so we think it’s a fantastic time to build a gold company, we’ve got the right asset and I do recommend that you have a look at the announcement yesterday (25 Oct 2021) for Livingston. So that’s going to help the story. But if there’s any questions, please just come back on the company email address, which is at the end of the presentation, or yeah, ring the office and we’ll get back to you when we can. Thank you.

Ends