K92 Mining Inc. (OTCQX:KNTNF) Q2 2022 Earnings Conference Call August 15, 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
Ovais Habib – Scotiabank
Don DeMarco – National Bank Financial
Kulvir Gill – TD Securities
Andrew Mikitchook – BMO Capital Markets
Chris Thompson – PI Financial
Operator
Thank you for standing by. This is the conference operator. Welcome to the K92 Mining Second 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 to everyone for attending K92 Mining’s second 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 the risk disclosure in our MD&A and slide 2 of the webcast presentation. Also, please bear in mind that all dollar amounts mentioned in the conference call are in the United State dollars unless otherwise noted.
Now, I’ll turn it over to John to provide you with an overview.
John Lewins
Thank you, David, and welcome, everyone. The second quarter took another step forward, delivering on multiple records, including record cash balance, record mine production, record mill throughput, while also achieving strong all-in sustaining and cash costs. This was the first quarter where we achieved throughput significantly above that Stage 2 run rate, where we averaged 1,196 tonnes per day against the Stage 2 run rate of 1,100 tonnes per day. Subsequent to the end of the quarter, in July, the process plant actually achieved multiple new daily throughput records, which were substantially higher than the Stage 2A expansion run rate of 1,370 tonnes per day.
Importantly, these record throughputs were achieved without the installation of the new flotation cells, which will double our refer capacity, which were only planned for the fourth quarter. And that really highlights the upside potential beyond even our Stage 2A design.
Lastly, we continue to make significant progress in our organic growth through exploration, delivering a 10.8 million ounce gold equivalent made an inferred resource at Blue Lake at a discovery cost of less than $10 an ounce. We had high-grade drill results at Kora and Judd, and I’m pleased to report there are now four surface diamond rigs operating at Kora site, Judd site with the fifth on the way. And in addition, we have the six diamond rigs operating underground.
So we’re really excited about the exploration and believe this is only the tip of the iceberg, both in relation to the high-grade vein systems, but also in relation to the porphyry targets.
On the safety front, we recorded one lost time injury during the quarter. We remain proud to operate with one of the best safety records in the Australasian region. We have a strong focus on occupational health and safety and also continuously improving our safety systems.
On the ESG front, I’m pleased to report that we recently completed multiple community projects, including refurbishment of the Kainantu police station, and refurbishment of the Kainantu high school library. Other projects, including upgrading of community roads, various agricultural projects, training and education initiatives remain ongoing.
While I was in Papua New Guinea last month, K92 received recognition for our industrial training program. K92 provides practical work experience to the largest number of mining engineers, metallurgy and geology university students of any mining company in PNG, developing that workforce skill domestically is a major focus, and we highlight that our workforce is one of the lowest percentages of expatriates of any mine in the country. The program is one of many community and social programs, and I encourage you to read our sustainability report for more information.
Our 2021 sustainability report is planned to be published shortly and we’re very proud of the positive impact that K92 has had in Papa New Guinea. Greenhouse gas emissions and climate change is another key focus for K92, I’m very pleased to announce that we’ve completed our 2021 greenhouse gas emissions inventory and TCFD gap analysis. The findings in addition to our greenhouse gas emissions forecast which is underway, will be a key tool in K92’s mission targeting and goal setting going forward.
2021 greenhouse gas emissions inventory was completed by WSP consultants and chose the K92 delivers low carbon production with an emission intensity, which is approximately 60% below the global gold sector average. The results also highlight a near-term opportunity to massively reduce our emissions, referring to the emissions build-up pie chart shown here. Upgrades to the grid for our direct power distribution from Yonki Dam and improvements to our distribution liability can potentially reduce by almost two-thirds or combined stope to location-based emissions.
And I’m pleased to report we’re working in collaboration with PNG Power to upgrade this, and that is actually already underway. This is expected to make a major positive impact towards reducing our emissions intensity. And most importantly, it’s not long dated. The potential to realize this is over the next 12 to 24 months.
Moving on to our operational performance. During the quarter, we produced 26,085 ounces gold equivalent, with 108, 853 tonnes processed at a grade of 8.2 grams per tonne. If we compare this to the Q2 2021 mill throughput, our mill throughput increased 44%, and our production increased 59%, respectively. A major positive continues to be the strong performance of the mill.
