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K92 Mining Inc. — Interim / Quarterly Report 2023
Nov 14, 2023
46672_rns_2023-11-14_7e8753d0-c1ab-4974-8864-b508e4a6f0bc.pdf
Interim / Quarterly Report
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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Presented in thousands of United States Dollars)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
K92 MINING INC.
1
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (Presented in thousands of United States Dollars) (Unaudited)
| As at | September 30, 2023 | December 31, 2022 |
|---|---|---|
| ASSETS Current Cash and cash equivalents Receivables (Note 4) Inventories (Note 5) Prepayments Derivative assets (Note 10) Deferred tax assets Deposits on equipment Property, plant and equipment(Note 7) |
$ 79,913 22,442 37,878 3,921 196 144,350 - 6,413 237,508 $ 388,271 |
$ 109,938 29,257 28,510 5,624 - 173,329 2,590 4,338 190,458 $ 370,715 |
| LIABILITIES AND EQUITY Current Accounts payable and accrued liabilities (Note 6) Income tax payable (Note 4) Current portion of lease liabilities (Note 9) Derivative liabilities (Note 10) Deferred tax liabilities Lease liabilities(Note 9) Reclamation and closure cost obligations(Note 8) Equity Share capital (Note 11) Contributed surplus (Note 11) Accumulated other comprehensive loss Retained earnings |
$ 37,403 4,081 5,531 - 47,015 3,276 625 8,822 59,738 144,345 30,408 (257) 154,037 328,533 $ 388,271 |
$ 36,966 4,121 5,324 1,747 48,158 - 4,773 8,478 61,409 142,066 26,644 (257) 140,853 309,306 $ 370,715 |
| Subsequent events(Note 18) Approved and authorized by the Audit Committee on November 10, 2023: “Saurabh Handa” Director “Mark Eaton” Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS) (Presented in thousands of United States Dollars, except share and per share amounts) (Unaudited)
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| REVENUE(Note 14) COST OF SALES(Note 15) Earnings from mine operations EXPENSES General and administrative (Note 16) Exploration and evaluation expenditures Foreign exchange Share-based payments Earnings from operations OTHER Interest and finance expense (Note 17) Interest income Gain (loss) on derivative instruments (Note 10) Earnings before taxes Income tax expense **Net(loss) earnings and comprehensive(loss) earnings ** |
$ 32,814 (22,513) 10,301 $ (1,254) (5,221) (1,799) (1,350) $ 677 (925) 800 163 $ 715 (1,334) $ (619) |
$ 36,438 (20,784) 15,654 $ (1,607) (4,497) (2,715) (804) $ 6,031 (796) 349 647 $ 6,231 (3,177) $ 3,054 |
$ 124,939 (75,449) 49,490 $ (5,436) (15,316) (644) (3,920) $ 24,174 (2,909) 2,291 (738) $ 22,818 (9,635) $ 13,183 |
$ 126,206 (66,488) 59,718 $ (5,056) (11,251) (2,945) (2,500) $ 37,966 (2,283) 518 306 $ 36,507 (14,235) $ 22,272 |
| (Loss) earnings per share(Note 11) Basic Diluted |
$ (0.00) $ (0.00) |
$ 0.01 $ 0.01 |
$ 0.06 $ 0.06 |
$ 0.10 $ 0.10 |
| Weighted average number of shares outstanding(Note 11) Basic 234,322,462 Diluted 234,322,462 |
231,929,339 237,091,685 |
234,060,780 238,716,758 |
227,675,629 232,855,480 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Presented in thousands of United States Dollars) (Unaudited)
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| CASH FROM OPERATING ACTIVITIES Net (loss) earnings for the period Items not affecting cash: Unrealized foreign exchange loss Interest and finance expenses Derivative instruments (Note 10) Deferred income tax Share-based payments (Note 11) Depreciation and depletion Net (payments) proceeds from derivatives (Note 10) Changes in non-cash working capital items: Inventories Receivables Income tax payable Prepayments Accounts payable and accrued liabilities Net cash provided by operating activities CASH FROM INVESTING ACTIVITIES Deposits for equipment Acquisition of property, plant and equipment Net cash used in investing activities CASH FROM FINANCING ACTIVITIES Proceeds on issuance of share capital (Note 11) Share issuance costs (Note 11) Proceeds on exercise of stock options Principal lease payments (Note 9) Net cash (used in) provided by financing activities Change in cash and cash equivalents during the period Effect of foreign exchange on cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period |
