Karora Resources is growing to become the next 200,000 ounce gold producer

Gold had a good year in 2023 up 15% and is currently trading at US$2,028/ounce. The gold sector looks like it will have a strong 2024 as the macro backdrop for gold improves. Here are four reasons why:

1. A series of three interest rate cuts in the USA is forecast for 2024, which may also lead to a weaker U.S. dollar (“USD”). Lower rates and a lower USD are good for the gold price.
2. Growing geopolitical uncertainty – The Ukraine-Russia war continues, the Israel-Hamas war may spread to nearby Middle East regions as we saw recently with the U.S. response to the Red Sea shipping attacks by Houthis against Israeli ships, etc.
3. The U.S. Presidential election on November 5, 2024. Any instability as we saw after Trump lost the last election may result in a flight to safe assets.
4. According to Sprott Research – “Gold mining stock valuations are the lowest in 25 years”.

For those investors looking at a growing mid tier gold miner that keeps on delivering on their promises then today’s company will be right up your alley.

Karora Resources Inc.

Karora Resources Inc. (TSX: KRR | OTCQX: KRRGF) (“Karora”) is a Canadian gold mining company with growing gold operations ~60 kms from Kalgoorlie, in Western Australia. Karora’s 100% owned assets include several gold mines (Beta Hunt underground Mine, Higginsville Gold Operations (“HGO”), Spargos Gold Mine), and their two gold mills (Higginsville Mill, Lakewood Mill). Karora produced 160,492 gold ounces in 2023 and has their next major target set at 200,000 ounces pa.

Karora’s consolidated contained gold resource across all operations is M&I Resource of 3.189m Oz @ 2.0 g/t Au and an Inferred Resource of 1.538m Oz @ 2.4g/t Au.

Location map showing Karora Resources 1,900 sq. km of tenements, 3 key gold mines, and 2 Mills

Source: Karora Resources company presentation

Karora Resources under promises and over delivers

As announced on January 15, 2024, Karora produced a record 160,492 ounces of gold for 2023 compared to their guidance range of 145,000 – 160,000 ounces. Karora Chairman & CEO, Paul Andre Hue, commented:

“I am extremely pleased to announce Karora’s seventh consecutive year of production growth. We produced a record 160,492 ounces of gold for 2023, exceeding 2022 production by over 26,000 ounces and beating the high end of our full year 2023 guidance range of 145,000 – 160,000 ounces. Gold production in the fourth quarter was a very strong 40,295 ounces, the second highest quarterly result on record.“

Seven consecutive years of production growth – Wow, that’s impressive.

The news only gets better from Karora as they are guiding to achieve 170,000-195,000 gold ounces in 2024 at a lower AISC of US$1,050 – 1,200/ounce.

Karora’s 2024 guidance, if achieved, would make them an almost 200,000 ounce pa gold producer

Source: Karora Resources overview

A key point to note from the chart above is point 2 – “The Company expects to fund the capital investment amounts listed above with cash on hand and cash flow from operations.” Karora currently has a very robust balance sheet with C$82.5 million in cash as of December 31, 2023.

Another key plus for Karora is that they are starting to increase their nickel by-product production. As this grows it helps Karora maintain or reduce their All In Sustaining Costs (“AISCs”).

Closing remarks

The macro set up for 2024 certainly looks very favorable for gold. If we get declining interest rates and a weaker USD, then the gold price is likely to move higher in USD terms. If global geopolitical tensions worsen then that will favor the safe haven of gold.

Karora Resources is a standout small gold miner growing steadily to becoming a mid-tier 200,000 ounce pa gold producer at a very reasonable AISC near US$1,000/ounce. Management continues to deliver results at or above expectations. Finally, sovereign risk is extremely low with Western Australia being a tier one mining jurisdiction.

Karora Resources trades on a market cap of C$771 million and a 2024 PE of 11.9.

Lynas Rare Earths Ltd. (ASX: LYC), the Australian mining giant, recently breathed a sigh of relief. Malaysia’s government granted the firm a pivotal extension on their operating license, allowing them to continue importing and processing raw materials laden with naturally occurring radioactive elements until March 2026.

Previously, Malaysia had stringent reservations due to radiation concerns stemming from the cracking and leaching procedures in processing these materials. The facility in Pahang, Malaysia, has been mired in controversies surrounding radioactive waste, specifically thorium, since 2012. Malaysia had gone to the extent of instructing Lynas to shift certain radioactive waste-producing operations out of the country, even enforcing a ban on imports of raw materials with these elements.

The game-changer was Lynas’s innovative proposal: a technology that could extract thorium not just from the raw materials but also from the accumulated waste. If Lynas can effectively commercialize this method, the waste can be rapidly disposed of, while the extracted thorium might find buyers in nuclear plants worldwide.

But why is this decision so monumental for Lynas?

