Karora Resources Inc. (KRRGF) CEO Paul Huet on Q2 2022 Results - Earnings Call Transcript

Aug. 12, 2022 2:40 PM ETKarora Resources Inc. (KRRGF), KRR:CA9 Comments
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Karora Resources Inc. (OTCQX:KRRGF) Q2 2022 Results Conference Call August 12, 2022 10:00 AM ET

Company Participants

Paul Huet - Chairman, CEO

Oliver Turner - EVP, Corporate Development

Mike Doolin - SVP, Technical Services

Conference Call Participants

Ovais Habib - Scotiabank

Nicolas Dion - Cormark Securities

John Sclodnick - Desjardins

Michael Fairbairn - Canaccord Genuity


Good day, and welcome to the Karora Resources Second Quarter 2022 Conference call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Paul Huet, Chairman and CEO of Karora Resources. Please go ahead.

Paul Huet

Thank you, operator. Hello. I would like to welcome everyone to the Karora Resources second quarter conference call. As a reminder, we will be talking to a slide deck. For anyone interested the slides can be found on our home page of our website and you can also follow along on the webcast. Slide 3 and 4 are cautionary notes. Before I begin the presentation, I would like to remind you to please review our cautionary statements regarding forward-looking information, non-IFRS measures and our 2022 to '24 growth plan. All of which can be found in our management discussion and analysis, news releases and our presentation.

Over to Slide 5. On the call with me today is Oliver Turner, our Executive Vice President of Corporate Development; and Mike Doolin, our Senior Vice President of Technical Services. Graeme Sloan would like to be here today, but was unable to attend the call.

During the second quarter, we produced a very strong operating performance with record gold production of 30,652 ounces, that’s our best results since the acquisition of Higginsville mill. We also achieved a record 290,000 tons mined in Q2 from our flagship Beta Hunt Mine. This is equivalent to an annualized rate of approximately 1.3 million tons per annum, which is 20% higher than our original estimate of 1 million tons from that single decline. This is a significant positive step for our growth plan where we are looking to double capacity to 2 million tons per annum once the new decline is complete, and stopes are fully ramped up.

I'd like to take a moment to congratulate our operators on this achievement. It's not that far back in my memory. In fact, when I visited Beta Hunt the first time in 2018, the mine was generating 30,000 tons per month. Back then, so many people doubted we could ever get Beta Hunt from 30,000 to 80,000 tons per month, let alone 100,000 tons per month. Today, I'm thrilled that we celebrate this special milestone. So thanks to everyone.

Before I get into the details from the quarter, let me highlight some recent announcements that I'm very excited about. Last month, we close the transformative acquisition of the 1 million ton per annum Lakewood mill acquisition for AUD 80 million. Combined with our existing milling capacity at Higginsville, our total processing capacity is now 2.6 million tons per annum. There are many reasons why this acquisition is so important for -- to our shareholders. In particular how it's significantly derisked our growth plan by eliminating the procurement, the schedule and the construction risks associated with major expansion of the Higginsville mill. It's a huge step on the path forward to achieving our targets annual production rates of that 185,000 to 205,000 ounces.

Also, we closed an oversubscribed bought deal, on June 14 generating proceeds of CAD 69 million to secure that second mill. We all know this was done in an extremely difficult market conditions and is a great example of how strong our use of proceeds were considering it was oversubscribed. We also announced the closing of our new $80 million credit agreement with Macquarie Bank consisting of a $40 million term loan and a $40 million revolver credit facility.

With this, we managed to significantly reduce our interest rate down to 4.5% and provided ourselves with additional flexibility with the added revolver in place. Look like many people I've been told many times, the best time to secure funds is because you don't necessarily need them. So putting this credit facility in place reduced interest rates and provides us with additional optionality at a very opportune time for us.

We renewed our normal course issuer bid, which gives us the ability to repurchase shares when we determined to be an effective use of Karora's financial resources.

We recently announced two exciting exploration updates from Beta Hunt. The first was drilled in the Larkin zone that we had discovered a couple of years ago, intercepting the highest grade ever, of 29.8 grams per ton across 7.8 meters. Boy, look at that, I think holy cow in my back in Nevada 1 ounce per ton material, pretty exciting stuff. The second hole extended the Western Flanks main cheer by over 150 meters below the current mineral resource. It included an intersection at 13.6 grams per ton and other really big intercept across 5.3 meters at depth. And listen, for those of you might not have heard this, I think I got to repeat it. It's 150 meters below the current resource, but almost 500-feet lower than our resources. That's pretty significant for us.