$ (619) 1,507 98 (163) 2,215 2,119 6,176 (483) (3,767) 5,176 (1,085) 1,178 (1,277) 11,075 (4,287) (19,499) (23,786) - - - (1,344) (1,344) (14,055) (1,589) 95,557 $ 79,913 |
$ 3,054 2,167 531 (647) 1,970 1,156 4,488 72 (3,794) 934 (1,420) 665 2,355 11,531 (3,034) (16,130) (19,164) 38,324 (2,336) 52 (1,203) 34,837 27,204 (2,203) 81,728 $ 106,729 |
$ 13,183 269 1,129 738 5,766 5,142 19,972 (2,681) (7,561) 6,135 (40) 1,703 (865) 42,890 (6,376) (62,981) (69,357) - - 902 (3,917) (3,015) (29,482) (543) 109,938 $ 79,913 |
$ 22,272 2,466 1,068 (306) 4,556 3,369 13,416 (886) (5,023) 3,042 (1,124) 388 8,768 52,006 (7,076) (46,743) (53,819) 38,324 (2,336) 7,331 (3,532) 39,787 37,974 (2,515) 71,270 $ 106,729 |
| Cash paid for interest Cash received for interest income Cashpaidfor taxes |
$ (821) $ 790 $ - |
$ (265) $ 349 $ (2,629) |
$ (3,134) $ 2,281 $ (3,583) |
$ (1,410) $ 518 $ (10,791) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY (Presented in thousands of United States Dollars, except share and per share amounts) (Unaudited)
| Share capital Number Amount |
Share capital Number Amount |
Contributed surplus |
Accumulated other comprehensive loss |
Retained Earnings |
**Total ** | ||
|---|---|---|---|---|---|---|---|
| **Number ** | |||||||
| Balance at December 31, 2021 Shares issued on exercise of stock options (Note 11) Bought deal financing Share issuance costs Share-based payments (Note 11) Net earnings for the period Balance at September 30, 2022 Shares issued on exercise of stock options (Note 11) Shares issued on vesting of RSUs (Note 11) Share-based payments (Note 11) Net earnings for the period Balance at December 31, 2022 Shares issued on exercise of stock options (Note 11) Shares issued on vesting of RSUs (Note 11) Shares issued on vesting of PSUs (Note 11) Share-based payments (Note 11) Net earnings for the period Balance atSeptember 30, 2023 |
224,242,737 2,638,200 5,405,500 - - - 232,286,437 1,072,000 21,459 - - 233,379,896 755,000 75,818 111,748 - - 234,322,462 |
$ 92,021 12,445 38,324 (2,336) - - $ 140,454 1,501 111 - - $ 142,066 1,366 430 483 - - $ 144,345 |
$ 28,042 (5,114) - - 3,369 - $ 26,297 (550) (111) 1,007 - $ 26,643 (464) (430) (483) 5,142 - $ 30,408 |
$ (257) - - - - - $ (257) - - - - $ (257) - - - - - $ (257) |
$ 105,330 - - - - 22,272 $ 127,602 - - - 13,252 $ 140,854 - - - - 13,183 $ 154,037 |
$ 225,136 7,331 38,324 (2,336) 3,369 22,272 $ 294,096 951 - 1,007 13,252 $ 309,306 902 - - 5,142 13,183 $ 328,533 |
The accompanying notes are an integral part of these audited consolidated financial statements.
5
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
1. NATURE OF BUSINESS
K92 Mining Inc. (the “ Company ”) was incorporated pursuant to the provisions of the Business Corporations Act (British Columbia) on March 22, 2010. The Company’s shares are listed on the Toronto Stock Exchange (“ TSX ”) under the symbol “KNT” and quoted on the OTCQX under the symbol “KNTNF”. The Company is currently engaged in the production of gold, copper and silver at the Kainantu Gold Mine as well as exploration and development of mineral deposits in the immediate vicinity of the mine, including Blue Lake, in Papua New Guinea.
The Company’s head office, principal, registered and records office is 488 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7.
2. BASIS OF PREPARATION
Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These condensed interim consolidated financial statements are compliant with IAS 34 and do not include all of the information required for full annual financial statements.
