K92 mine production expanded

The Covid-19 pandemic has affected business operations across the world. Different sectors in PNG were hit hard by its effect. However, K92 mine’s production has expanded amid the crises. Business reporter
CLARISSA MOI discusses with CEO JOHN LEWIS over the mine’s plans and outlook.

DESPITE the challenges posed by the Covid-19 pandemic this year, the K92 Mining Inc, operator of the gold mine in Kainantu, Eastern Highlands had completed an expansion of the mine production capacity from 200,000 tonnes to 400,000 tonnes per annum. It plans to invest US$250 million (K855.55mil) in capital over the next three years to produce more than 300,000 ounces per annum. Business reporter CLARISSA MOI discussed with the chief executive officer John Lewins the state of the mine, its plans and outlook.

Question: What would you say about the country’s mining sector and its progress during the year?
LEWINS: The mining industry in general operated normally during the year despite the state of emergency and the ongoing Covid-19 pandemic.

Q: How was K92 mine’s own progress this year?
This has been a transformative year for K92. We have been completing an expansion of the mine production capacity to double throughput from 200,000 tonnes per annum to 400,000 tonnes per annum. As a result production this year will increase from 82,000 ounces (ozs) gold in 2019, to 100,000 ozs gold in 2020 and 140,000 ozs gold in 2021.

Q: What were some of the challenges faced and how did the company address them?
To address the challenges, the mine initiated a number of initiatives including:

• A requirement for all employees and contractors to quarantine on arrival at site;
• Covid-19 testing of all employees and contractors prior to being released from quarantine; and,
• Longer rosters for employees and contractors to deal with the need to quarantine.

Q: What would be some milestones achieved by the mine this year worth mentioning?
In the June quarter, the mine produced a record 27,000 ozs gold, the highest ever achieved. The plant expansion was commissioned during the September quarter. As a result, the throughput for the quarter was a record 65,000 tonnes. The company achieved a major milestone in July with the payment of the first installment of corporate tax, representing K17.6 million. This was made possible by the company achieving profitable operations at Kainantu in just over two years after achieving commercial production and despite major capital expenditure over this period to significantly expand operations mentioned above. This achievement is well ahead of schedule and reflects the commitment of the company to ensuring the sharing of economic benefits from the success of the operation, which also includes payment of a two per cent (K10 million) royalty and 0.5 per cent (K2million) levy to the Mineral Resources Authority (MRA). K92 completed the initial study on the next phase of expansion at Kainantu. The next phase will increase throughput to one million tonnes per annum and increase production to 300,000 ozs per annum. The company plans to spend US$250 million (K855.55m) over the next three years and has already started development of the new twin incline to allow the mine to ramp up production over the next three years. On the exploration front the first drilling was completed on the Karempe project which reported high-grade intersections reported on the KA1 Vein, including hole KRDD0005 recording 2.45 m at 39.82 g/t Au, 6 g/t Ag and 0.19 per cent Cu.

Q: What was K92 mine’s production this year compared to previous years?
As noted above, production this year will increase from 82,000 ozs gold in 2019, to 100,000 ozs gold in 2020 and 140,000 ozs gold in 2021.

Q: It is understood that the K92 mining project MoA had been reviewed this year and parties to the K92 mining project have agreed in principle to maintain the existing arrangements on the main breakdown of royalties from the mine. What has been the feedback from the parties post-MoA review?
In mid-July, a memorandum of agreement (MoA) review meeting was held in Kokopo, East New Britain, with all parties to the existing MoA present including Kainantu MP and Mining Minister Johnson Tuke, and Eastern Highlands Governor Peter Numu. An agreement in principle was reached, including plans for a five per cent interest in Mining Lease 150 to be acquired by local landowners and the Eastern Highlands government, additional funding commitments, community infrastructure, and multiple business development initiatives. We are looking to finalise the updated MoA in the current quarter to be signed by all parties.

Q: How many employees does K92 currently have?
We currently have around 730 employees (including 130 casual) and 200 contractors at the site.

Q: I understand that K92 supports the community as part of the company’s social responsibility. What are some of the contributions made and what would be the total value of the support this year?
Some of our initiatives include:

• Road upgrades and building of bridges to improve local access and infrastructure;
• Local school fee reimbursement and tertiary scholarships. K92 strongly believes that education is important to local communities. K92 launched its school fee reimbursement programme for local schools, with the first school receiving funding in July and continued its scholarship support for 49 tertiary students from local communities;
• Establishment of a K1.5 million Covid-19 fund to provide for local communities, Morobe and Eastern Highlands governments and the Government to combat the Covid-19 pandemic;
• Installation of water supply infrastructure for local villages;
• Upgrading of clinics in local communities;
• Upgrading of schools in local communities; and,
• Provision of various business opportunities for local communities including major joint ventures covering security, camp operations and catering, ancillary mobile plant.

Q: The country’s foreign currency reserves this year have been supported by positive gold and copper prices. But FX is still a major challenge for most business houses. What is your view on this?
The resource industry is the major source of FX, accounting for over 80 per cent of exports. FX remains a major challenge for local industry and one of the biggest positive impacts will be when the major resource projects such as Wafi Golpu and the next phase of LNG (liquefied natural gas) projects are approved and commence construction which inject billions of USD into the local economy.
At Kainantu we have already commenced our next phase of expansion with the start of a new twin incline and over the next three years, we expect to spend US$250 million (K855.55m) in capital to expand production to 300,000 ozs gold per annum.

Q: Gold price have been positive this year. How does it look like and what are some benefits of positive gold prices?
The general view is that gold prices will remain strong in 2021, although probably not at the near record prices of US$1,900/oz (K6,557.73) that we have currently. A strong gold price increases the profits of the mines which in turn increases taxes paid to the Government, increases royalties paid, allows marginal or high cost mines able to continue operating profitably, increases exploration and increases the potential for new mines to be opened, or existing mines to be expanded or their life extended. More mines means more jobs, more business opportunities, more taxes, more royalty payments, more training and is a major driver for the PNG economy. More money goes into the economy from wages, taxes, procurement, increased business activity such as trucking, power supply, food, consumables, travel, construction, etc.

Q: The Government is now focusing on SMEs and agriculture. What is K92’s view on that?
The Government quite rightly sees the need for a balanced economy which is not over-dependent on any one area or industry. This means that the Government must encourage many areas where PNG has natural advantages, such as agriculture fisheries, hydro power, tourism and forestry to name a few. Equally the Government must develop capacity within the country to actively drive the economy and this starts with education and SMEs. Building this capacity is also good for the resource industry as it increases the pool of skilled labour, increases the numbers of local suppliers and contractors able to support the industry, improves and expands infrastructure such as roads and power supply and will actually help reduce costs for the industry. Everyone benefits from this approach which in turn reduces the amount of imports that the resource and other industries need to operate keeping more of the profits in PNG further improving the economy.

Q. What is K92 Mine’s outlook for 2021?
We are excited about the coming year as it will be a major transformative year for our company and we believe will provide many positive outcomes for all of our stakeholders, including our communities.
We are forecasting a new record production for the year; committing to a major expansion which will see K92 mining spend US$250 million (K855.55m) in capital over the next three years and move to a production of over 300,000 ozs per annum. The number of people employed in the operation will continue to increase to over 1,000 in early 2021 and over 1,500 by the end of 2022.