Q1/22 operating and financial results saw adj. earnings of $1.1M (-$7M YoY) or $0.01/sh (-$0.05/sh YoY), missing both consensus and RCS EPS estimates of $0.08 and $0.14, respectively. EPS was impacted by lower production and higher COVID related operating costs. While revenue remained strong, management highlighted that the cost pressures are temporary, should stabilize in Q2/22, while trending lower in H2/22. The scale of cost increases was a surprise to us, but it should be viewed as temporary. Management had warned of temporary cost pressures and adjusted 2022 guidance lower earlier which remains unchanged, helping to set expectations. Investors should focus on the many other highlights that outline KRR’s growth expectations. Expansions remain on track to double production by 2024 and we expect the market to focus on this long-term. That said, KRR has outperformed peers in 2022 and could see a correction on this news. We believe covid related costs to be mostly gone, and plan to refine our DCF model once the Beta Hunt PEA is available.
Tag: Karora Resources Inc.
Karora released updated Beta Hunt and Higginsville mine resources in Australia. Consolidated M&I gold resource increased by 8% to 2.7M oz net of depletion, which included the initial Larkin zone estimate at Beta Hunt. This statement represents the fourth estimate in a row since 2016 that shows growth net of mine depletion, highlighting the very strong organic growth potential and staying power of the grades of Karora’s assets. We view this news positively and believe that ongoing aggressive exploration should support plans to near double production to 185k-205k oz per year within two years. In addition to gold, a significant nickel resource upgrade is anticipated in Q2/22, which should help improve by-product credits, and lower operating costs as production rates rise. We are increasing our price target to C$7.50/sh (was C$6.60/sh) to reflect these improvements.
Yesterday, Red Cloud hosted the second of its three-day 2022 Very Pre-PDAC Mining Showcase, which featured 32 presenting companies and a fireside chat with Ross Beaty, Chairman of Equinox Gold Corp. Over 1,750 participants have registered for the event. With this note, we want to provide a quick recap of the highlights from the conference for those who were unable to attend the live event (see our Day One recap here). If you would like to attend Day Three of Red Cloud’s 2022 Very Pre-PDAC Conference, register here. Replays are available on the Red Cloud website.
We are seeing precious metals rise in the shadow of the Ukraine invasion. Gold is trading around US$1923.80/oz, down a couple percent on short term profit taking since reaching a high of US$1,975/oz overnight. Kitco News notes that the next resistance levels could be between US$2,022/oz and US$2,089/oz. Some such as Frank Holmes of US Global Investors is suggesting that 20% volatility in gold is a non-event, and that gold could go to US$2,800/oz. Other commodities are also moving.
Karora provided updated 2022 production and cost guidance for Beta Hunt and Higginsville in Australia. It trimmed gold production guidance to 110k to 135k oz Au with all-in sustaining costs (AISC) of US$950/oz to US1,050/oz. While we modeled production in line with current guidance, our cost estimates were lower and had to be adjusted to account for the inflationary pressures and supply chain disruptions currently being experienced by mining companies across the industry. As a result of higher labour, material and consumable costs in 2022, we are decreasing our target price for Karora to C$6.60/sh (was C$7.25/sh).