K92 Mining Inc. (OTCQX:KNTNF) Q3 2022 Earnings Conference Call November 14, 2022 8:30 AM ET
Company Participants
David Medilek – Vice President, Business Development & Investor Relations
John Lewins – Chief Executive Officer & Director
Justin Blanchet – Chief Financial Officer
Conference Call Participants
Alex Terentiew – Stifel
Michael Gray – Agentis Capital
Andrew Mikitchook – BMO Capital Markets
Don DeMarco – National Bank Financial
Arun Lamba – TD Securities
Operator
Thank you for standing by. This is the conference operator. Welcome to the K92 Mining Third Quarter Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to David Medilek, Vice President, Business Development and Investor Relations. Please, go ahead.
David Medilek
Thank you, operator, and thanks everyone for attending K92 Mining’s third quarter 2022 conference call. We hope you and your families are doing well. In addition to myself, we have on the line, John Lewins, Chief Executive Officer and Director; and Justin Blanchet Chief Financial Officer. I would also like to remind everyone that after the remarks from management, the call will be followed by a Q&A session.
As we will be making forward-looking statements during the call, please refer to the cautionary notes and risk disclosure in our MD&A and slide two of the webcast presentation. Also, please bear in mind that all dollar amounts mentioned in the conference call are in United States dollars, unless otherwise noted.
Now, I’ll turn it over to John to provide you with an overview.
John Lewins
Well, thank you, Dave, and welcome, everyone. In the third quarter, we took another step forward, delivering multiple operational milestones, including record ore processed, record ore mined, near record development advanced, strong all-in sustaining and cash costs, while also ending the quarter with the company’s strongest financial position to-date.
Q3 marked the first quarter where we achieved the Stage 2A expansion run rate of 1,370 tonnes per day for an entire month, having achieved 1,373 tonnes per day during the month of August. Quarter-over-quarter, mill throughput increased 8% to 1,282 tonnes per day.
Strong mill throughput performance is particularly significant, as it was achieved without the installation of the new flotation cells, which will roughly double our rougher flotation capacity, highlighting that there is further upside in terms of throughput and also obviously in terms of improving our recovery. Installation of these cells is planned for early 2023.
Lastly, third quarter delivered two major growth milestones: the Integrated Development Plan evaluating the Stage 3 DFS and the Stage 4 PEA. And in addition to that, we also reported our maiden inferred resource at Blue Lake of 10.8 million ounces gold equivalent.
Subsequent to quarter end, we also delivered high-grade drilling results at Kora, Kora South, Judd, Judd South as well as maiden results for our Northern Deeps target, representing a significant expansion to our strike length, while also intersecting dilating zones in both Kora and Judd.
The Integrated Development Plan demonstrates that at K92 we have a Tier 1 asset. The resource at Blue Lake highlights the significant potential within our copper-gold porphyry belt and high-grade vein field results show that we may have only just scratched the surface of our vein exploration today.
Now, if we look on the safety front, again, for the quarter, we recorded no lost time injuries and we are proud to operate with one of the best safety records in the Australasian region. And we continue to have a strong focus on our occupational health and safety and continually improving our safety systems.
On the ESG front, I’m pleased to report that during the quarter we published our 2021 sustainability report. The report features multiple highlights, including being the second largest payer of corporate tax in Papua New Guinea’s mining industry; a carbon intensity, which is well below global average, which we plan to continue to improve on; our focus on local employment and training; and significantly contributions to a wide range of social programs, including, but not limited to, education, infrastructure, business development, female employment and COVID-19 programs.
K92 is very proud of the positive impacts that we have on our local community and on Papua New Guinea in general. And I encourage you to read the report, which is found on our website k92mining.com in the Responsible Mining section.
Now, in August, K92 participated in the Chamber of Mines and Petroleum full day industry briefing which was given to the parliament. Now, that included our VP of Government & Community Affairs, Philip Samar who’s also the Vice President of the Chamber, delivering the main presentation on the mining industry and then myself, delivering a presentation on K92 operations.
Philip Samar’s presentation provided an overview of the economic contribution for the mining industry of Papua New Guinea. The presentation which I delivered was focused solely on K92, focusing on our growth plans, positive contributions to-date, various community programs and projections for the positive impact of the operation with our Stage 3 and Stage 4 mine expansion plans.
All presentations, I think, were well received. And we had very good local media coverage, which included coverage of K92’s presentation in the local TV station EMTV, with a not particularly great still of me from that. During the quarter, K92 was also recognized as a TSX30 company, which is the Toronto Stock Exchange’s, flagship program for top-performing stocks over a three-year period, on a dividend-adjusted share price appreciation. And K92 is proud to be part of that TSX30 ranking number 11, having delivered, a three-year return of 333%.