We announced this morning the results of our maiden nickel PEA for the Beta Hunt Mine. Oliver will get into further details later in the presentation. But in short, I'm extremely pleased with the outcome. Especially considering we're only scratching the surface of the nickel potential of Beta Hunt. This is just the beginning. I'm often reminded that Beta Hunt was a nickel mine for several decades and we expect it to continue for many years to come.

Our base case scenario uses a conservative nickel price of USD 19,500 per ton and it produces a pretax NPV at a 5% discount rate of $57 million with an IRR of 105%. These are great results using a nickel price that many of us believe are far behind us. The upside case, the second case, using current consensus forecast prices at USD 25,000 per ton nickel price that produces a pretax NPV at a 5% discount again, of $111 million or an IRR of 232%. To say that we're excited about this as an understatement. This truly is just the beginning of the nickel here.

In my humble opinion, we've got a tiger by the tail here. We are extremely excited and look forward to begin mining nickel tons at Beta Hunt in a much more aggressive plan, just like in the old days. Finally on the highlights today we announced increased confidence to our original 2022 guidance with respect to produce ounces. We tightened the production range by increasing the lower end. After producing just about 60,000 ounces, it was actually 58,000 ounces in the first half of the year. We have increased confidence that the second half of 2022 will be better, more robust performance.

Therefore, our new production guidance for 2022 is a range of 120,000 to 135,000 ounces. Look, once again, I've got to just pause here and thank the operators and our team in Australia, in North America for these accomplishments. Especially given all the disruptions we've encountered this year; we've truly overcome so many obstacles as a team. As I mentioned earlier, we have not been immune to cost pressures associated with COVID-19 in the first half of the year, and the impacts of cost inflation. We have increased our full year all-in sustaining cost guidance to a range of $1,100 to $1,200 per ounce sold. The average for the first half of 2022 was approximately that higher end of $1,200 per ounce. So we believe the worst is behind us. And we really look forward to better quarters in front of us.

Additionally, we modestly increased our 2022 growth capital guidance by $5 million. This is primarily driven by the acceleration of the development of the new decline of Beta Hunt, which is absolutely a good thing. So we're spending dollars to it, because we're advancing the ramp at a faster pace. At this stage, we are still on-track for completion of the second decline in the first quarter of 2023, which is ahead of schedule. Our 2023 and 2024 guidance both remain unchanged at this point. Overall, these are certainly some huge milestones accomplished for that period. We've been extremely busy. Now I just want to turn over to some financial and operating results and our MD&A and financial statements for the period ended June 30, 2022 have been filed, all of which are available on Karora's website and under Karora's profile on SEDAR.

For those following in the slide deck, I'm now on Slide 6 just so you can follow along the financial highlights. As I outlined at the beginning of the call, Q2 was a strong operating quarter for us. In fact, I don't mind repeating, it was a record for us since acquiring the Higginsville Mill. In Q2, we successfully managed to reduce all-in sustaining costs by 15% from Q1. This was a huge accomplishment given the COVID-19 issues we had in April that carried over from Q1. So they didn't just stop at the end of March. We had huge issues in April as well. We managed to reduce AISC by more than $200 per ounce sold quarter-over-quarter. We ended Q2 with an AISC of $1,190 per ounce sold. Let's face it.

COVID-19 is still with us. Something we continue to monitor very closely like everyone else, we will not let our guards down. But look, I'm certainly optimistic that the worst is behind us. I'll now share some of the key financial metrics from the second quarter. Revenue for Q2 remained strong at approximately $73 million, up $4 million or 6% compared to second quarter of 2021. Second quarter adjusted earnings were $4.7 million or $0.03 per share and adjusted EBITDA was $22.6 million or $0.14 per share, both showing an improvement over the prior quarter.

Our cash balance at the end of the second quarter remained healthy with $114 million, up from $78 million at the end of Q1 and $91 million at the end of 2021. With our renewed credit facility now in place, and the closing of the bought deal financing during the quarter, we are in a strong financial position to see us through the execution of our growth plan, and of course, further nickel additions.

