If the TSX’s top 30 growth stocks were selected today, K92 Mining (TSX: KNT) would probably be among the top 10. The winners in TMX Group’s flagship program in 2021 had a three-year positive performance of at least 162%.
As of this writing, K92’s total return in 3.01 years is 455.86% (76.77% CAGR). At $18.06 per share, investors are up 12.10% year to date. This mining stock is a potential compounding machine based on the most recent quarterly results. Market analysts covering the commodity stock has a 12-month average price target of $12.42 (+54%).
Miner in the Elephant Country
Vancouver-based K92 operates in the eastern Papuan Mobile Belt. It owns the high-grade, low-cost underground Kainantu Gold Mine in Papua New Guinea, the Elephant Country. The region where it operates is known for having vast mineral deposits.
Besides gold, the $1.8 billion company mines and explores for silver and copper. However, the land in the Eastern Highlands province boasts large tier-one gold assets. K92 bought the project from Barrick Gold in 2014. Since the start of operations in 2016, the company has built over 20 mines.
Positive operational momentum
K92’s tier-one gold asset is rapidly expanding. In Q1 2022, Kainantu Gold Mine’s throughput increased 36% to 99,611 tonnes versus Q1 2021. The combined quarterly production (gold, silver, and copper) increased 49% from the same quarter last year. While the global pandemic still impacts operations, management said K92 is making considerable progress in increasing its resiliency.
John Lewins, K92’s CEO and director, said, “In the first quarter, we continued our positive operational momentum, delivering near-record mining and milling rates, the second consecutive quarter at stage-two expansion run-rate and significant advancement of the twin incline, exceeding budget by 15%.”
Lewins added, “Expanding the existing process plant to 500,000 tonnes per annum is a major positive development for the Kainantu Gold Mine.
Importantly, at an estimated plant expansion capital cost of US$2.5 million, the expansion is not only funded from existing cash flow but is also expected to considerably strengthen our near-term ability to self-fund the stage-three expansion while continuing to advance our vein field and porphyry exploration.”
Earnings growth
K92’s earnings growth in 2021 was negative 35.2%, yet the operational results in Q1 2022 indicate a bright future. In the past five years, the company’s annual earnings growth is 33.7% compared to the industry and market averages of 27.5% and 15%, respectively.
For the stage-two expansion from 2022 to 2023, management projects after-tax free cash flow to be US$35 million and US$45 million. However, the stage-three expansion beginning in late 2023 should boost free cash flow generation further. K92 expects after-tax free cash flow to compound 480% to US$261 million in 2027.
Competitive advantages
Commodity stocks like oil producers and metal miners outperforms in 2022. K92 is among the solid picks. Its competitive advantages are the mine life of 12 years, a rapid self-funded production growth, and a large, high-grade tier-one asset resource. K92 isn’t a dividend payer, but it reinvests 100% of profits into the business. Expect this strategy to drive earnings and extend the mining stock’s growth streak.