Moving on to operational performance. During the quarter, we produced 32,995 ounces gold equivalent with 117,938 tonnes processed at a head grade of 9.8 gram per tonne. Compared with third quarter 2021, ore processed, ore mined increased 35% to 37% respectively. A major positive continues to be the strong performance of the process plant. In the third quarter, average mill throughput was 1,282 tonnes per day and that’s 17% over the Stage 2 run rate.
In August, as I mentioned the plant achieved a record throughput of 1,373 tonnes per day, which is slightly above the Stage 2A expansion run rate of 1,370. And in July after the installation of our new TC-1000 crusher, we had multiple daily records including 1,638 tonnes milled on July 6 and 1,642 on July 14.
Performance, I think is especially impressive, when you consider that a key part of the banks’ upgrade being the installation of the flotation cells, which will double our rougher capacity will only occur late this quarter, in fourth quarter or early in 2023. The float cell upgrades is not only important to improve our recoveries, but also boosts our flexibility and potentially allows us to increase our throughput rates even further.
In terms of our key operational physicals, K92 delivered record quarterly ore processed and record ore mined. Mining exceeded milling rates, resulting in mill stockpile reaching its highest level at quarter end since late 2020. And that provides obviously, a boost for our operational flexibility.
Development advance also recorded its second highest quarter as to date. Increasing our development rates, continues to remain a focus and I am pleased to report that subsequent to the quarter end in October, we delivered our highest monthly development advance rate to date of 728 meters.
In 2022, it’s important to remind investors that our guidance is based on the second half of the year being stronger than the first and we certainly saw that in Q3. And K92, we believe is well positioned to achieve its guidance of 115,000 to 140,000 ounces gold equivalent for the year.
I’ll now turn over to our Chief Financial Officer, Justin Blanchet to discuss our financial results for the third quarter.
Justin Blanchet
Thank you, John and hello, everyone. During the third quarter 2022, K92 had revenue of $36.4 million, a 3% increase from prior year. We sold 25,297 gold ounces at an average selling price of $1,663 compared to 21,675 ounces at an average selling price of $1,707 in the prior year. As of September 30 2022, K92 had 6,795 gold ounces in inventory both concentrate and Doré, an increase of 3,783 gold ounces when compared to June 30 due to timing of sales. Cost of sales was $20.8 million compared to $20.1 million in the prior year or $15.2 million compared to $15.3 million when you exclude non-cash items.
Cost of sales is marginally higher due to increased costs associated with the operation of the Stage 2 expansion and inflationary cost pressures. The successful ramp-up of the Stage 2 expansion, has allowed the company to achieve better economies of scale and lower unit costs with mining activity increasing from 88,857 tonnes in Q3 2021 to 122,035 tonnes in Q3 2022.
During the third quarter 2022, cash flow from operating activities before changes in working capital was $12.8 million compared to $12.6 million in the prior year. During the quarter, we spent $10 million on expansion capital and made a $4.8 million corporate tax installment payment in Papua New Guinea. It is worth noting that a significant portion of our cash and cash equivalents is held in Canadian dollars. And at our reporting date of September 30, the Canadian dollar was relatively weaker against the US dollar and K92 recorded, an unrealized loss due to foreign exchange.
During the third quarter, K92 completed a bought deal financing for gross proceeds of CAD 50 million. As of September 30 2022, we had the US equivalent of $106.7 million in cash and cash equivalents and our strongest working capital balance to date of $120.1 million. K92 has no debt on our balance sheet.
As John mentioned, during the third quarter the K92 gold operations produced 29,256 ounces of gold 1,666,076 pounds of copper and 32,161 ounces of silver or 32,995 ounces of gold equivalent. We sold 25,297 ounces of gold 1,551,981 pounds of copper and 28,396 ounces of silver. We incurred a cash cost of $503, and an all-in sustaining cost of $909 per ounce of gold, which was significantly below our realized selling price of $1,663 per ounce.
Our Q3 2022 cash cost per ounce decreased to $503 from $596 in the prior year. The decrease in cash costs was primarily due to the successful ramp-up of the 400k expansion, allowing the company to achieve better economies of scale, and a 17% increase in gold ounces sold. It is important to note that, after commissioning the Stage 2 expansion in late third quarter 2021, we have seen a significant compression in our total unit costs per tonne processed. We continue to see downward pressure on costs via economies of scale as operations ramp up.
I will now turn the call back to John to continue with the rest of the presentation.
John Lewins
Well, thank you, Justin. Well, for the exploration and growth section of the call we’ll begin with highlighting that recently K92 hosted an analyst tour on October 19 and 20, which was a fairly comprehensive two-day visit featuring tours and presentations covering mining, processing, infrastructure, expansion, mine, regional geology, community human resources and a helicopter tour of our regional exploration. We take a lot of pride in providing a comprehensive tour and this was the first tour since September 2019.