I'll now discuss our operating results and I'm over on Slide 7. On a consolidated basis, mine production for the second quarter was 396,000 tons. During the quarter, 462,000 tons were processed, another record for us, at an average grade of 2.2 grams per ton, which includes 52,000 tons of a lower grade stockpile material that was averaging about 1.3 grams per ton from Beta Hunt. This was processed through the Lakewood Mill as part of our due diligence process, so that you need to be mindful that it was still part of our due diligence why we put that through.

Excluding this lower grade stockpile material, the combined average grade process at Higginsville was only slightly lower than normal at 2.3 grams per ton. Mill recoveries that Higginsville remained consistent at 94%. Primarily the result of our strategy to optimize the feed blend from Beta Hunt, Higginsville and Spargos into the plant.

At Higginsville we mined a total of 106,000 tons at an average grade of 3.3 grams per ton for the quarter. [indiscernible] mine were consistent with the prior quarter however, grade was 38% higher, mainly due to the ramp up of the higher grade mine production from our Spargos.

Over to Slide 8 Beta Hunt. Beta Hunt provided 59% of the mill feed for the second quarter and accounted for 63% of our gold production. As previously mentioned, a record total of 290,000 tons were mined at Beta Hunt and 295,000 times milled at an average grade at 2.14 grams per ton, including lower grade stockpile material or approximately 19,000 ounces of gold from our Beta Hunt flagship.

Over to Slide 9, the Lakewood Mill. Before I turn the call over to Oliver Turner to highlight the results of our positive nickel PEA and recent strong exploration results from Beta Hunt. I want to summarize one key factor that defined our quarter. The acquisition of the Lakewood Mill. I remember how transformational buying Higginsville was for us and our shareholders. Buying Lakewood is one of those strategic events that occur that forever change companies and then we're in for some good stuff going forward. As previously mentioned, the Lakewood mill significantly derisks our organic growth plan while we had completed the advanced engineering work to expand Higginsville, the current inflationary and tough supply chain environment put our shareholders and the company in a very risky situation. Capital costs increase and we, like many other groups were faced with construction delays due to the labor shortages in WA.

These are factors we were not prepared to accept. Therefore, we mitigated one of our largest risks to our organic growth plan by securing the fully permitted plant. The addition of the second mill provides us with tremendous optionality, flexibility, and the advantage of owning two mills in the Calgary region. But I have for one have often said, if you own the mill, you control the keys to the kingdom. Having worked in Nevada and Canada, the ones who own the mills, they truly have the advantages. And we believe owning Lakewood will provide us with other opportunities in the future that are not even in our plans yet.

Finally, as an added benefit, Lakewood is even closer to Beta Hunt and Higginsville plant, which provides a cost saving on diesel consumption. And it really helps us on our carbon footprint. So anything we can do to help remain carbon neutral, we're very pleased to do.

Moving forward we are excited to integrate Lakewood into our operations. Having only just received the keys a couple of weeks ago, if any of our newest team members are listening into our call, let me welcome you to Karora, we are absolutely thrilled you’re here. One thing is certain, our options are now greater than they were for mining and milling more tons across our properties and within this district.

I will now turn the call over to Oliver Turner, to summarize what I truly believe is a huge differentiator for Karora and our shareholders. Our new nickel plan at Beta hunt. Over to you, Oliver.

Oliver Turner

Thank you, Paul, and good morning, everyone. So onto Slide 11, where we have the nickel PEA highlights. So this morning, concurrently, we issued a news release outlining the results of our very positive nickel PEA. The PEA demonstrates the exciting nickel potential of Beta Hunt, especially considering it is based on just our first nickel mineral resource released in January of this year, with considerable potential remaining for ongoing resource growth.

As Paul pointed out and as you can see on the slide, that headline economics are very strong, the resulting IRR is over 100% and if we use consensus nickel pricing over 230% point to a very exciting project indeed. Total capital requirements are very low at just under AUD 19 million over 4 years of the mine plan and just over AUD 7 million to be deployed in the first year. These low capital outlays are a result of a very unique feature of Beta Hunt, the ability to use infrastructure for both gold and nickel mining. This is an advantage we expect to leverage moving forward as you build on the results of this PEA. Base case net C1 cash costs are expected to be roughly AUD 14,500 per ton and AISC are expected to be just under AUD $17,000 per ton, it is equates to approximately $10,000 and $11,700 on a U.S. dollar basis respective using current exchange rates.