In the second quarter, as noted, average mill throughput was 1,196 tonnes per day, which is 9% above Stage 2 run rate. In June, the plant achieved a record monthly average of 1,251 tonnes per day. And in June following the installation of our new TC-1000 crusher, multiple daily records were achieved, including 1,638 tonnes processed on July 6, 1,642 on the 14 and 1,609 on 12.
As I previously mentioned, what makes us even more impressive is that we have not yet installed the additional rougher flotation cells, which are the important part of that Stage 2A expansion. In terms of our key operational quarterly physicals, K92 delivered record mill throughput, record mine material. Development also increased significantly 19% quarter-on-quarter and was the second highest quarterly development advance rate to date.
Development was certainly impacted by COVID-19, and it remains a major near-term focus as we expand the mine and increase our near-term operational stope sequencing flexibility. I’m pleased to report that in June, near record development advance was achieved. And with the new jumbo and loader recently arrived in country, we obviously see that continuing. Plans to add more equipment over the coming months are also underway.
In terms of 2022, I think it’s important to remind investors, our guidance is based on the second half of the year being stronger than the first, driven primarily by increased throughput rates and also by higher grade, stope grades from stope sequencing. So this put us now well positioned to achieve our production guidance of 115,000 to 140,000 ounces gold equivalent.
So I’ll now turn the call 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 second quarter, we had revenue of $37.4 million, a 5% increase from prior year. We sold 23,674 gold ounces at an average realized selling price of $1,783 per ounce compared to 18,939 ounces at an average realized selling price of $1,754 per ounce in the prior year. As of June 30, 2022, there are 3,012 gold ounces in inventory, including both concentrate and doré, a decrease of 1,836 gold ounces when compared to March 31st due to timing of sales.
Cost of sales was $23.2 million compared to $20.9 million in the prior year or $18.5 million compared to $15 million, excluding non-cash items. Cost of sales is higher due to increased tonnes mined and processed in 2022 and an inflationary impact from both the COVID-19 pandemic and the war in Ukraine.
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 72,000 tonnes in Q2 prior year to 14,471 tonnes in Q2 2022. In Q2 2022, cash flow from operating activities before changes in capital was $10.5 million compared to $15.2 million in the prior year.
As of June 30th, 2022, we had $81.7 million in cash and cash equivalents, while spending $10.7 million in expansion capital for the quarter and having our strongest working capital balance to-date of $94 million.
Subsequent to quarter end, the company completed a bought deal financing for gross proceeds of CAD50 million. The company has no debt on the balance sheet.
As John mentioned, during the second quarter, the Kainantu gold operations produced 22,934 ounces of gold, 1,229,961 pounds of copper, and 25,224 ounces of silver or 26,085 ounces gold equivalent. We sold 23,674 ounces of gold, 1,349,816 pounds of copper, and 27,033 ounces of silver. We incurred a cash cost of $617 and an all-in sustaining cost of $893 per ounce gold, which was significantly below our realized gold selling price of $1,783 per ounce.
When comparing to prior year, our cash costs decreased from $736 per ounce. The decrease in cash cost was primarily due to the successful ramp-up of the 400,000 expansion, allowing the company to achieve better economies of scale and a 25% increase in the amount of gold ounces sold.
It is important to note that after commissioning the Stage 2 plant expansion in late third quarter 2021, we have seen a significant compression in our total unit cost per tonne processed. We continue to see downward pressure on cost 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
Thank you, Justin. So, for the exploration and growth section of the call, we’ll begin with Kainantu production growth strategy. So, the Stage 2 expansion to 400,000 tonnes per annum was achieved in late third quarter of 2021. Throughput rates have now obviously exceeded that in the second quarter, and our Stage 2A expansion is currently well underway, increasing our throughput further 25% to 500,000 tonnes per annum.
We’re also advancing the Stage 3A expansion, which increases the throughput to 1.2 million tonnes per annum through the construction of a stand-alone new processing plant.
Feasibility study also includes looking at a PEA case where having commissioned the new 1.2 million tonnes per annum plant, we will then bring the existing 2A plant back online and ramp our production up to fill both plants. Study is well advanced, and we plan to announce them over the coming weeks.