I believe the analysts, on the visit that had been to site previously would have been extremely impressed at how the operation has progressed since their last visit. And those analysts that were on their first visit, I think should also have been very impressed with what they saw at site and operation.
So the photo here shows, analysts and others at the twin incline portal, one of the twin incline portals. And of course, these portals did not exist, when the last analyst tour took place. And then, our second photo here, you can see the analysts in front of the high-grade Judd vein system J-1 vein on the 1,305 level which is the uppermost level of our Judd development to date.
Again, first time that any of the analysts would have seen Judd underground, as Judd existed, but we didn’t though, it existed when we had our last analyst visit, with probably high-grade vein mineralization at Judd being made during the pandemic.
At the end of the tour, the analysts attended a dinner organized by K92, with government officials in Port Moresby. This included the Honorable Sir Ano Pala, who is the new Mining Minister, that’s him on the right seen there in a photo with myself – as well as Jerry Garry, who is the Managing Director of the Mineral Resources Authority or the mines department. And in addition, we had several of our key business partners present as well.
We understand, it’s the first time that a PNG mining minister has met with analysts in such an informal setting, and I think that reflects the standing that K92 has in the country. It’s probably a first for many of the analysts as well.
So, looking at our production growth strategy. Stage 2 expansion, as you’re aware the 400,000 tonnes per annum was achieved third quarter 2021. Stage 2A well advanced. We actually achieved the run rate, the final remaining upgrade being the installation of the flotation cells, which will more than double our rougher capacity, as planned late this quarter, or early in 2023.
In September, we were pleased to announce the integrated development plan for our next phase of growth, which is the Stage 3 Definitive Feasibility Study to a 1.2 million tonne per annum, throughput and then Stage 4, which sees a further increase of that to 1.7 million tonnes per annum as a PEA.
And I think both cases outline Tier 2 scale low all-in sustaining cost. And we’ll discuss that Integrated Development Plan in more detail, a little bit later in the presentation. In terms of Stage 2A filter press additional TC-1000 installed and operational and the mine has achieved its Stage 2A throughput in the third quarter.
Flotation cells as stated earlier are the major upgrades that were still outstanding. One those flotation cells are commissioned, we expect to see a notable boost to recoveries, as well as having considerably more flexibility and potentially increase our throughput further.
In Stage 2A, we expect to see a meaningful incremental boost to our free cash flow generation. And that in turn, will see a potential increase throughput beyond Stage 2A design. And that again, will strengthen our ability to self-fund our growth even further.
We continue to progress the upgrading expanding of our infrastructure in the long-term. As shown here in this drone footage of the mine portal area, we recently completed construction of our new equipment workshop.
That facility is more than three times larger than the previous facility in addition to being a more modern facility with a overhead crane et cetera et cetera. The yellow arrows on the slide highlight some of the key infrastructure which has gone in place around the portal since that last analyst visit in 2019.
Now the tailings dam storage facility has also seen a major upgrade, as you can see from this slide with the latest lift almost completed where we’re adding about 1.6 million cubic meters of additional capacity.
Tailings and power lift is a downstream design and also features some of the latest monitoring equipment providing real-time information and remote monitoring. Earthworks have gone very well and as a result we plan to continue to build the next lift on an ongoing basis.
Now as noted earlier, mid-September we reported our Integrated Development Plan for the Stage 3 alternate Stage 4 cases. In both cases major expansion from 2A to deliver Tier 1 production and costs.
Stage 3 DFS outlines a peak annual production of 309,000 ounces gold equivalent per annum. Stage 4 PEA outlines peak production of 500,000 ounces sold equivalent per annum.
The Stage 3 case involves the construction of a new stand-alone process plant next to the existing plant with a capacity of 1.2 million tonnes per annum and that being commissioned second half of 2024, the Stage 2A plant being idled at that point in time.
The Stage 4 PEA involves a new stand-alone 1.2 million tonne per annum plant again, and again commissioned second half of 2024 with the Stage 2A plant then being reactivated second half of 2026, increasing our total capacity to 1.7 million tonnes per annum.
As you can see in both cases, we achieved the design run rate for about three years and then we’re dropping off. And so exploration is a key focus to not only maintain that peak production, but potentially look to expand it.
And later in the presentation we’ll discuss the latest exploration results. And you can see that we’ve been successful in considerably expanding the deposit strike length, since the latest resources were released last year which underpinned the Integrated Development Plan.
I’d also note the 1.2 million tonne per annum plant has been designed in both cases to be able to be cost effectively expanded. When we look at Stage 3, we achieve as we mentioned peak production 309,000 ounces gold equivalent.
Life of mine average co-product all-in sustaining cost is $732 an ounce or $545 an ounce net of by-product credits. Stage 4 peak production 500,000 ounces gold equivalent. Life of mine average co-product all-in sustaining cost of under $700 an ounce around $450 an ounce net of by-product.