When you think about spot nickel prices, those are certainly some healthy margins. If we convert this to a per ounce basis, the base case has the potential routes or all in sustaining costs an average of AUD 80 to AUD 100 per ounce. Of course, at higher nickel prices, this number only gets stronger and in fact are leveraged in nickel prices with this project is tremendous. As is shown on the sensitivity table in the press release, where 20% increase to metal prices increases the value of the project by over 60%. So if you're bullish on nickel prices, this is certainly a project which has tremendous exposure.

The PEA supports an 8-year mine plan to produce approximately 9,400 payable nickel tons based on the current resource. As we continue to drill off the Gamma zone, there's tremendous potential for this mine life to be extended. In order to develop the drilling of the nickel zone, we will be extending our BRI development and exploration drift further to the south to produce new drilling platforms. Another benefit of this drive as with all drives that Beta Hunt will be for gold exploration and of course, eventually nickel and gold production.

Switching on to the next slide, while the PEA demonstrates the case for rapid development in nickel potential at Beta Hunt, the most exciting part to our geologist and of course to us as a management team is the upside growth potential. The two main blocks that hosts the current M&A and inferred nickel mineral resources, both have outstanding potential for resource additions. There's also the potential for additional nickel deposits to be discovered at Beta Hunt along trend from known nickel shoots and in parallel structures.

A perfect example of this is the 50C trend, which was first discovered in 2021 and was into mineral resources just 10 months later. That zone currently hosts at a 25% of M&I and inferred resources and has been defined over 800 meters of strike extent, of course, with the potential to extend up to 2.6 kilometers to our property boundary. A particular interest supporting this thesis and a drill hole I want to draw attention to for all investors is a historical surface drill hole located 400 meters beyond the current resource shelf, which returned 9.5 meters of 11% nickel. This is certainly a strong endorsement of the potential strike extent of this zone and we look forward to testing that gap, as we extend that exploration drive.

One of the additional benefits of the new nickel production plan is our transportation improvement. The new nickel tonnage will be headed to BHP's restarting processing facility in Kambalda, which is just a few kilometers down the road from Beta Hunt. Previously, our nickel has been transported to Leinster, which is approximately 375 kilometers away. This shorter call distance provides two key improvements, of course, significant cost reductions associated with reduced diesel consumption and very importantly emissions reductions, as we continue to move forward on our carbon reduction plans, producing a cleaner nickel product something which we are very focused at Karora, as I'm sure all investors are aware, is something that BHP is very focused on as well.

Overall, we're very pleased with the results of the PEA and look forward to building on the tremendous potential to increase nickel mining at Beta Hunt once again. One thing is for sure with the current macro environment surrounding electric vehicles and battery production now is a wonderful time to be bringing on new, high-quality nickel production and of course nickel exposure for our investors.

Switching on to the next slide on gold exploration. Turning over to gold exploration at Beta Hunt. We're very pleased with the ongoing results of our well-funded program. At Beta Hunt 17,000 meters of exploration and resource development drilling was completed during the second quarter, well above the 6,000 meters we drilled in the first quarter and an example what we can do with fewer COVID-19 labor disruption. Gold exploration and resource definition drilling at Beta Hunt during the quarter was focused on testing the down dip extensions of Western Flanks, A Zone, Mason and Cowcill, which are identified shear zones parallel to the Larkin Zone. We also drilled exploration holes in the Gamma block and the newly discovered Sorrenson shear zone.

Switching over to Slide on Western Flanks of particular interest, as Paul mentioned previously, is a major step at hole on Western Flanks, where we drilled 5.3 meters of 13 grams 150 meters below the mineral resource envelope. At Karora, we often talk about extending the strike length of these shares of Beta Hunt but extending the shear zones at depth is also underway. In fact, our ore body remains open at depth and we are confident in resource extension both the long strike and as we drive deeper into the mine.

So overall, we do continue to deliver excellent results that support potential mine life extensions for many years to come. To ensure that we continue to add ounces to inventory as we have in the past, our exploration and resource definition drilling program remains very well-funded with an average of $20 million to $25 million budgeted per year going forward.

With that, I'll wrap up my section and hand it over to Paul.

Paul Huet

Thanks, Oliver. At this point, I'd like to turn it back to the operator so we can have questions come through please.