In terms of Stage 2A, capital cost, as I think you recall, is low at $2.5 million, which is primarily for the ancillary equipment for the processed plant. In terms of the underground mining rate, increases are achieved through accelerating the timing of some of the Stage 2A sustaining capital.
At the plant, filter press is operational, additional TC-1000 is installed and commissioned, float tanks are planned for installation in the fourth quarter with commissioning in that fourth quarter as well. However, based on the strong performance of the plant to date, we are still able to increase mine and processing throughput rates ahead of the delivery of those float tanks. And that’s obviously been demonstrated what you’ve seen over the last couple of months.
On the Stage 2A, we expect to see a meaningful boost in our free cash flow generation, which will obviously further strengthen our ability to self-fund our growth. Also during the second quarter, in April, we received our Doré Export license from the Bank of Papua New Guinea. First, Gold Doré sales occurred during the quarter. Now with this expert license granted, our gravity circuit will be ramped up, and we expected to see an improvement in overall payabilities and recoveries.
So while on site in July, I inspected the new TC-1000 crusher, which was recently installed and being commissioned. Now the crusher was originally planned to operate in parallel with the existing TC-1000 crusher. However, with the improved performance we’ve seen from the crusher over the last few months, we’ve actually installed it as a tertiary crusher with an ability to also act as a backup secondary crusher. Now the advantage of putting it in as a tertiary crusher is it that means we can deliver a final product to the mill, and that has the potential to further drive overall plant throughput even higher.
Also, while on site was able to see the underground tele remote system in operation. It’s one of the many examples of advanced technology we’re investing in K92 Gold mine. And from the video, you can see it’s an advanced system with LiDAR and drive mapping. Other examples on site to include the jumbos with Auto drill, and we’re also in the process of setting up our underground WiFi system, which will enable detailed real-time tracking of our mobile plant and personnel.
On the twin incline, the further incline has now advanced 1.4 kilometers by the end of July, and the performance of the development crew has been extremely strong over 2022 with the twin incline advance exceeding budget by about 38%. You may recall the twin incline has been oversized capable of handling up to and perhaps beyond 5 million tonnes per annum with conveyors, enabling the infrastructure to meet expansions well beyond Stage 3.
On exploration during the quarter, drilling was underway at Kora, Kora site, Judd and Judd site. In June, we announced high-grade underground drill results at Kora and Judd. At Kora 54 holes were reported with highlights including 5.9 meters true thickness at 23.18 gram per tonne gold equivalent and 2.64 meters at 37.38 gram per tonne gold equivalent. Judd also delivering some strong results during the quarter, 62 holes, including 8.8 meters true thickness of 61.17, 5.17 meters at true thickness at 18.83 gram per tonne gold equivalent.
We look at Kora, Kora site vein system and look at this long section. There are three key areas for our exploration. Area one, which is drilling Kora site from the surface. As you can see in the long section, been absolutely know previous drilling along about a kilometer of strike length, only one hole has been reported today, and that was drilled by K92 in Q1.And that recorded potentially the more significant exploration result since the discovery hallway back in 2017.
The second area is drilling Kora site from underground, and this is expected to provide information synergies with that surface program, allowing us to extend that resource at depth. Area three, in the second half of the year, we plan to drill what we refer to as Kora Deeps and the Northern strike extension of Kora from the twin incline, drilling of the northern extension of Kora below Irumafimpa recently commenced on the twin incline.
On the Judd, Judd site vein system exploration program really follows a similar plan with the distinction that the exploration along the vein system is about 3 years behind Kora. If you recall, we made the discovery of high-grade at Judd only in Q4 2020, whereas Kora North obviously was May 2017. Drilling at Judd site from surfaces underway and drilling at Judd site from underground also recently commenced and a major portion of our underground rigs are focused on drilling Judd Vein system.
So again on site in July, visited our more southern underground drill rig, the rig initially drilling Judd site, but also then targeting Kora site. You may recall that our development underground sits between the Judd and Kora vein systems. So, we’re drilling off to the left here, so that will be drilling into Judd. The rig change and drilling to the right that would then be drilling Kora. Once we finished our initial drilling program here, that rig will be pulled out and we’re going to develop this another 100 to 150 meters to the side and again we’ll commence more of our drilling of Kora site from underground.