Both cases as you expect, generate considerable cash flow self-funded from mine cash flow at $1,600 an ounce. Run rate in both cases generate substantial annualized cash flow highlighting the significant NPV growth potential through expanding peak production, life beyond that exploration that I flagged.
In terms of sensitivity to gold price, you can see at gold price of $2,000 an ounce. The DFS case, NPV5 increases 46% to $855 million. And in the PEA case NPV5 increases 38% to $1.8 billion.
On the twin incline, which is the key long-lead item for these projects, the furthest incline has now advanced a bit over 1,701 meters as at the end of October. The performance of the development crew has been very strong year-to-date with the twin incline advance exceeding budget by around 39%.
The twin incline as we previously mentioned has been significantly oversized, capable of 5 million tonne per annum and beyond with the installation of conveyors, enabling the infrastructure to meet our Stage 4 expansion and potentially go beyond that to Stage 5 and even Stage 6.
I think the decision to oversize the twin inclines when we commenced development in 2020, continues to look like the correct decision as our exploration continues to show great potential.
So drilling is underway at multiple high priority targets, Kora, Kora South, Judd, Judd South and also Northern Deeps.
Just a step back in time perhaps, it’s probably quite instructive to go back to this slide which was actually something we presented at the previous analyst tour in September 2019. And there you can see the small additional resource that we put in at Kora North and our drilling targets on the long section. I think it’s an interesting reference point to show how rapidly exploration is transforming K92.
Here’s our latest resource long section and it’s showing both Kora and Judd. And remember that high-grade mineralization at Judd was only discovered in the third quarter of 2020. The effective date of the Kora resource is October 31st, 2021. So, that’s just over a year ago and the effective date for Judd is December 31, 2021.
Now, here is a long section of Kora site going out to Northern Deeps as well from our latest drill results in October. So, since the last resource update in late 2021 we’ve had a major pivot from infill drilling to resource growth drilling. And today almost every hole has intersected mineralization. The latest drill results have extended the drill deposit strike length by approximately 600 meters to the south.
And the second hole that we put in the Northern Deeps target drilled from the twin incline as it advances towards Kora intersected significant mineralization 700 meters north of the Kora resource much further north than we were actually expecting and recorded just over three meters at 7.18 gram per tonne gold equivalent. What you consider to date we’ve defined a strike length along the Kora, Kora South vein system 2.65 kilometers. And as we observed in Kora resource tenor tends to increase with depth.
Targeting Kora South from underground has also delivered some very promising initial results from our Southernmost drill cutting with hole KMDD0495 intersecting a potential dilatant zone projected to be over 400 meters vertically from the previous dilatant zone KUDD0002. So KMDD0495 recorded 30.55 meters 12.82 gram per tonne gold equivalent. And there some 400 meters above it we recorded from KUDD0002 35.9 meters at 5.98 grams per tonne.
In terms of targeting over the next year, the rate of drilling is expected to increase as we advance underground infrastructure particularly the twin incline and the Kora South drill drive.
Currently, we’re drilling Kora South Kora Northern Deeps and we plan to commence drilling at Kora Deeps around mid-2023 as the twin incline progresses to the south. We also plan to increase the number of underground rigs from six to seven with the purchase of an additional rig. All of the underground rigs are ours. In terms of Judd the latest resource we have has also increased with strike length of around 130% from the drilling that we’ve done.
The results to the south at Judd have delivered very strong hit rate. 61% of surface holes drilled have exceeded five grams per tonne to date with a very solid average thickness of 3.8 meters.
Judd South similar to Kora South also intersected a dilatant zone with the latest result KUDD0017 recording 25 meters at 20.89 gram per tonne gold equivalent and KUDD0023 recording 19.9 meters at 3.89 gram per tonne. These holes are proximal to the first hole that we ever drilled in Kora South KUDD0001 which recorded 66.55 meters of five grams per tonne gold equivalent one of the thickest intersections we’ve ever recorded in the system.
Again in terms of targeting we’re currently drilling Judd South Judd Northern Deeps. We plan to drill Judd Deeps in that second half of 2023 as the twin incline comes along. Surface drilling at Judd also underway. Two rigs on the surface. And they’re looking to extend the Judd resource uptake in the same way that we’ve seen at Kora. So surface-wise right now we’ve got two rigs that are drilling Judd within the mining lease. We’ve got two rigs that are drilling Judd South and Kora South to the south.
We’re obviously very encouraged with the latest results, something of an understatement perhaps which continue to intersect our latent zones. These zones represent a potential endowment multiplier with significantly greater tonnes per vertical meter or per square meter. Based on our emerging understanding of these systems, we believe that they have the potential for considerable vertical extent as well as some limited striking extent.
An increasing focus of our exploration program is to target these zones and increase our understanding of their potential. Now in Q3 we also announced the major milestone of our porphyry exploration being the maiden Blue Lake inferred resource 10.8 million ounces gold equivalent or 4.7 billion pounds copper equivalent.