Basis of Presentation
These condensed interim consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments measured at fair value.
These condensed interim consolidated financial statements are presented in United States (“U.S.”) dollars. Financial information for the Company and each of its subsidiaries is measured using its functional currency, being the currency of the primary economic environment in which the entity operates.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policy judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty are substantially the same as those that management applied in the consolidated financial statements for the year ended December 31, 2022. These condensed interim consolidated financial statements should be read in conjunction with the Company’s most recent annual consolidated financial statements for the year ended December 31, 2022.
The Company’s accounting policies are the same as those applied in the Company’s annual consolidated financial statements for the year-ended December 31, 2022.
4. RECEIVABLES
| As at | September 30, 2023 | December 31, 2022 |
|---|---|---|
| Trade receivables GST receivable Other Total |
$ 3,042 18,875 525 $ 22,442 |
$ 15,462 13,474 321 $ 29,257 |
6
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
4. RECEIVABLES (cont’d…)
GST receivable
The Company has applied to offset $6.0 million GST tax credits against current and future income taxes payable with the Internal Revenue Commission in Papua New Guinea.
5. INVENTORIES
| As at September 30, 2023 |
December 31, 2022 |
|---|---|
| Mine supplies, consumables and fuel $ 27,067 Ore stockpile 3,425 Concentrate and doré 7,386 Total $ 37,878 |
$ 20,806 4,728 2,976 $ 28,510 |
During the nine months ended September 30, 2023, the cost of inventory recognized as an expense in cost of sales amounted to $75.4 million (2022 - $66.5 million).
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| As at | September 30, 2023 | December 31, 2022 |
|---|---|---|
| Trade payables Other accounts payable and trade-related accruals Employee accruals Landowners’ compensation accrual Total |
$ 12,843 6,049 7,652 10,859 $ 37,403 |
$ 11,542 6,901 8,593 9,930 $ 36,966 |
Landowners’ compensation
The Company has obligations to compensate landowners annually who are affected by the operations of the Kainantu mine. The actual recipients of the compensation and landowners’ share of sales royalty cannot be paid as required until the legitimate landowners have been identified by the Papua New Guinean Land Titles Commission (“ LTC ”) and so compensation payments to landowners not yet confirmed by the LTC have been accrued but not paid.
7
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
7. PROPERTY, PLANT AND EQUIPMENT
| Mineral Properties |
Plant and Equipment |
Mobile Fleet and Vehicles |
Right-of-Use Assets |
Construction in Progress (Expansion)1 |
Total | |
|---|---|---|---|---|---|---|
| Cost Balance, December 31, 2021 Additions Disposals / write-downs Reclamation – change in estimate Transfers Balance, December 31, 2022 Additions Reclamation – changes in estimate Transfers Balance, September 30, 2023 |
$ 74,880 19,110 - 2,791 - 96,781 16,246 245 - $ 113,272 |
$ 40,221 6,398 - - 11,337 57,956 2,358 - 5,901 $ 66,215 |
$ 30,599 - (1,164) - 10,464 39,899 8,260 - 13,028 $ 61,187 |
$ 15,866 956 - - - 16,822 233 - - $ 17,055 |
$ 16,470 42,371 - - (21,801) 37,040 41,487 - (18,929) $ 59,598 |
$ 178,036 68,835 (1,164) 2,791 - 248,498 68,584 245 - $ 317,327 |
| Accumulated depreciation Balance, December 31, 2021 Depreciation and depletion Disposals / write-downs Balance, December 31, 2022 Depreciation and depletion Balance, September 30, 2023 |
$ 13,343 3,136 - 16,479 4,212 $ 20,691 |
$ 5,991 4,467 - 10,458 5,044 $ 15,502 |
$ 17,177 7,856 (1,091) 23,942 8,517 $ 32,459 |
$ 1,727 5,434 - 7,161 4,006 $ 11,167 |
$ - - - - - $ - |
$ 38,238 20,893 (1,091) |
58,040 21,779 $ 79,819 |
||||||
| Carrying amounts As at December 31, 2022 As at September 30,2023 |
$ 80,302 $ 92,581 |
$ 47,498 $ 50,713 |
$ 15,957 $ 28,728 |
$ 9,661 $ 5,888 |
$ 37,040 $ 59,598 |
$ 190,458 $ 237,508 |
1 Construction in Progress at September 30, 2023 consists of $46.4 million (2022 - $32.1 million) in Twin Incline costs, $3.7 million (2022 - $Nil) in Puma Ventilation Drive costs and $9.5 million (2022 - $4.9 million) in other expansion costs.
