March 15, 2022
Karora Resources Inc. (TSX:KRR, BUY, C$6.60 target, David A. Talbot) announced its Q4 and FY/21 financial and operating results, reporting record revenue of C$264M and production of 112.8k oz Au (previously announced; read more). Adjusted EPS was C$0.08 for Q4/21, in line with RCS estimates while the street was seeking C$0.09; FY/21 EPS was C$0.33. Net earnings for FY/21 of C$27.5M was down from C$88.1M, attributable to a positive after-tax impairment reversal of PP&E in 2020. Adjusted earnings for FY/21 of C$48.6M was down C$23.5M compared to 2020. Q4/21 adjusted earnings were C$12.0M, compared to C$39.0M in 2020 while EBITDA was C$0.16/sh (C$0.70/sh for FY/21). CF from operations was up 13% YoY to C$106.5M, while Q4/21 CF from operations was down 12% to C$33.5M. The company’s cash balance increased to C$91.0M at Dec 31/21, even after high capital expenditures at new mining operations at Higginsville and accelerated exploration programs across its operations. AISC was US$1,012/oz for FY/21 (US$1,042/oz for Q4/21), and closer to the lower end of guidance provided of US$985 to US$1,085/oz. This is also a slight improvement compared to AISC of US1,026/oz for FY/20. We expect ongoing production growth and cost reduction efforts to be the main value driver for Karora as it looks to double production by 2024; this is likely to be spearheaded by organic growth through the drill bit. Notably we anticipate costs to decline considerably given potential for increased by-product credits from Ni production in light of recent prices. The company has performed well versus peers over the past several weeks and trades at a P/NAV of 0.91x vs peers at 0.89x. Looking ahead, we expect the company to provide an updated resource for both Au and Ni from the Beta Hunt mine in the coming weeks. This would allow Karora to update its mine plan. While we have gold production guidance through 2024, an update should give us an idea of the potential increase in nickel production for 2023 and beyond. Nickel production is projected at 450-550t this year, but anticipated to rise next year as the high grade 50C nickel trough is mined. While management uses US$16,000/t for its guidance, nickel prices are currently at US$48,226/t, and every US$5,000 difference in price is worth US$25-30/oz in additional by-product credits. Read more