The resource is large has a high-grade core that is open at depth. It’s actually the fifth largest non–porphyry in Papua New Guinea and was defined with under 17 kilometers of drilling.
And the cost is less than $1 per ounce gold equivalent. Now shown in the long section the resource has to find a high-grade potassic core with increasing tenor at depth. The porphyry environment appears to be well preserved limited erosion little evidence of faulting which you can see from the relatively high degree of symmetry in this resource section. The porphyry is open at depth and there is some evidence that we have not yet hit the high-grade core, of the system at depth. And so we believe, there’s a strong expansion potential through step-out drilling.
From our exploration at Blue Lake, we’ve gained a tremendous amount of knowledge and plan to apply it to other targets within that prospective porphyry belt. In late 2021, we flew a mobile MT-advanced geophysics over our entire land package. And the results from this confirmed several non-porphyry targets in addition to highlighting, the potential for additional targets.
We know that in Papa New Guinea, porphyries tend to cluster and there are five targets to find near Blue Lake. The work clearly shows A1, is our number one porphyry target. It has a very strong connectivity response, while also being situated in a very prospective geological environment. Essentially, it’s believed to be the heat source for the main high-grade Kora, Judd and Maniape Arakompa deposits.
Additionally from field mapping, Blue Lake A1 Aena [ph] are within the same large litho-cap indicating the potential for additional porphyries in between. Soil sampling at A1 is now well underway and from these samples, we plan to establish an appropriate program of diamond drilling to be commenced early in 2023.
Now lastly, and certainly not least, I’d like to highlight that our soil sampling program at Kora South, Judd South has recently encountered some really encouraging results towards A1 porphyry. A substantial 750-meter by 100-meter high-grade gold anomaly was recorded just outside of the target outlined for the porphyry.
Based on geophysics, it also corresponds to potentially a major structural conversion of the Kora-Kora South Judd-Judd South vein system, with possibly the structure hosting many Arakompa vein systems. Follow-up work is underway with soil sampling, plus we’ll then move to a drilling program.
So with that operator, I’d like to commence our Q&A session. Thank you.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session.[Operator Instructions] The first question comes from Alex Terentiew with Stifel. Please go ahead.
Alex Terentiew
Hi, guys. I want to thank you again, just for hosting us on that great site tour last month. It was really a great event. So just one question for me, not really an operational one, but more on the financials. I know that — you note here in your financials that you’ve got some provisional — you were doing some hedges to help offset the short-term provisional pricing. But then in the revenue line, you’ve got a loss on receivables at fair value. This quarter it was almost $9 million. So can you just help me better understand where that number is coming from.
John Lewins
Okay. Thanks, Alex. And yes, it was good to have all you guys on site. In terms of that provisional pricing adjustment that you’re referring to, so, we get – obviously, we get a price adjustment which relates to the fact that we get paid 95% — sorry 90% of our — we’re going to get paid when we actually dispatch our concentrate — sorry before, we dispatch our concentrate when it actually arrives in lay.
And then we get a final pricing, which is the pricing that we actually get based on the outturn at the smelter. We do have some hedging to limit that. But obviously, over the last quarter, we’ve had quite a big adjustment on that. And then at the end of the month, we fair value our receivables using the October metal prices. And they were materially lower than July, August and September.
And then we do also have final adjustments, for assay outturns in both — well on copper, gold and silver. And they — in this particular quarter, that was a negative adjustment in terms of ounces although, a couple of those are actually — we’re looking at going to umpire on them.
Alex Terentiew
Okay. That’s great. So I just — so it is a provisional pricing adjustment number. I just wanted to make sure I wasn’t missing something there. But – Okay now that’s it for me. Thank you very much.
John Lewins
Thanks, Alex.
Operator
[Operator Instructions] The next question comes from Michael Gray with Agentis Capital. Please go ahead.
Michael Gray
Yes, good morning. John, thank you very much again. As Alex mentioned for the excellent site visit. A couple of questions for me. On the political front, clearly you have a strong push in terms of government relations. A couple of things. Did the ESG report you guys published really resonate with the government? And what’s the outlook for the mining license renewal process? And what’s the status?
John Lewins
Well, thanks, Mike. So in terms of ESG, we printed multiple copies of our ESG report. And at that parliamentary briefing, that I mentioned, we actually distributed copies to all of the parliamentarians there. Certainly in the meeting that I’ve had with CEPA, and also with MRA, there has been a reference made to it and positive reference.
Importantly, I think CEPA – sorry, CEPA is the environmental department and under the environmental minister. And in a meeting I had with the environment ministry and his first secretary, they were specifically talking about carbon footprint, carbon credits, et cetera, et cetera, and where PNG wants to go on that. That’s a particularly important issue in PNG as is in all of the Pacific region right there.