8
K92 MINING INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
7. PROPERTY, PLANT AND EQUIPMENT (cont’d…)
Mining Lease 150 (“ML 150”)
The Company holds the mining rights to ML 150 and on December 6, 2022, the Government of Papua New Guinea granted an extension of ML 150 for a period of 10 years to June 13, 2034.
8. RECLAMATION AND CLOSURE COST OBLIGATIONS
When the Company exhausts or abandons a mining property or an exploration site, it is required to undertake certain reclamation and closure procedures as a result of constructive obligations and to comply with legislative requirements established by the Government of Papua New Guinea.
| As at | September | 30, 2023 | December | 31, 2022 |
|---|---|---|---|---|
| Balance, beginning of period | $ | 8,478 | $ | 5,571 |
| Foreign exchange movement | (350) | - | ||
| Change in estimate | 245 | 2,791 | ||
| Accretion | 449 | 116 | ||
| Balance, end of period | $ | 8,822 | $ | 8,478 |
The provision has been measured as the present value of the estimated future rehabilitation costs using an estimated mine life of 10 years. The estimated cash flows used to measure the provision were discounted to a present value using a discount rate of 13.1% (2022 – 13.4%) and an inflation rate of 6.3% (2022 – 6.3%). The underlying costs in the provision are calculated using the Papua New Guinea Kina as the reclamation costs will be incurred in Papua New Guinea. As such, the discount and inflation rate used in the calculation reflect the economic factors for Papua New Guinea.
On an annual basis, the Company reviews the estimate of future costs of required reclamation and closure work. The current total estimate for all properties anticipates undiscounted future cash outflows to meet constructive obligations for reclamation and closure work in the amount of $19.1 million (2022 - $19.1 million), with first expenditures anticipated in 2032. These future cash outflows have been discounted at the interest rate considered applicable in Papua New Guinea where the Company’s properties are located.
9. LEASE LIABILITIES
The Company leases assets including mining equipment and buildings. The assets associated with the lease liabilities are included as Right-of-Use assets within property, plant and equipment (Note 7). During the nine months ended September 30, 2023, the Company incurred $0.7 million (2022 - $1.0 million) related to interest and finance expenses on the lease liabilities.
9
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
9. LEASE LIABILITIES (cont’d…)
The following table summarizes the Company’s lease activity and the carrying amounts of the lease liabilities at the present value of the remaining lease payments that are recognized in the statement of financial position:
| Lease Liabilities as at | September | 30, 2023 | December | 31, 2022 |
|---|---|---|---|---|
| Lease liabilities, beginning of year | $ | 10,097 | $ | 14,097 |
| Additions | 233 | 956 | ||
| Payments | (4,596) | (6,193) | ||
| Interest expense | 679 | 1,328 | ||
| Adjustment on currency translation | (257) | (91) | ||
| Balance, end of period | $ | 6,156 | $ | 10,097 |
| Lease liabilities, current portion | $ | 5,531 | $ | 5,324 |
| Lease liabilities, non-current portion | $ | 625 | $ | 4,773 |
The Company’s lease liabilities at September 30, 2023 are summarized as follows:
| Within 1 Year | 2-6 Years | Total | ||||
|---|---|---|---|---|---|---|
| Future undiscounted lease payments | $ | 5,921 |
$ | 742 | $ | 6,663 |
| Future finance charges | (390) | (117) | (507) | |||
| Total discounted lease liabilities | $ | 5,531 |
$ | 625 | $ | 6,156 |
10. DERIVATIVE INSTRUMENTS
The Company entered into zero-cost collar contracts during the period whereby it purchases gold put option contracts and sells gold call option contracts with equal and offsetting values at the inception of each contract. These gold call and put contracts will be settled based on the monthly average of the London Bullion Market Association’s PM fixing price.