Question-And-Answer Session


[Operator Instructions]. And we'll go first to Ovais Habib with Scotiabank.

Ovais Habib

Congrats on the quarter on the positive nickel PEA. Paul, I do have a couple of questions here. So just my first one was with the additional exploration drilling expected in second half, can you give us a timeframe when we should expect the next nickel resource update?

Paul Huet

Yes, sure. I'm going to turn that one over to Oliver here. Oliver, why don't you go ahead and respond to Ovais on that question.

Oliver Turner

So we've got -- we've had a lot of nickel exploration drilling completed in the first half. Obviously, some excellent results down in Ghana, we've also been testing some of the remnant nickel mining areas that we have as well. That's all going to be feeding into an updated nickel resource, which we'll be delivering in tandem with our updated gold reserve and resource later this year. We're aiming for the fourth quarter. So we'll wrap that all together into one update.

Ovais Habib

And just staying within on the nickel side. In terms of the nickel byproducts that were reported in Q2, the byproducts looked like they were a little bit low. Was that just because of the lower nickel prices realized or was there a delay in the nickel sold? Can you give us a little bit color on what you guys produced in Q2 and nickel byproduct credits?

Paul Huet

Yes, Ovais. It was a combination of a couple of things here. Early on, we mentioned that we were impacted in April by COVID-19. Unfortunately, we had quite a few of our airlaid miners who do all our nickel production that went down for about 6 weeks. That for about half the quarter we struggled with people labor, and you can't just pick someone else up as you know, and say, okay, take a truck driver and put him on a [indiscernible]. Well, you can take a jackway guy and put him on a truck if you need and you can make up things like that and put him on a jumbo.

So we really struggled in the second half. And this is, again -- this is behind us here now, with getting people on the drill and getting our nickel. In fact, it was since I've been there Ovais, it was the lowest nickel production we have encountered in any other quarters. So we expect that to normalize and continue to improve going forward.

Oliver Turner

Sorry, just one additional bit of color there as well. As you'll notice, we maintained our nickel guidance for the year. So we really do expect a strong second half performance on the nickel front.

Ovais Habib

If you look at the nickel PEA as well, I mean, it's outlining some of the new nickel mining areas, right. So you do expect obviously, you're expecting more production and obviously cost improve from these areas as well?

Paul Huet

Yes, look, we absolutely are. We're moving -- one of the advantages and Oliver said it on the call here we've got some tremendous synergies with the nickel in the gold, right. As we're putting in infrastructure for the gold, we're putting in the second decline, as everyone knows, which is ahead of schedule, but we're also adding a huge ventilation system here. And that's predominantly for the gold. But what that does do for us that $14 million ventilation system that we're putting in, provides us air and access to areas to the VRI and south of the Gamma district and south of that Gamma fault. So that's going to open up a lot areas like that 50C zone that we've discovered. We discovered 50C, we haven't been able to mine anything in it. And it's only because we don't have an affair. Our nickel mining has predominantly been all remnant areas, we haven't been going into new areas, we're going to start going into new areas in Q2 here.

So there's certainly going to be a renewed energy and focus on nickel and I’m excited and encouraged by it. And look, with the new concentrator starting up what is it 4.5 kilometers away, we couldn't have asked for a better outcome, considering we were hauling almost 400 kilometers away to Leinster.

Ovais Habib

And just switching gears a little bit on this last question from me. When are you looking to provide guidance on how the new Lakewood mill impacts in near and long-term operations?

Paul Huet

Ovais, we've had the mill here for a couple of weeks here. We're working hard, just getting integrated into Karora. One of the things during the due diligence that occurred was that as part of the HOA, it was ahead of agreement. It's a binding agreement. As part of that agreement, we were handcuffed from speaking to anyone outside. So that was a toll milling facility completely. We were not allowed to speak to any client for any period. So we're now starting to speak to clients trying to understand some of their needs while being mindful that we also have our own stockpiles, and we're evaluating, do we run our stuff first? Do we run others? So there's some work to be done there. Again, we've had the keys for a couple of weeks now.

So I would expect in the second half, you're going to see from our team, some more information as to what that Lakewood mill going to do for us. It's certainly advancing things, if we think to the organic growth plan, we weren't supposed to be running, or having milling capacity like this until second half or Q4 of 2023. So this is accelerated things a lot. We've got quite a bit of work to do here. So give us a quarter here we'll put out some information or sooner on the impact and how that's going to be scheduled into our new mine plant.