So yes, there has been a good degree of resonance in terms of ESG. In terms of the renewal of the mining lease, so we put our application in earlier this year. It’s been going through a process, which is Wardens Hearings. Wardens Hearings are then followed up with our technical review.
In our case, we have submitted to the MRA, our 43-101 on the Integrated Development Plan so the expansions. And in fact, I know that they’re well down the track in their evaluation of that because we’ve had a number of queries come back in terms of what we’re doing there. And we’ve provided answers to all of those queries.
I’ve met with the Managing Director of the MRA specifically in relation to the renewal and he’s been pretty clear that it’s getting a priority from the MRA. So process on ML renewal is quite clear under the Act. You put your application in. The first stage is an initial evaluation of your ML. That’s followed by Wardens Hearings. And Wardens Hearings in areas around the mining lease, all of which have happened and have been positive. That then is followed up by a technical review by the technical team. That then gets to a recommendation from the MRA from the managing director.
That is submitted to the MAC the Mineral Advisory Council, which is actually chaired by the managing director of the MRA. They make a recommendation on renewal and that is sent to the minister for his signature. The minister under the Act has no discretionary power in relation to the renewal of the mining lease on a recommendation from the MAC. He can certainly ask for additional information or raise any issues he may have but he does not have discretion in terms of renewal.
So we’re well down the track as I’ve been advised by the MD. So certainly our expectation is probably early in 2023 to get the renewal.
I think we could have got it quicker, but we had a little thing of an election. So, it’s stuck in between which does tend to hold up, what various government departments are doing. I hope that…
Michael Gray
Very good.
John Lewins
…answers your question.
Michael Gray
Yeah. No very well. I appreciate that color. The other question is, just timing for further work at Blue Lake. You’ve had some international consultants there, on quite a few occasions. And you really highlighted on the site visit the potential to depth on this call at Blue Lake.
Is that going to be something you prosecute before A1, or maybe you could just let us know are you really leveraging things you’re learning at Blue Lake and at A1, first? And maybe also — I might have missed it but the soil sampling that you mentioned 700 by 500 meter soil sampling, did that actually cover part of A1?
John Lewins
Okay. So first off, the next drilling program that we have planned is actually at A1.
Michael Gray
Okay.
John Lewins
And that will occur after we’ve completed our surface soil sampling. I think part of the mapping that we’ve done, has highlighted that there is a large lithocap that covers Blue Lake, A1 and one or two other known-porphyries as well and potentially obviously some unknown-porphyries.
So we see them all as effectively one porphyry swamp for lack of a better word. And we combine the mapping that we’ve done with the geophysics that we flew late last year and with the work — the results that we got out of Blue Lake. And A1 does come up pretty much as the number one target at this point in time. And so the focus certainly next year will be on A1.
In addition to that, it’s initially a relatively shallow drilling program the same as we did at Blue Lake where we started off with, sort of holes down to about 500 meters as an initial program and then a second program of deeper holes vectoring into where we believe that Potassic Core to be. And so we’ll follow a similar program at A1.
Blue Lake, certainly there is our plans and intent to do, further work at Blue Lake for the drilling at Blue Lake. But it will be deeper drilling because obviously from what we’ve seen to date that higher-grade core appears to increase at depth. And so we’re looking at 1000-meter plus holes, looking for increases in grade at depth which is certainly — we’ve seen a number of indications.
And as you referred to we’ve had some fairly well-known international consultants in it and they’ve expressed a similar view — we’re waiting for a couple of reports from people — that there is great potential at depth for the grade to increase. So certainly there is significant work planned on the porphyries.
In relation to that surface sampling — soil sampling that we refer to in slide 36, I think it was. That is immediately outside of the porphyry target. If you look on the slide you’ll see there’s, a couple of yellow lines. And just to the south of that highlighted area there’s a yellow line. And that yellow line delineates the A1 porphyry target. It was just outside.
Michael Gray
Okay. Very good. Thank you very much John and team.
John Lewins
Thanks.
Operator
The next question comes from Andrew Mikitchook with BMO Capital Markets. Please go ahead.
Andrew Mikitchook
Good morning John. Thanks for a very comprehensive review here on the conference call, and hosting us on the site visit. Just a very quick question. Can you give us some sense whether we should be expecting any scheduled maintenance or a scheduled downtime at the mill for bringing on the last few pieces of 2A here between now and the beginning of next year, or maybe potentially between now and when you provide guidance for next year so that we can make some interim adjustments before you give us more detailed adjustments?
John Lewins
Okay. Thanks, Andrew. And again good to have you at the site last month. So in terms of the installation of the two float cells. So there will be some small downtime where we do the final hookup of piping and what have you. And it will be scheduled such that we do the hookup when we do one of our planned maintenance shutdowns. And as you’d expect we pretty much have planned maintenance shutdowns every month.
