KNT.TO · 2017-05-16 12:00:00

K92 is pleased to provide a production update on the Kainantu Gold Mine for the March Quarter of 2017.

Production Results

Suite 488 – 1090 West Georgia Street

Vancouver, British Columbia

Canada V6E 3V7

Telephone: (604) 687-7130

Facsimile: (604) 608-9110

NEWS RELEASE

May 16, 2017 Vancouver, British Columbia

K92 is pleased to provide a production update on the Kainantu Gold Mine for the March

Quarter of 2017.

 Total production of 23,400 tonnes mined, primarily from development of the 1205

mRL, 1220 mRL and 1235 mRL, a production rate significantly above the 13,645

tonnes scheduled in the AMDAD Mine Plan

 The first stope production now mined from the remnant stopes

 The Process Plant treated just under 12,000 tonnes in March and has regularly

achieved over 600 tonnes per day, which is above design throughput

 Grade control drilling and sampling for the initial mining area, comprising stopes

and development from 1205 mRL to 1265 mRL levels and between 59450 North and

59700 North, defines 38% more tonnes and 13% more ozs than the AMDAD design

 Detailed design work incorporating all res ults from the grade control drilling and

face samples has defined a total of 35,716 tonnes at a gr ade of 6.53 g/t Au (25,446

tonnes @ 6.20g/t Au Measured Resource and 10,260 tonnes @ 7.35 g/t Indicated

Resource) as remaining to be mined from initial stopes and 1,175 tonnes at a grade

of 7.52 g/t Au (Indicated Resource) to be mined from the 1250 mRL level (see Table

3).

 As at 31 st March 2017, surface stockpiles, from mining of development material,

contained a total of 9,000 tonnes at a gr ade of 4.54 g/t Au. This material was

classified as a Measured Resource.

 Over 270 tonnes of concentrate trucked to th e port of Lae during the quarter with

shipments ongoing

Mining

The current mine plan is based upon the 3 Year Mine Plan prepared by Au stralian Mine Design

and Development (“AMDAD”) which is detailed in the “Independent Technical Report, Mineral

Resource Update and Preliminary Economic Assessment (“PEA”) of Irumafimpa and Kora Gold

Deposits, Kainantu Project, Papua New Guinea” with an effective date of March 2, 2017 (the

“Technical Report”). Formal approval to restart underground production was received from the

Mineral Resources Authority (“MRA”) in late October 2016 following the successful

rehabilitation and refurbishment of the undergr ound mine, so the effective start date for the

AMDAD Mine Plan has been taken as 1st November 2016.

The majority of mining production to date has come from development on the 1205 mRL, 1220

mRL and 1235 mRL production levels betwee n 59450 North and 59700 North, with a small

amount of approximately 1,000 tonnes recovered from remnant stopes left behind by the

previous operators on the 1250 mRL level.

The AMDAD Mine Plan based on the current Iruma fimpa Resource provided in Table 4 below,

called for a total of 13,645 tonnes at a grade of 6.69 g/t of development material containing 2,935

ozs to be mined during the quarter, with no st ope production due until month 7. This material

would be part of the Inferred Resource. In comparison K92 has mined 23,400 tonnes containing

3,400 ozs, with approximately 1,000 tonnes comi ng from existing remnant stopes based on

material processed or remaining in stockpiles. (See Table 1).

The major difference between the AMDAD Mine Plan and actual performance to date is that a

significant tonnage of material outside of defined stoping areas was originally classified as waste

within the AMDAD plan but wa s processed as lower grade material during the commissioning,

rather than being waste.