The details of the open commodity contracts as at September 30, 2023, were as follows:
| Quantity | Strike Price | Settlement Term | Settlement Date | |
|---|---|---|---|---|
| Contracts Outstanding | (ounces) | ($/ounce) | ||
| Gold call contracts – sold | 5,941 | $2,021 | October 2023 | December 29, 2023 |
| Gold put contracts – purchased | 5,941 | $2,021 | October 2023 | December 29, 2023 |
| Gold call contracts – sold | 4,862 | $2,017 | November 2023 | January 31, 2024 |
| Gold put contracts – purchased | 4,862 | $2,017 | November 2023 | January 31, 2024 |
| Gold call contracts – sold | 6,664 | $2,028 | December 2023 | February 28, 2024 |
| Gold put contracts–purchased | 6,664 | $2,028 | December 2023 | February 28, 2024 |
10
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
10. DERIVATIVE INSTRUMENTS (cont’d…)
The realized and unrealized losses on the commodity contracts were as follows:
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Realized (losses) gains Unrealized gains Net realized and unrealized gains (losses) |
$ (483) 646 $ 163 |
$ 72 575 $ 647 |
$ (2,681) 1,943 $ (738) |
$ (886) 1,192 $ 306 |
The fair value of the commodity contracts is presented on the statement of financial position as follows:
| September 30, | December | 31, | |||
|---|---|---|---|---|---|
| As at | 2023 | 2022 | |||
| Derivative assets | $ | 196 |
$ | - | |
| Derivative liabilities | $ | - |
$ | (1,747) |
Fair value for derivative financial instruments is determined using valuation techniques, using assumptions based on market conditions existing at the statement of financial position date.
11. SHARE CAPITAL AND RESERVES
Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares without par value.
Issued share capital
As at September 30, 2023, the Company had 234,322,462 common shares issued and outstanding.
Share issuances
Except on the exercise of share options and the conversion of RSUs and PSUs, no other shares were issued during the nine months ended September 30, 2023.
Equity compensation
Until October 28, 2021, the Company had a “rolling” stock option plan (the “ Stock Option Plan ”) whereby the Company was authorized to grant stock options (“ Options ”) equal to up to 10% of the number of issued and outstanding common shares.
Effective October 28, 2021, the Company replaced the Stock Option Plan with a share compensation plan (the “ Share Compensation Plan ”) that provides for the issuance of Options, RSUs, and PSUs. The Share Compensation Plan was amended effective June 29, 2023 (the “ Amended Plan ”).
11
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
11. SHARE CAPITAL AND RESERVES (cont’d…)
Equity compensation (cont’d…)
The Amended Plan allows the Company to grant Options, RSUs and PSUs to its executive officers, directors, employees, and consultants. The total number of options and shares issuable under the Plan cannot exceed 6.75% of the issued and outstanding common shares, on a non-diluted basis, while the maximum number of common shares issuable through options cannot exceed 4% of the issued and outstanding common shares. For RSUs and PSUs, the total number of common shares that may be issuable cannot exceed 2.75% of the outstanding common shares at the time of grant.
Stock options
Stock option transactions are summarized as follows:
| Number Outstanding Weighted Average ExercisePrice (CAD) |
Number Outstanding Weighted Average ExercisePrice (CAD) |
|
|---|---|---|
| Outstanding, December 31, 2021 Exercised Forfeited Outstanding, December 31, 2022 Exercised Forfeited Outstanding, September 30, 2023 |
12,620,650 (3,710,200) (104,600) 8,805,850 (755,000) (147,000) 7,903,850 |
$ 4.44 2.87 $ 9.22 $ 5.06 1.61 7.84 $ 5.34 |
| Numbercurrently exercisable | 7,903,850 | $ 5.34 |
The following incentive stock options were outstanding at September 30, 2023:
| Range of exercise prices (in$CAD) |
Number of outstanding options |
Number of options exercisable Weighted-average exercise price (in $CAD) Weighted- average years to expiry |
|---|---|---|
| 0.45 – 0.99 1.00 – 1.99 2.00 – 2.99 3.00 – 3.99 4.00 – 4.99 5.00 – 8.99 |
30,000 1,836,750 235,000 1,091,000 10,200 4,700,900 7,903,850 |
30,000 0.74 0.14 1,836,750 1.77 0.77 235,000 2.17 1.14 1,091,000 3.85 1.34 10,200 4.00 1.73 4,700,900 7.26 2.21 7,903,850 5.34 1.72 |
The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for riskfree interest rates, dividend yields, expected volatility, forfeiture rate, and expected life of the options. Under the plan, the exercise price of each option equals the market price of the Company’s stock as calculated on the date of grant.