Over next to it Nicolas Dion with Cormark Securities.

Nicolas Dion

I have a few questions. First one, I'm sorry if I missed the answer, but can you provide some color on the decision to put lower grade stockpile or through the decision to put the lower grade stockpile or from Beta Hunt through the mill in Q2?

Paul Huet

It's Paul here. Look, that was a stockpile that we had mind that we brought served as. It was predominantly all part of our due diligence. There were some technical issues that we had identified earlier in the due diligence that we wanted to get resolved on the gravity circuit and some of the leach times. We wanted to make sure that even at the lower grades, we could get the improved recoveries and make sure that what we were modeling would really occur. We tested some higher-grade material; we wanted to test some lower grade materials and see some of the cyanide consumptions. It was really a technical issue to ensure that that plan could deliver similar recoveries throughout and we achieved that. And it was already sitting on surface. So for us, it just meant moving it across, which is even closer than Haynesville and putting it through the plan to increase our confidence during that due diligence period on that plant.

Nicolas Dion

And then I guess also on Beta Hunt, I just wanted to ask, given how strong the mining rates were in Q2, what should we think of as sort of pre-expansion normalized level? Like should we be modeling say in Q3, Q4 similar tonnage numbers at Beta Hunt?

Paul Huet

Yes. Look, there is no doubt we achieved some amazing milestones like 100,000 tons out of a single decline. Like, I've been mining 34 years, 35 years. What we managed to accomplish out of that single ramp, i.e. to be honest, it even surprised me. I was always confident we could do 80,000 tons, which is a million tons a year. We are pushing 1.2 million tons per annum in a single decline. That surprised even me. Whether or not we are going to continue that? Look, I would say this. I'd say there are months that we're going to hit that 100,000 tons. I'd say, are we going to sustain it every month going forward? I'd say, I wouldn't model that. We certainly are not putting 100,000 tons per month for every month in -- for the third and fourth quarter, Nick. But it certainly sends a signal that, look, that 2 million tons that we are trying to get out of that we are going to get out of Beta Hunt is certainly achievable. It certainly shows and demonstrates that if we can get 1.2 million tons out of one ramp, getting 2 million with 2 declines and having the right equipment obviously and the ventilation is absolutely achievable and attainable at Beta Hunt.

So in answer to your question, I would say that, it's not going to be every month, but there are certainly, certainly months where we are going to repeat that 100,000. But using that 80,000 to 90,000, I don't think you're going to go wrong in any model going forward for the rest of the year. At 90,000, I think you are in good shape.

Nicolas Dion

Okay, great. That's helpful. And then I guess moving on to the nickel PA, when might we expect to see the impact of the higher byproduct credits in your AISC? Is it like a 2023 thing, 2024 thing? And then also related to that, is there any timing on updating your multiyear guidance to factor that in?

Paul Huet

Yes, why don't I pass that one over to Oliver here. Go ahead Oliver.

Oliver Turner

Yes. Thanks, Paul. So right now, we are moving on to the next stage of engineering Nick on the nickel side of things. Full steam ahead and full momentum in there, obviously just put out the study, but internally, we're advancing the work. So as it stands right now, you would see that kick in 2024. We're seeing if we can work on improving that and bringing that forward. But that's when the impact of that. Don't forget, of course that we still have nickel production next year from the remnant mining area, similar to what we're doing this year, maybe even a slight improvement.

So we will still be mining nickel next year, but the sort of full impact of what you are seeing in the PEA will start kicking in 2024 as it stands right now. With respect to the impact on multiyear guidance, kind of what we are expecting to do with all of this is, our normal budgeting process happens in sort of September every year. We're putting together those new resources that informs our internal budgeting process, which then leads to our guidance. So we're going to put together an all-encompassing to answer your question and know basis earlier, an all-encompassing piece of guidance, once we've completed that work in the normal sort of timeframe. So you'll kind of get it all at once rather than in piecemeal.

Nicolas Dion

Okay. Thanks. Sorry. Was that sort of late this year, early next year kind of timing?

Paul Huet

It'd be late this year, early next year. Exactly, we've just we've got it. We're aiming to put out the reserves later this year. And then you we might fall into this sort of normal cycle when people update their guidance, so maybe early next year, but we're still working on that. We just got to get the work done first.