I’m also pleased to report that our fourth surface drill rig is operating at Kora site and Judd site, as shown on the image to the layer. All drill rigs are delivering strong drill meters and plans are underway to bring in a fifth rig. Now last week, we announced a major milestone. The Maiden Blue Lake inferred resource, 10.8 million ounces gold equivalent or £4.7 billion copper equivalent. The resource is large as a high-grade core is open at depth and is the fifth largest non-porphyry in Papua New Guinea. It was defined with under 17 kilometers of drilling and less than $1 per ounce gold equivalent.
Now the long section, you can see the resource has a defined high-grade potassic core with increasing grade enter at depth. The porphyry environment appears to be relatively well-preserved, limited erosion and little evidence of faulting, which you can see what a relatively high degree of symmetry in the section. Porphyry is open at depth and 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. You may recall, in late 2021, we flew the mobile MT advanced geophysics and this confirmed that several of the non-porphyry targets in addition to highlighting the potential for additional targets. And we note that in Papua new Guinea porphyry tend to cluster and there are five targets to find near Blue Lake.
Now the work clearly shows that A1 is our number one porphyry target. It has very strong connectivity response, while also being situated in a very prospective geological environment. Essentially, it’s believed to be the main resource for the high-grade Kora, Judd, Maniape, Arakompa deposits.
Additionally from field mapping, Blue Lake, A1 and [indiscernible] are within the same large litho-cap, indicating the potential for additional porphyries in between. We plan to commence a comprehensive SAR program imminently followed by a detailed drill program for A1.
So with that operator we’d like to commence the Q&A session. Thank you.
Question-and-Answer Session
Thank you. [Operator Instructions]. The first question is from Ovais Habib from Scotiabank. Please go ahead.
Q – Ovais Habib
Thanks, operator. Hi, John and K92 team. John, great to see mining rates steadily picking up. So just on that, based on guidance, production in the second half is expected to be stronger in the second half and also with the 2022 year-to-date all-in sustaining cost of around $838 per ounce, the reiterated guidance implies ASIC of around $942 a ounce in the second half to meet the bottom end of our guidance. So John, are you just being conservative in regarding to the cost guidance, or is there a catch-up plan in the second half?
John Lewins
So, thanks, Ovais. Yes, look I mean, the one area where we haven’t done as well as we’ve wanted to is in our development. And as you know, we’re looking to expand into the two-way and then that’s immediately rolling into what we call as Stage 3. So certainly, the intent is that there will be a significant increase in the development that we’re doing, which doesn’t come into necessarily cash costs that will come into your all-in sustaining cost
Ovais Habib
Okay. Sounds good. And just kind of moving into the elections in P&G and maybe if you can give us some color on your expectation on timing of the mining lease renewal as well?
John Lewins
Okay. So in terms of the election, basically the incumbent government under Marape was returned. So PM Marape party obviously was the — got the most number of seats in the election. As always, there is no — was no one dominant party. So the new government is still a coalition there’s a coalition led by the party of PM James Marape.
Also, as we normally see in PNG, there was a high percentage of turnover of NPs, not quite 50%, which is the normal, a bit less than normal, but nevertheless, a significant turnover in MPs. And that includes our local member and the mining minister. So certainly, there’s been a number of changes around.
The new government in terms of the ministries have not yet been announced. We expect them to be announced in the coming weeks. I’m actually heading into PNG this week, and that will be four meetings with the local MP, Governor of the state — sorry, the province, Eastern Highlands province as well as with the new ministers as they are appointed.
And then as the chamber, we have a day where the chamber of mining and oil and gas. We go in and we give a briefing in parliament to the new parliament on the industry and what we’re doing, et cetera, et cetera. So that will be occurring next week.
So it will be back to business, I think, obviously, for the government, and certainly client that oil and gas and mining are the key industries for them and really are the driver for the economy recovering after COVID.
In terms of the renewal of our ML, we’ve put in the application to have that renewal done early. It’s actually not due until October 24. But we’re looking to have it renewed hopefully by the end of this year. And certainly, that’s our anticipation at this point in time is that, we should get renewal by the end of the year. I met with the MD of the MRA a couple of week’s back, when I was in country. He certainly indicated that from that perspective, they’re pushing our renewal along, and that was a realistic expectation.