12
K92 MINING INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
11. SHARE CAPITAL AND RESERVES (cont’d…)
Stock options (cont’d…)
During the nine months ended September 30, 2023, the Company granted Nil stock options (2022 – Nil).
The weighted average share price on the date of options exercised for the nine months ended September 30, 2023, was CAD$6.97 (2022 – CAD$9.08).
During the nine months ended September 30, 2023, the Company recorded share-based payment expense of $0.1 million (2022 – $0.8 million) related to the vesting of options.
Restricted share units
RSUs vest in three instalments; one-third vesting one year from the grant date, one-third vesting two years from the grant date and the remainder vesting three years from the grant date. At the discretion of the Company, RSUs can be settled in either cash or common shares, or a combination of both. RSUs are recorded at fair value based on the Company’s share price on the date of grant, adjusted for an estimated forfeiture rate, and then charged to share-based compensation over the period during which the RSUs vest.
During the nine months ended September 30, 2023, the Company granted 943,010 RSUs. The estimated fair value of $4.4 million is being recognized over the vesting period.
| Number Outstanding |
Fair Value | |
|---|---|---|
| Outstanding, December 31, 2021 Granted Vested and converted to common shares Forfeited Outstanding, December 31, 2022 Granted Vested and converted to common shares Forfeited Outstanding, September 30, 2023 |
150,213 666,358 (21,459) (13,707) 781,405 943,010 (75,818) (21,391) 1,627,206 |
$ 819 3,774 (117) (70) $ 4,406 4,419 (430) (105) $ 8,290 |
During the nine months ended September 30, 2023, the Company recorded a share-based payment expense of $2.8 million (2022 – $1.4 million) related to the vesting of RSUs.
Performance share units
PSUs vest in three installments; one-third vesting one year from the grant date, one-third vesting two years from the grant date and the remainder vesting three years from the grant date, subject to certain performance criteria having been met. The vesting of the PSUs is based on the Company’s share performance in comparison to its peer group with the final number of vested PSUs ranging from 25% to 150% of the initial PSUs granted. At the discretion of the Company, PSUs can be settled in either cash or common shares, or a combination of both.
13
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
11. SHARE CAPITAL AND RESERVES (cont’d…)
Performance share units (cont’d…)
PSUs are recorded at fair value based on a Monte Carlo pricing model at the date of grant, adjusted for an estimated forfeiture rate, and then charged to share-based compensation over the period during which the PSUs vest. For the fair value calculation of granted PSUs during the period ended September 30, 2023, the Monte Carlo pricing model used historical share price volatility of 51% to 52% (2022 – 54% to 61%), historical share price volatility of its peer group ranging from 34% to 48% (2022 – 38% to 47%) and a Canadian risk-free rate of 3.5% to 4.7% (2022 – 2.0% to 3.5%).
During the nine months ended September 30, 2023, the Company granted 1,189,509 PSUs. The estimated fair value of $4.7 million is being recognized over the vesting period.
| Number Outstanding |
Fair Value | |
|---|---|---|
| Outstanding, December 31, 2021 Granted Forfeited Outstanding, December 31, 2022 Granted Vested and converted to common shares Forfeited Outstanding, September 30, 2023 |
- 780,006 (20,563) 759,443 1,189,509 (105,670) (32,091) 1,811,191 |
$ - 3,560 (84) $ 3,476 4,730 (483) (146) $ 7,578 |
During the nine months ended September 30, 2023, the Company recorded a share-based payment expense of $2.2 million (2022 – $1.2 million) related to the vesting of PSUs.