Nicolas Dion

Okay. And then just one more for me on the Lakewood mill, can you just comments on any type of refurbishment work or upgrades that needs to be done there. Now that you have the keys, and then I guess any color on the CapEx and might be associated with that?

Paul Huet

Yes. Thanks, Nick. I'm going to turn that one over to our metallurgist, and VP, Mike Doolin. Mike, why don't you go ahead and talk to Nick about the required CapEx we got this year, and maybe look into a bit of '23 here.

Mike Doolin

All right. Thanks, Nick. Yes, so this year, we're planning somewhere in the range of 3 million to 5 million to spend over there. Part of what we're going to do is we're going to do an engineering study to make sure that, we're planning appropriately next year, but for this year, our goal is to we have a lift to put on the tailings TAM, we have a couple of CIL tanks that are sitting on the property that we're going to install. There's some structural work that we need to do. And then we're going to upgrade a little bit on the illusion plant. So we've got a plan for this year. The engineering study will then put us out for what we have to do in next year. So we're pretty well set. The due diligence went great. The team at Lakewood was phenomenal. We've kept probably 95% of the workforce. So we're very much looking forward to the next six months there.


We'll go next to John Sclodnick with Desjardins.

John Sclodnick

Yes, most of them have been asked and answered already, but one left, and I thought it was an impressive step down in AISC from Q1. Just wonder if you can comment on some of the areas where you're starting to see some inflation pressure relief for costs? And I know kind of second half. I guess it's helped with some grade, started reading the second half. But yes, if you're seeing some cost relief in other areas, and whether Lakewood mill is going to be helping out?

Paul Huet

Yes, John, so I'll just comment on one and then Mike, I'm going to turn it over to you here. But look, where we saw some big cost inflation's John, we're actually in diesel. I don't have the exact number in front of me, but I think it was somewhere to the tune of $98 to $100 in AISC that we saw quarter over quarter additional from diesel costs. That kind of blew my mind. I was very surprised. And some of that is the fact that we were hauling our nickel, all the way to Leinster, which Oliver pointed out is what is it 375 kilometers away, it was a long haul now we're going to be hauling 5 kilometers away over to the new concentrator in Canada. So I'm certainly expecting I know actually know for sure with a high level of certainty that the diesel consumption is going to drop significantly based on where we're transporting the nickel alone.

Mike, maybe you can comment on a couple other of the consumables, you know them inside out all of them. So over to you, Mike.

Mike Doolin

So, in the next six months, we what we plan for is the same price on the consumables that we're seeing here in the first half. The biggest difference that we're looking at is that we've made a number of improvements in the mining, in the processing, as Paul said, and when we're looking at the nickel transportation to offset those increases in the consumables. Right now, here in the U.S., we're seeing a slight drop in fuel price. The expectations are that we see that drop in Australia maybe later in the year. But right now we expect to see essentially the same price just we've done a lot of modifications to drop the cost. The group over there has done a phenomenal job focusing on all of the cost savings measures that we put in place to drive the cost down.

John Sclodnick

Looking forward to the strong second half.

Paul Huet

So are we were actually I think it was Nick who asked the question, are you going to achieve that 100,000, I wanted to put my whole team on notice and say actually, I'm hoping we're going to do 120,000 tons for every month for the rest of the year. And my team are probably very nervous. Right about this is obviously a joke early morning. So hopefully people can laugh a bit.


We'll go next to Matt O'Keefe with Cantor Fitzgerald.

Unidentified Analyst

This is Kate [indiscernible] on for Matt O'Keefe. I was wondering if you could provide an update on how COVID is currently impacting your operations today and whether these impacts seem to be decreasing?

Paul Huet

Look in the quarter where we saw the worst was in April, there's absolutely no doubt that COVID still impacts us. I would say it's probably to the tune of about $15 an ounce even somewhere about $500,000 a quarter or more. That's come down dramatically. We're still seeing a lot of added cleaning, a lot of extra testing, a lot of lost hours because it testing loss and productivity rates. So it certainly has gotten better. Our worst two months were March and April. So the end of Q1 and the beginning of Q2, I don't think we're ever going to see a point Kathy where it'll be completely behind us.