We run on basically an availability I think of 8,000 hours a year which is a bit over 91% availability on the mill. And we’re probably tracking above that I think this year-to-date. But that’s what we base our operational numbers on.
So, yes, there will be some stoppage to do the final hook up but it’s been designed such that it will be minimal. And obviously we’ve been through this with the — putting in the new cleaner, recleaners and also with the changes that we made to our rougher section for instance. So we’ve done quite a bit of it in the past. So the guys are used to it.
In terms of timing, we expect to have the float cells on site this quarter with the final hookup in first quarter of 2023. That will certainly be taken into account when we give our guidance. But in all honesty it will not be a material impact in terms of downtime. It is however important in terms of achieving the sort of recoveries that we want to achieve the 92% 93% recovery. So it’s important from that context. And therefore it gets a high focus from us as something that we want to do very early in the first quarter next year.
Andrew Mikitchook
We will take [indiscernible] next to that, and look forward to meet you next year. Thank you.
David Medilek
Next year and both. Thanks, Andrew.
Operator
The next question comes from Don DeMarco with National Bank Financial. Please go ahead.
Don DeMarco
Thank you and good morning, John and team. So I got three questions. I’ll start with the first one. Regarding Stage 2A expansion John, after the flotation cells are installed you’re expecting a notable boost to recoveries and higher throughput. Can you quantify this? I mean that is like above the recoveries that have been in the low 90s and throughput above the target of 1,100 tonnes per day for the last three quarters?
John Lewins
Look in terms of recovery — so first off as part of the definitive feasibility study and PEA we’ve actually done quite a lot of test work in Perth on flotation. And one of the things it highlighted was that additional residence time in the roughers could add one or two percentage points to our recoveries.
And hence although Stage 2A is a 25% increase in throughput I see pretty much doubling our rougher capacity. So we’re actually looking to give ourselves quite a bit of extra capacity on the roughers.
The second thing is that the roughers are a bank of two cells or two banks each has four cells in parallel. And from an operational perspective a rougher of four cells only and then basically going out to tails it’s actually a very short rougher circuit. And that’s what we inherited.
Its — In my view, it’s — the circuit that was built there was probably one of the poorest I’ve ever seen and I’ve seen a lot of float circuits in my time.
So adding the additional two float cells, larger float cells upfront, increases your effective bank to six cells, which allows us also to convert probably the last cell in each of the two banks to a scavenger and therefore allow us to not only increase our residence time, but also improve the circuit in providing a scavenger which currently we don’t have.
If you look over the last quarters, we’ve been in the low-90s — high-80s low-90s. We’re certainly looking for recoveries in the 92% to 94%. It’s one or two percentage points, but that’s significant for us. In terms of throughput, we’ve got some pretty good metallurgists I think working for us. And that’s seen with taking a plant that — when we took over the mine, it had a rated capacity of 175,000 tonnes per annum.
We’ve refurbished it to 200,000 tonnes per annum. Stage 2 obviously took it to 400,000. And Stage 2A has taken it to 500,000 which is pretty much where we’re running right now. So we’ve basically tripled the capacity and we haven’t added any additional mills. We added flotation. We’ve obviously added crushing capacity and we’ve done quite a number of other changes in the circuit. We think that with some tweaking, we can probably add another 10% to the throughput and so potentially get it up to maybe 550,000 tonnes per annum.
So we’ll certainly be looking for another 10% from it. Our Matsa [ph] are quite adamant that they can get it with a few bits and pieces of debottlenecking. So certainly, we will be looking to do that debottlenecking and potentially get another 10% out of the plant.
Don DeMarco
Okay. That’s great. Thank you for that. For my second question, this focuses on the exploration update in mid-October where you showed an additional extension of mineralization at Kora and Judd to the south. So when would you expect to reach and test what you’re calling a potential feeder zone? And is it a matter of months or years? And what might you expect to find there?
John Lewins
Wow, that was a big question. That’s — it’s one of the biggest questions I think you can ask actually. Okay. So in the context of getting towards that feeder zone, obviously that area that we highlighted in Slide 36 is right next to the interpreted A1 porphyry target, which we believe to be the main source. So drilling in that area, we anticipate during this quarter. And right now we’ve completed some detailed mapping over A1 and associated areas and we’re busy right now with a detailed soil sampling program over that area. That will be completed this quarter and we’ll get our results back — start getting our results back this quarter.
So we anticipate getting the first rig in there early next year. Right now, we’re going through our scheduling of rigs and what have you, but looking potentially at first quarter next year to actually start doing some drilling down there to the site I’m talking about. And I guess the other thing in terms of looking at feeder zones is also Kora Deeps. We’ve got those areas of Northern Deeps, Kora Deeps and Kora South Deeps. Between incline as it comes in we will continue to operate diamond rigs underground. Right now, we’ve got one on that twin incline. We expect, next year there will be two that will actually be operating in the twin incline. One is going to focus on Northern Deep, one will focus on Kora Deeps. And obviously, those are ounces that — if we could identify ounces there, we can bring them to account very quickly. But it’s also looking at the alternate feeder zones of — you can still have one as a feeder zone, but it doesn’t necessarily have to — have come along strikers. As you know it could have come at depth. So it’s really about covering all bases, if you like.