14
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
11. SHARE CAPITAL AND RESERVES (cont’d…)
Earnings per share
The following summarizes the calculation of basic and diluted earnings per share:
| For the Three months ended September 30, 2023 Three months ended September 30, 2022 |
Nine months ended September 30, 2023 Nine months ended September 30, 2022 |
|---|---|
| (Loss) earnings for the period $ (619) $ 3,054 |
$ 13,183 $ 22,272 |
| Basic weighted average number of shares outstanding Effect of dilutive securities: Stock options Restricted share units Performance share units 234,322,462 - - - 231,929,339 3,887,663 494,677 780,006 |
234,060,780 2,009,761 1,243,704 1,402,513 227,675,629 4,165,145 461,365 553,341 |
| Diluted weighted average number of shares outstanding 234,322,462 237,091,685 |
238,716,758 232,855,480 |
| (Loss) earnings per share Basic $ (0.00) $ 0.01 Diluted $ (0.00) $ 0.01 |
$ 0.06 $ 0.10 $ 0.06 $ 0.10 |
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial assets and liabilities are classified in the fair value hierarchy according to the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair value measurement requires judgement and may affect placement within the fair value hierarchy levels. The hierarchy is as follows:
-
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2: inputs other than quotes prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
-
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
15
K92 MINING INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont’d…)
The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized at fair value were categorized as follows:
| As at | September 30, 2023 | September 30, 2023 | December 31, 2022 | December 31, 2022 |
|---|---|---|---|---|
| Level 1 | Level 2 | Level 1 | Level 2 | |
| Trade receivables (Note 4) Derivative assets (Note 10) Derivative liabilities (Note 10) |
$ - - - $ - |
$ 3,042 196 - $ 3,238 |
$ - - - $ - |
$ 15,462 - (1,747) $13,715 |
The fair value of the Company’s trade receivables, derivative assets and derivative liabilities were determined using observable market prices and market-derived inputs. There were no transfers between Level 1 and Level 2 during the period ended September 30, 2023.
As at September 30, 2023 and December 31, 2022, the carrying amounts of cash and cash equivalents, prepaids, other receivables, and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
Concentration of Credit Risk
The Company's cash and cash equivalents are held with financial institutions in Canada, Papua New Guinea, and Australia. As of September 30, 2023, a single high-credit quality financial institution in Canada holds approximately 43% of the total cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents exceed government-insured limits. The Company continually assesses and manages its exposure to credit risk of financial institutions.
Loan Agreement
On September 26, 2023, the Company entered into a Loan Agreement with Trafigura Pte Ltd (the " Lender " or the “ Offtaker ” regarding concentrate sales). Under this agreement, the Lender will provide a $100 million senior secured loan (the “ Loan ”) to the Company, with a four-year term from the date of the first advance of funds. The Loan includes an upfront fee, a commitment fee, and an interest rate with a one-year interest-only repayment grace period. It is secured by certain collateral, which comprises a charge over the Company’s assets and a pledge of shares in the Company’s subsidiaries (the “ Security ”).
The initial drawdown of $25.0 million under the Loan is contingent upon certain conditions precedent, including but not limited to, obtaining regulatory approvals. Subsequent drawdowns are dependent on the registration of certain items forming part of the Security. In case of an event of default under the Loan, the Lender reserves the right to accelerate repayment of the Loan, and convert all or any portion of the initial drawdown into common shares of the Company (the " Conversion Right ”). This Conversion Right will expire upon satisfaction of having the Security registered.
As of September 30, 2023, the conditions precedent had not been satisfied; therefore, no drawdowns of the Loan were made.
16
K92 MINING INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
13. SEGMENTED INFORMATION
Operating segments are components of an entity that engage in business activities from which they incur expenses and whose operating results are regularly reviewed by a chief operating decision maker to make resource allocation decisions and to assess performance. The Chief Executive Officer is responsible for allocating resources and reviewing operating results of each operating segment on a periodic basis.
The Company’s only operating segment is the operating and development of gold mining activities at the Kainantu Project in Papua New Guinea. Corporate & Other includes the Company’s head office function in Canada.