I think the bigger risk is behind us. And I think we are more prepared and we're keeping our guard up. We're not letting our guard down and making sure that we are very proactive when it comes to our COVID situation. So, we've got a COVID team in place. We're making sure that; we're taking all the right precautions. Remember, we were one of the first groups even early on in '21 to have full time nurses and do a lot of our own chartered flights. We did a lot of things right out of the gate to make sure we manage this well. So, I would say it's never completely behind us. It's always going to be something we have to keep our eye on. And we could never fumble the ball there again.

I hope you guys heard that. I hope I wasn't on mute.


We'll go next to Michael Fairbairn with Canaccord Genuity.

Michael Fairbairn

Paul, Oliver, congrats on a strong quarter to you and your entire team there. Most of my questions have already been asked and answered. So just one from me around growth CapEx guidance. Just wondering with some of the costs for the Beta Hunt decline being brought forward into 2022 and you're not going forward with the Higginsville Mill expansion. Just wondering if you think there is an opportunity to reduce growth CapEx guidance in 2023?

Paul Huet

Yes. So Oliver, we have had this discussion numerous times. Why don't you go ahead and respond to that one from Michael?

Oliver Turner

Yes, for sure. Hi, Mike. Good to hear from you. So yes, there is a couple of things that are moving around. So we have talked about accelerating some of the capital into the 2022 for the second decline, because that's tracking ahead of schedule, which is fantastic. Of course, you have got a bit of mill capital that we are putting into 2022. In 2023, remember, we're going to be building this albeit lower cost capital, wonderful new nickel project, right? So we do have some of that capital entering to 2023. So again, as we go through our budgeting process, we will see net, net what the impact of that is. And if we'll be able to shave off some of the growth capital. But of course, there is equipment and then as I outlined in the PAs and capital items that are associated with that. So we will be refining that later this year, but there certainly are some opportunities there.

Paul Huet

No, Michael. I was just going to say anytime we accelerate spending capital for the decline, it just means that we are running on track or ahead of schedule. And in our case, it's certainly not that we're overspending, we're actually tracking slightly under budget. So I'm extremely absolutely thrilled that we are spending that additional $5 million this year.

So as I pass it over to the operator, I think we are hearing a lot of people have most of their questions respond, we are okay to take one more question, operator, and then we'll say thank you.


[Operator Instructions]. And we'll go next to [indiscernible] with Canadian Imperial Bank of Commerce.

Unidentified Analyst

Most of mine have been answered too and thanks for the color provided on the cost pressures. My question was really just around the NCIB and how do you think about that as part of your capital allocation priorities?

Paul Huet

Look, that's a very good question. We just got permission to put it back in place. We're always going to use that NCIB, whenever we see pressures on the stock. And looking at our long-term plan, we obviously want to support our stock wherever we can we believe it's very undervalued at this point. We have to take the long-term view as well. The last thing you ever want to do is buyback your stock and then find yourself in a situation that you need to raise equity. And we're certainly not there. I don't want people to go out. It's all you it's interesting, that's not true. We just need to be mindful of how we use it. So the fact that we've got it now in place and available for use, look, we can't use it while we're in blackout. There's a lot of situations where we're not allowed to use it, but we'll certainly use it when the stock is depressed our lower prices.

There's not a whole lot I can add, besides that [indiscernible] them, we have to take a long-term view approach on anytime we use that NCIB.

Paul Huet

Thanks. So, Operator, with that, I think we're going to just say thank you to everyone who joined us on this call. We know and understand and appreciate how valuable each one of your time is. And we thank every one of you for listening into our call. We thank you for the questions. And to be quite honest, I go to admit, as CEO, I'm extremely proud of what this team has accomplished in the second quarter or Q2. It was a lot of effort, a lot of sacrifices. I'm just thrilled that we managed to make a record quarter on ounces produced and a record tons we managed to do so many records while reducing AISC by 200 bucks an ounce. So with that new PEA on nickel coming out, I'm looking forward to some brighter future for our shareholders and I look forward to the second half of 2022.

So thank you, everyone. Have a wonderful day. That will end our call for today.


This does conclude today's conference. We thank you for your participation.

During the second quarter, we produced a very strong operating performance with record gold production of 30,652 ounces. That's our best result, since the acquisition of the Higginsville Mill. We also achieved a record 290,000 tons mined in Q2 from our flagship Beta Hunt mine. This is equivalent to an annualized rate of approximately 1.2 million tons per annum, which is 20% higher

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