Of course, so far, we don’t know how deep it goes. We just know that, wherever we’ve drilled today we hit it. So Kora Deeps, Kora South Deeps have potential as that source as well. But to put it into context, I mean, right now we’ve got 10 rigs operating. We’ve got 11 rigs at site. We’ve got another surface rig that’s come to site. Certainly, going into the budget for next year, there’s an additional underground diamond rig which will take us up to seven diamond rigs underground. And there’s an additional surface rig, which will be with three of our own surface rigs. And right now, we also have three contracted rigs on surface. So, potentially we take it up to about 13 rigs total operating on the site, underground and on the surface.
Don DeMarco
Okay. That’s great. You have a number of potential catalysts there then. And so for my final question also on exploration, you’ve been intersecting these dilatant zones that have wide intervals of mineralization. Can you give us an indication, when you might have some economics wrapped around these or the timing of potentially adding to a mine plan?
John Lewins
Look, we’re looking at an updated resource I think the third quarter of 2023. And that would be looking to then feed into additional work in looking at things like, where’s the impact of that on the mine. Those are dilatant zones remember are in the exploration area right now, not in our mining lease. Certainly, there’s a pretty strong focus on those dilatants zones and in fact that whole Kora South area to put it into a mine design study, because that’s one of the areas that we’re targeting for a mining lease application a new mining lease application.
Don DeMarco
Okay. Okay. Well, thank you, very much. That’s all from me. Good luck with the rest of the year.
John Lewins
Thanks, Don.
Operator
[Operator Instructions] The next question comes from Arun Lamba with TD Securities. Please go ahead.
Arun Lamba
Thanks, operator. Just quickly John could you just update the status on potentially getting a revolving credit facility? I know in my numbers, I don’t have you needing it for the expansion, but I thought there was some talks about potentially getting one. Any update you could provide would be great. Thanks.
John Lewins
Thanks, Arun. Yes. Look, we certainly progressed that. Obviously, a key for putting that revolver in place has been to complete the Stage three DFS, generate something called reserves. And you may not have noticed, but for the first time this quarter, we’ve been able to use some fairly strong language from a geological sense and a mining sense. And we have actually been able to use that magical word ore, because now we have reserves. And having those reserves is an important aspect in terms of putting the revolver in place as is having a financial model, both of which we now have and we’re providing to a number of banks. So we’ve set up a data room for the banks. And we’ve got our financial model. We would certainly anticipate going through that process in more detail, in the first quarter next year and probably having the revolver in place by the second quarter of next year.
As you said, the numbers certainly don’t say that you need it, but we want to make sure we’ve got that flexibility.
And at the same time, there’s a strong commitment on the exploration front for obvious reasons. There’s just so much potential. And so we want to make sure that we will not only be able to maintain our current exploration spend but actually to look at increasing our exploration spend over the next couple of years while we’re at the same time obviously doing the major expansion.
Arun Lamba
That’s great. Thanks.
John Lewins
Thanks, Arun.
Operator
This concludes the question-answer session. I would like to turn the conference back over to John Lewins for any closing remarks.
John Lewins
Well, thanks operator. Look, in many ways, this has been our most exciting quarter. Certainly, many people within the organization believe, it’s been an incredibly exciting quarter. We’ve brought out that resource on Blue Lake almost 11 million ounces gold equivalent, which I think quite a number of the people didn’t see coming.
We’ve also got our Integrated Development Plan for Kora, Judd, which sees us move under the DFS up to 300,000 ounces a year and under the PEA going beyond that and up to 0.5 million ounces a year and really reinforces that this is very much a Tier 1 asset. We’ve also covered by this call, put out over 90 holes of exploration from both surface and underground that have reinforced the consistency that we — Kora and Judd.
And it’s really, we believe set us up for a good close to 2022. And then even more excitement we believe, as we go forward into 2023, where we’ll have more rigs than we’ve ever had operating. We’ll be covering more targets than we ever have. And it just seems — and of course, we’ll be going forward with a major expansion to move this into Stage 3 and then potentially Stage 4over the next few years.
So, as I say, this has been probably one of our most exciting quarters, but it’s just leading into we think more of the same in the fourth quarter and all of next year. So, as they say watch this space. I really appreciate your time and attention this morning.
And since we’re not going to talk until after Christmas for our next quarter, I wish you and your families all the very best for the festive season, the balance of this year, and hopefully we all have a great 2023. So thank you very much.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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