| Kainantu | Corporate | |||||
|---|---|---|---|---|---|---|
| Nine months ended September 30, 2023 | Project | & Other | Total | |||
| Net earnings (loss) | $ | 20,753 | $ | (7,570) |
$ | 13,183 |
| Capital expenditures | $ | 68,351 | $ | 233 |
$ | 68,584 |
| Three months ended September 30, 2023 | ||||||
| Net earnings (loss) | $ | 1,639 | $ | (2,258) |
$ | (619) |
| Capital expenditures | $ | 22,136 | $ | (100) |
$ | 22,036 |
| As at September 30, 2023 | ||||||
| Property, plant and equipment | $ | 235,832 | $ | 1,676 |
$ | 237,508 |
| Total assets | $ | 313,957 | $ | 74,314 |
$ | 388,271 |
| Total liabilities | $ | 54,513 | $ | 5,225 |
$ | 59,738 |
| Kainantu | Corporate | |||||
| Nine months ended September 30, 2022 | Project | & Other | Total | |||
| Net earnings (loss) | $ | 31,446 | $ | (9,174) |
$ | 22,272 |
| Capital expenditures | $ | 47,555 | $ | 557 |
$ | 48,112 |
| Three months ended September 30, 2022 | ||||||
| Net earnings (loss) | $ | 6,614 | $ | (3,560) |
$ | 3,054 |
| Capital expenditures | $ | 17,231 | $ | 557 |
$ | 17,788 |
| As at December 31, 2022 | ||||||
| Property, plant and equipment | $ | 188,872 | $ | 1,586 |
$ | 190,458 |
| Total assets | $ | 267,104 | $ | 103,611 |
$ | 370,715 |
| Total liabilities | $ | 57,683 | $ | 3,726 |
$ | 61,409 |
17
K92 MINING INC. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
14. REVENUE
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Gold in concentrate Copper in concentrate Silver in concentrate Gold and silver in doré Treatment and refining charges Revenue from contracts with customers Loss on receivables at fair value Total |
$ 28,197 4,229 451 5,748 (1,466) 37,159 (4,345) $ 32,814 |
$ 40,019 4,805 265 2,046 (1,750) 45,385 (8,947) $ 36,438 |
$ 106,323 15,297 1,304 12,528 (4,964) 130,488 (5,549) $ 124,939 |
$ 124,432 14,673 875 6,693 (4,963) 141,710 (15,504) $ 126,206 |
Offtake Arrangement
On September 26, 2023, the Company's Papua New Guinea subsidiary, K92 Mining Limited, and the Offtaker revised the offtake agreement initially dated July 1, 2019, " Amended Offtake Agreement ". According to the terms of the Amended Offtake Agreement, starting January 1, 2026, and continuing for seven consecutive calendar years or until a minimum of 600,000 dry metric tons of concentrate have been delivered, the Offtaker will purchase gold and copper concentrates produced at the Kainantu Gold Mine in Papua New Guinea at London Metals Exchange spot prices.
The Amended Offtake Agreement's implementation is contingent upon certain conditions precedent. These include, but are not limited to, the approval of its terms by the Bank of Papua New Guinea in accordance with the Central Banking (Foreign Exchange and Gold) Regulation, and the fulfillment of the conditions precedent outlined in the Loan Agreement.
As of September 30, 2023, the conditions precedent had not been satisfied.
18
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
15. COST OF SALES
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Direct mining and milling Maintenance Other site costs Net smelter royalties Change in inventories Non-cash costs Depreciation and depletion Share-based payments Total |
$ 6,354 3,457 7,167 1,019 (3,704) 14,293 7,422 798 $ 22,513 |
$ 4,308 4,208 8,308 1,108 (2,737) 15,195 5,237 352 $ 20,784 |
$ 17,455 10,891 24,331 3,235 (3,107) 52,805 21,314 1,330 $ 75,449 |
$ 14,644 11,920 24,204 3,501 (2,783) |
51,486 14,130 872 $ 66,488 |
16. GENERAL AND ADMINISTRATIVE
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Management, consulting and wages Professional fees Office, filing and administrative Travel Investor relations Depreciation Total |
$ 578 81 180 201 185 29 $ 1,254 |
$ 1,104 91 116 99 167 30 $ 1,607 |
$ 3,390 263 590 641 467 85 $ 5,436 |
$ 3,585 184 474 252 479 82 $ 5,056 |
19
K92 MINING INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2023
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted) (Unaudited)
17. INTEREST AND FINANCE EXPENSE
| For the | Three months ended September 30, 2023 |
Three months ended September 30, 2022 Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|---|---|---|---|
| Interest on lease liabilities Other interest Accretion expense Total |
$ 195 582 148 $ 925 |
$ 314 $ 679 453 1,781 29 449 $ 796 $ 2,909 |
$ 1,019 1,177 87 $ 2,283 |
18. SUBSEQUENT EVENTS
Subsequent to September 30, 2023, the Company paid a $3.2 million income tax instalment to the Papua New Guinea government.
20