For starters, had Lynas not been granted this extension, the company would be staring at a gaping hole in their supply chain. Their Kalgoorlie plant in Australia would not start processing any carbonate product until the next year, and ramping up to their nameplate capacity would take potentially another nine months. This scenario would have crippled their Malaysian production for nearly three-quarters of the year, slashing their annual output by half.

Historically, Lynas imported its monazite concentrate from Mount Weld in Australia. This concentrate would then journey to Malaysia, undergoing a sulfation bake. In simpler terms, it would be combined with sulfuric acid, processed in a kiln, and subsequently undergo a water leach and purification process. But one of the waste streams from this method, which contained higher radiation levels, proved problematic.

Lynas’s ambitious plans include expanding its Magnetic Materials (Neodymium and Praseodymium) production in Malaysia, a crucial component in various modern applications ranging from magnets in wind turbines to motors in electric vehicles. With expansion plans in the pipeline and a new facility in Texas, the extended operating license in Malaysia ensures that Lynas has a consistent supply to meet global demands.

The strategic decision by the Malaysian government underscores the importance of Lynas in the global rare earth industry. With news of other major players facing operational hiccups, the industry needed a win. And this decision, undoubtedly, is a significant one. It not only secures Lynas’s position but also sends a positive signal for the rare earth industry at large.

In essence, this development underscores a harmonizing synergy of economic ambitions and environmental prudence. While the decision spells robust business prospects for Lynas, it’s also a nod to Malaysia’s commitment to environmental sustainability. The future, it seems, is both green and bright for Lynas and rare earths.

Look online, and you will discover that while Lynas Rare Earths Ltd. (ASX: LYC) is covered by 9 research companies, it is impossible to find one PDF Equity Research Report online. For Australian-listed companies, sometimes they publish the reports on their website; unfortunately, not for Lynas.

Dig deeper online and you may see a headline about whether Lynas has too much debt… these conclusions are in my humble opinion quite wrong, and underestimate this rare earths’ ruler outside of China, Amanda Lacaze.

I ran my conclusions by a semi-retired analyst, who requested anonymity and wrote me back promptly in agreement: “Saw their balance sheet and they are running just over 1x debt: cash flow and their cash flow is strong based on growing sales and commodity prices.”

The media loves to tout Chinese control of rare earths, but it is a woman with an iron fist that rules the rare earths world. Proud of how she likes to watch the pennies, it is unquestionably the reason why she has held the role as a Non-Executive Director for ING Bank Australia Ltd. for over 11 years.

Now let’s start with some prenuptial notes on Lynas, before you decide to make a commitment to this industry giant.

Lynas Rare Earths Ltd. is listed on the Australian Securities Exchange (ASX: LYC). The company also has a sponsored Level 1 American Depository Receipt (ADR) program through the Bank of New York Mellon (Code: LYSDY). On June 6 (Australia), the shares closed at AUD$ 9.35. There 902.4 million shares outstanding, giving the company a market capitalization of approximately AUD$8.4 billion (US$6.1 billion. At December 31, 2021, Lynas reported six month results including AUD$741.7 million positive working capital (including AUD$674 of cash and short term deposits) and AUD$156 million long term debt. Cash and short term deposits increased to AUD$768.4 at March 31, 2022.

Lynas’ quarter ended March 31, 2022, had the following highlights:

• All necessary approvals received for the Kalgoorlie Rare Earth Processing Facility (Australia based processing facility)
• Site clearing of the Kalgoorlie facility location is complete
• Delivery of major equipment to Kalgoorlie site with foundation and building work underway
• Kalgoorlie should be on track as part of the company’s 2025 Foundation Project program
• Planning is underway for the US Rare Earths Processing Facility including contracts signed with the US Department of Defense
• Record quarter for operations including:
  • Sales revenue of AUD$ 327.2 million (AUD$ 202.7 million previous quarter)
  • Sales receipts of AUD$ 262 million (AUD$151 million previous quarter)
  • Total REO production of 4,945 tonnes (4,209 tonnes previous quarter)
  • NdPr production of 1,687 tonnes (1,359 tonnes previous quarter)
• Lynas noted quarterly price strength for NdPr contributed to record financial results
• Automotive demand for rare earths “remains strong”
• Exploration drilling under the existing Mt. Weld extraction pit revealed continuous rare earth element mineralization along 1,020 metres of drill core. Further targeted exploration is to be conducted “with the goal of meeting accelerating customer demand”.
• The company targets to be operating four sites in three countries with global sales in 2025

Having heard Amanda speak on several occasions in her early role as Managing Director nearly eight years ago, I recall believing that her reign would be short-lived. Her valiant commitment to the bottom line above all else seemed conservative and backward compared to the charismatic marketing styles of other leaders I quite like in the market. Commenting that weekly meetings would necessitate accountability for every dime spent, seemed dismal and droll to me, it seems, however, she was quite right.

As down winds from the recession are upon us, or gales of a correction are indeed in full force, I look to the critical materials sector for which many experts harbor no fears. And with the demand for rare earths continuing to exceed supply, it seems that the noble Australian woman whose fearless tactics took me by surprise is now the one championing it all.