Ovais Habib
Thanks. That’s great color, John. Thanks.
Operator
The next question is from Don DeMarco of National Bank Financial. Please go ahead.
Don DeMarco
Thank you, operator, and good morning, John team. So I see that year-to-date, H1, you’ve got 42% of the production guidance midpoint delivered, and you reiterated guidance, which is great. Yes, the guidance range is somewhat – somewhat wide, it’s 115,000 to 140,000 ounces gold equivalent. Can you give us an indication about where you might expect to fall within that broad range?
John Lewins
Okay. Yeah. Thanks for that, Don. Yeah, look, I mean, it is why it was deliberately wide, basically because of all the uncertainties coming into the year, which included all of the impacts that we’ve seen from COVID and quite a number of those are ongoing, as I think it’d be very aware from other companies, and that includes supply chain issues, we’ve continued to increase our stocks on site month-by-month. And in par, that’s obviously because we’re – we’re looking at our expansion of production. But it’s also, because we’re trying to ameliorate against the issues of supply chain. And those can have an impact. And one of the areas that we’ve also flagged is in relation to our mobile plant, where we’ve received additional mobile plant in [indiscernible]. But all of those were months later than – than the supplier had originally committed to. And so all of those have had an impact in terms of our ramp-up, especially in the development area.
And that, in turn, has also meant that we haven’t had as much flexibility as we would like, for instance, in some of our store scheduling. So – these things can impact you not necessarily in reducing perhaps the tonnes that you treat, and we’re actually running a little bit ahead of the tonnes that we’re going to treat, but certainly in terms of where you can mine and what have you. And so it’s a combination of those things that really had us giving a relatively wide guidance. I would certainly say, it will be a challenge to get to the top end of that guidance. And so we’d certainly expect, we’re more likely to be in the midrange and we are to be above that.
Don DeMarco
Okay. Great.
John Lewins
Which is our – I know.
Don DeMarco
Yeah, yeah. That’s — okay. Well, that’s good. I mean, it sounds like, directionally, it’s going to be higher than what you delivered in H1. In Q2, we saw grades just over 7 grams per tonne. You hit a lower grade sequence at the end of the year. Encouraging to see,you’ve got higher grade stopes in the back half, what does this mean? I mean, does it mean going back to 9 or 10 grams per tonne and we’ve seen that before in previous quarters?
John Lewins
Certainly, the mine schedule has us moving up to higher grades than we’ve had in the first half of the year. That’s certainly our expectation.
Don DeMarco
Okay. Okay. We can leave it at that. And just as a final question. Looking at Blue Lake, so you’ve only got 26 holes in this, and yet you’ve got almost 11 million ounces how many rigs are running on this? And are you targeting the high-grade potassic core at this point? Are you drilling below the lithocaps, it seems like there’s a number of targets? And are you increasing the priority of this target given the maiden inferred resource?
John Lewins
Currently, we actually have no rigs drilling at Blue Lake. We finished the program and then undertook the modeling exercise, the outcome of which you’ve seen using an independent consultant. At this point in time, we’ve got four rigs on surface. All of the four rigs are drilling in the Kora and Judd South, the first 500 meters of strike length along from the mining lease. And they’re certainly scheduled to be in that area for the balance of the year. I’d make a point. However, that, that area potentially includes some drilling at A1.
So you will have seen from the release that we put out effectively, we’ve — a modeling suggests that Blue Lake, A1 and several of the other porphyries sort of part of a swap. And certainly part of a lithocap and so covers quite a number of those. The geological interpretation is that the A1 Porphyry would be our number one target, and that certainly is where we intend at this point in time to put our next to holes in. We still see Blue Lake as having very significant potential at depth. And it’s clearly open at depth, and that’s been shown in the model.
When we think A1 has the potential to be more attractive. It’s certainly appears to be the heat source for Maniape, Arakompa, Kora, Judd and while the overall system clearly has a massive endowment in terms of metal, we’re looking at that as perhaps being the core, if you like.
Don DeMarco
Okay. John, well thanks so much for additional color. Appreciate it. And good luck with the second half. That’s all for me.
John Lewins
Thanks, Don.
Operator
The next question is from Kulvir Gill from TD Securities. Please go ahead.
