Otterburn’s K92 picks up Barrick’s Kainantu mine

Measures taken by Barrick Gold (TSX: ABX; NYSE: ABX) to divest non-core assets, chip away at debt and focus on five cornerstone mines in the Americas are benefiting juniors like Otterburn Resources (TSXV: OBN).

Otterburn has announced that K92 Holdings — a company it is in the final process of acquiring — has bought Barrick’s Kainantu copper-gold mine in Papua New Guinea (PNG) in a deal worth US$62 million.

The sticker price includes the mine, which operated from 2006–09, and 400 sq. km of adjacent ground in the Eastern Highlands province of PNG, 180 km northwest of the town of Lae, and 110 km northwest of Newcrest Mining’s (ASX: NM) Golpu copper-gold deposit.

Barrick bought Kainantu and more than 2,900 sq. km of prospective exploration licences for US$141.5 million in cash from Highlands Pacific (ASX: HGL; US-OTC: HLPCF) in December 2007. It mined Kainantu’s Irumafimpa-Kora vein until 2009, invested in mine development at Irumfimpa, drilled at Kora and explored regionally. 

The Irumafimpa-Kora vein deposit is a northwest-trending mineralized zone measuring more than 2.5 km long and up to 60 metres wide. The deposit occurs in the centre of a 5 by 5 km mineralized system in an area that has been somewhat delineated by drilling and is made up of several zones of veins ranging from low- , intermediate- to high-sulphidation, and porphyry-style mineralization.

Ian Stalker, K92 Holding’s CEO, notes that the current downturn has created a lot of opportunities — such as this one — for junior companies. “The mining industry right now is experiencing difficult times, and major miners like Barrick are seeking to divest assets that in normal market conditions would likely never come available,” he writes in an email response to questions. “The Kainantu project attracted our team due to low and defined capex requirements, high underlying grade, existing infrastructure in terms of both underground development and processing facilities, and a big opportunity to expand known zones of mineralization, while also targeting new discovery.”

A historic resource on the Irumafimpa-Kora vein measures 650,000 tonnes grading 15.9 grams gold per tonne, 14 grams silver per tonne and 0.6% copper in the measured and indicated category, and 4.8 million tonnes averaging 7.9 grams gold, 31.1 grams silver and 2% copper inferred. 

Once the transaction closes, K92 plans to update the historic resource to make it National Instrument 43-101-compliant; refurbish the mill and the underground infrastructure at the Irumafimpa mine; start underground and surface drill testing from Irumafimpa to Kora; conduct definition drilling in other zones of mineralization that have been discovered, but not yet defined as a resource; and resume exploration targeting high-grade discoveries. Future plans, conditional on financing, include an underground incline drive from the Irumafimpa deposit to the Kora deposit, and upgrades to the mine and mill. K92 estimates the capital expenditure needed to refurbish the mine and mill (to its state immediately before care and maintenance) will be less than US$3 million.

K92’s president Bryan Slusarchuk notes that the company has had “a close technical eye” on the Kainantu property for the past year, and when it became evident that Barrick was looking to sell it, was eager to negotiate to acquire the project. 

“The big thing for us is that it’s a defined and low capital expenditure required to advance the project, it appears to be a high grade environment, and there’s already infrastructure in place,” he says in a telephone interview during a business trip in London. “We’re walking into a situation that in many ways is a restart, versus having something that we’re starting from scratch on, with all the undefined capex that comes along with it. We’ve got significant underground development, an existing mill, excellent camp facilities, a paved road to site, a dedicated power line and a supportive local community.”

K92 also has an experienced management team with an enviable track record. The company hired Douglas Kirwin as an advisor in October 2014. The former executive vice-president for Ivanhoe Mines (until Ivanhoe was acquired by Rio Tinto in 2012), was a member of the joint discovery team for the Hugo Dummett deposit at Oyu Tolgoi in Mongolia. In 2004, he was named a co-recipient of the Prospectors & Developers Association of Canada’s Thayer Lindsley award for the biggest international mineral discovery.

Kirwin’s work as a geologist over the last 45 years has included a five-year stint in PNG. During the 1970s, he held senior positions with Anglo American and Amax. In 1995, he accepted a role as vice-president of exploration for Indochina Goldfields, before joining Ivanhoe Mines.

CEO Stalker also brings about 40 years of experience in mine development and operations in Europe, Africa and Australia. Before joining K92, he was CEO of uranium company UraMin Inc., until its US$2.5-billion acquisition by AREVA Resources in August 2007. Stalker also served as vice-president of Gold Fields between 2001 and 2005, and as a managing director of Ashanti Goldfields, which under his watch grew from a gold miner producing less than 200,000 oz. gold a year, to one turning out well over 1.5 million oz. gold annually.  

Over the last year, Otterburn’s shares have traded on the TSX Venture Exchange within a range of 10¢ to 20¢ per share. The junior has just over 13 million shares outstanding, and plans to rename itself K92 Mining when it acquires K92 Holdings in the next couple of months.