Kulvir Gill
Thank you, operator, and John and Justin.. I have a quick question here regarding the feasibility of the NPA that you mentioned on today’s call. Can you remind me if you’re releasing both of those separately or concurrently?
John Lewins
Okay. So the DFS on the 1.2 million tonne per annum project incorporates it within it a scenario where we are looking to expand production about two years in from when we first commissioned the 1.2 million tonne expansion. So the 1.2 million tonne plant, we’re looking at commissioning that — I think it’s the third quarter of 2024, and then we’re looking to continue to expand our underground operations with the aim of bringing the existing Stage 2a plant back online in 2026. So you got 1.2 million tonnes in 2024 and then you step it up to about 1.7 million tonnes in 2026, and that is incorporated within a single report. So it will all come out concurrently.
Kulvir Gill
Okay, great. That was all for me. Thank you.
John Lewins
Thanks Gill.
Operator
The next question is from Andrew Mikitchook from BMO Capital Markets. Please go ahead.
Andrew Mikitchook
Yes. So, myself muted there. John thanks for taking my question. All kinds of good questions asked already. I just have one quick one to close my thoughts. This Blue Lake resource, obviously, was a bit of a halo large resource, and you already stated that you’re looking for the higher grid feeders. Can you give us some sense of what you think what kind of grades or maybe grades linked with tonnages become material or maybe even more simply interesting to you to pursue?
John Lewins
Well, that’s a tough. Look that priority is what we’ve seen at — yes, what we’ve seen at Blue Lake is certainly interesting to pursue. And if we had absolutely nothing else on the table, we’ve been pursuing it with another drilling program commencing shortly. The reality is that we believe that Blue Lake offers — sorry, A1 offers a higher potential opportunity, I think, would be the term.
Certainly, from our view, the amount of ounces that have been shown in Blue Lake are certainly sufficient for us in terms of looking at a Porphyry type development. However, in terms of grade, I think in the ideal world, if we were looking at something like –something at A1, which is directly along strike from Kora and Judd, we’ll be looking, I think, for something around a gram plus in terms of grade gold equivalent.
It’s interesting. It’s a 1:1 ratio. If you look at Wafi-Golpu, that’s also a 1:1 ratio. Generally speaking, porphyries and P&G tend to have relatively high gold. I guess we’re fairly bullish both on coal price and especially on copper price going forward. And we’d certainly be keen to see some — to see that sort of ratio continuing in anything we’re looking at. But of course, as you know, I mean, it’s a combination of grade and tonnes that drive commerciality. And what we do, what I believe we have shown is that this is — it’s a really large system, and it has shown already that it has a very significant endowment of metal. And we really haven’t yet put a hole into what we would consider to be the – the core, if you like, of that whole system.
So this is really, really early days in terms of porphyry exploration as we stated. Currently only – we’ve only drilled 26 holes so far. And several of those were just shallow holes just trying to understand the initial geology. So it’s really early days. I think it’s incredibly exciting, actually, what our exploration people have already defined, bearing in mind that despite the fact that there’s been 30 years of exploration around Kora, Blue Lake area.
Blue Lake was a greenfield discovery by our own exploration people, getting out on the ground. So — and yet some three kilometers from the mining lease. So huge potential still to be evaluated. It’s going to take us many years. So yes, we plan on being the biggest explorer in PNG for the foreseeable future, I think.
Andrew Mikitchook
No fair answer. Thank you, John.
John Lewins
Thanks, Andrew.
Operator
[Operator Instructions] The next question is from Chris Thompson from PI Financial. Please go ahead.
Chris Thompson
Good morning, John, good morning, K92 Mining team. Thanks for taking my questions. A lot of good questions have you already asked — but just a quick one to John, could you just comment on assay turnaround? Any concerns there? I mean, obviously, you got a workload of drilling the books being planned.
John Lewins
Okay. So our assays are all done and an on-site laboratory, which is run by Intertek. So it’s a contract laboratory. It is in a credit laboratory, but it is dedicated only to K92. Secondly, as part of the expansions that we’ve been doing on site for the last 2.5, three years, which I think some analysts are going to be able to see in October. That has included expanding the laboratory, where the assay lab, where we’re actually expanding sample prep, fire assay, et cetera, et cetera. And so generally speaking, we’re talking about just with some of our exploration, maybe a week or two weeks to get turnaround, simply because we’ve got 10 rigs operating right now. And I’m happy to say that the average meters that we’re getting out of the week, has been improving. So, that’s our — I guess, our one talent. But yeah, we’ve moved to double shift. And as I say, we’ve expanded the laboratory, so that something we can keep our turnarounds down.
Chris Thompson
Great. Thanks John. And then the final question, I guess, is on COVID. Is this — maybe just to comment a little bit about COVID in the country at the moment? Any concerns for — in the future, or is it just somewhat weighting in severity?
John Lewins
Oh yeah, COVID. Well, right now, in April, we stopped doing our quarantining for nationals arriving on-site. We’ve already stopped it for sets, but we stopped it also for nationals in April. And apart from a couple of cases — very limited cases, we’ve had no COVID on-site. No COVID on-site.
And we’re still doing testing when people arrive and all the rest of it, and we’re seeing almost nobody presenting with COVID at this point in time. During my last visit to PNG which was just a couple of weeks back just prior to August. There’s almost no COVID present anywhere in the country.
The last serious wave was the original Omicron wave, which came through in February, March, and that significantly impacted part of the — parts of the industry. It did impact us in terms of absenteeism. I mean, it didn’t really impact us in terms of COVID on-site, because we were still running quarantining at that point in time. So we’re actually able to maintain, I called it free-site.
Yeah, in terms of what does that mean going forward? Absolutely, no idea, I think we continue to monitor it. This, what do we call it BA.4, BA.5 hasn’t really shown itself in PNG in any significant way whatsoever.
And of course, PNG, you don’t get that sort of winter environment where the suggestion appears to be certainly we’ve seen it in Australia and winter where we’ve had a pickup in forward in Australia.
And I believe that the concern is that you’ll see it in the northern hemisphere in the coming winter. We don’t really have a winter per se in PNG, so we don’t have that additional sort of challenge. So right now, we’re in a pretty good space in terms of COVID.
Chris Thompson
Great. Thank you, John. Congratulations. Thanks.
John Lewins
Thanks, Chris.
Operator
There are no further questions. I would like to turn the conference back over to John Lewins, CEO and Director, for any closing remarks.
John Lewins
Thank you for that. Well, thanks, everyone, for attending this, and thanks for your questions today. For us, the second quarter in many ways has been the one that operationally, we have been most satisfied with.
Why? Because when we look at the physicals that we’ve been able to achieve on-site, we’ve actually taken this operation beyond our Stage 2 expansion. And we’re already halfway to achieving our Stage 2A expansion, even though we have not completed the installation of the plant that we need in the process plant. And we don’t have all the mobile plant that we are planning to have to be able to achieve that Stage 2A.
And so from that perspective, this has been a really, really good quarter for us. At the same time, we’ve been able to ramp up our exploration and by the end of the quarter, have 10 rigs on site. And we’re pushing out record meters in terms of our exploration as well.
You add to that the ongoing capital work that’s being done on site with the new workshop at the portal area, twin incline being over 30% ahead of budget year-to-date. The expansion, as I mentioned, on the assay lab of the camp progressing strongly with the lifting of the tailings dam.
A huge amount of work is happening at site. We’re expanding our workforce. We’ve been able to attract really good quality people, both national and expat. And we’re seeing the outputs of that and really pleased with where we are.
But at the same time, we recognize we’ve got a heck of a long way to go, major expansion coming up and covering so many areas. So, we feel like we’ve achieved a lot, but we also feel that we’ve got a long, long way to go, and that’s what makes it so exciting for us, both operationally and from an exploration perspective.
And we are looking forward to being able to once again host some analysts on site and enable some people to see firsthand what’s been achieved over the last two very, very challenging years.
So, I’d like to acknowledge our operations team and our exploration team for the phenomenal work that they’ve been doing all during COVID, but this last quarter, I think our operations team and our exploration team, I’ve got to be extremely pleased with what they’ve achieved, and we’re certainly very proud of what those people have achieved itself.
Thanks to our team. Thanks to everyone for dialing in on this and we look forward to the next quarter as they say. Thanks very much. Bye now.
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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