As was disclosed in the Company’s news re leases dated March 3, 2017 February 4, 2016, the

Company’s decision regarding production at th e Kaintantu Gold Mine was not based on a

feasibility study demonstrating economic and tec hnical viability and, as a result, there is

increased uncertainty and multiple technical and economic risks that are associated with this

decision. These risks include areas that are analyzed in detail in a feasibility study, such as

applying economic analysis to resources and reserves, more detailed metallurgy, and a number of

specialized studies in areas such as mining and recovery methods and environmental and

community impacts. In addition, th ere are certain specific risks associated with the Kaintantu

Gold Mine (as described in the Technical Report) including, but not limited to, inadequate water

access and access to power. Project failure may adversely impact K92 and future profitability. As

such, K92 cautions the reader that where projects are put into production without first

establishing mineral reserves, as opposed to mineral resources, supported by a te chnical report

and completing a feasibility study such projects ha ve historically had a higher risk of economic

or technical failure.

The preliminary economic assessment (the “PEA ”) contained in the Technical Report is

preliminary in nature and includ es inferred mineral resources that are considered too speculative

geologically to have the economic considerations a pplied to them that woul d enable them to be

categorized as mineral reserves, and there is no certainty that the PEA will be realized. The

Technical Report contains a full description of all underlying assumptions relating to the PEA.

Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

Table 1 AMDAD Mine Plan versus Actual Mine Production

Underground Development

March Quarter

AMDAD1 Actual2

Waste m 368 169

Mineralisation m 460 536

t 13,645 23,400

Au g/t 6.69 4.52

Ozs 2,935 3,401

Total Development m 828 705

Note 1 Mineralisati on is Inferred Resource

2 Mineralisation is Measured Resource

During the quarter the Company also complete d the installation signi ficant infrastructure

underground, including two new 55 kW ventilati on fans, a leaky feeder radio communication

system and extensions to the 11 kV power supply to the upper workings of the mine.

Grade Control and Stope Design

A total of 35 grade control holes (3,200 metr es) were completed underground by two diamond

drill rigs during the qu arter. In addition, a co mprehensive program of face sampling has been

undertaken, in which almost every development face which is within the known deposit is

sampled. This has resulted in almost 300 faces being sampled on the 1205 mRL, 1220 mRL and

1235 mRL levels generating over 1,300 samples. The results from grade control drilling and face

sampling have been used to upd ate the stope design model and pr ovide an updated estimate of

the tonnage and grade of the stopes it is planned to mine in the next six months.

A comparison of the tonnage and grade of th e first stopes between between 1205 mRL and 1265

mRL levels and from 59450 North and 59700 North - an area approximately 250 metres long and

60 metres high at the extremity of the known deposit (“Initial Mining Area”) has been carried out

between the original AMDAD design and the update d designs incorporating the grade control

information is provided in the Tables 2 and 3 below. The comparison breaks down the total

tonnage from the area into development tonnes and stope tonnes.

The AMDAD design defined a total of 44,073 tonne s at a grade of 6.83 g/t Au, containing 9,679

ozs in the Initial Mining Area. This tonnage comprised 33,539 tonnes at a grade of 6.71 g/t Au to

be mined from stopes and a further 10,534 tonne s at a grade of 7.20 g/t Au mined from

development of the 1205 mRL, 1220 mRL, 1235 mRL, and 1250 mRL levels. All of the material

in this initial mining area forms part of the Inferred Resource outlined in Table 4.

The more detailed design carried out by K92 inco rporating all of the results from the grade

control drilling and face samples has defined a to tal of 35,716 tonnes at a grade of 6.53 g/t Au as

remaining to be mined from stopes and 1,175 tonnes at a grade of 7.52 g/t Au to be mined from

the 1250 mRL level. This bei ng in addition to the 25,000 tonnes at a grade of 4.23 g/t that has

already been mined during the development of the 1205 mRL, 1220 mRL and 1235 mRL levels

over the last months, giving a total of 60,809 tonnes at a grad e of 5.58 g/t Au, containing 10,914

ozs within the defined area. This material has been defined by extensive grade control drilling

and face sampling of developments and is cla ssified as Measured Resource up to the1250 mRL

level and Indicated Resource between the 1250 mRL and 1265 mRL levels (see Table 3).

In summary:

 Total tonnes defined by K92 grade control dr illing and sampling in the stopes are 6.5%

above that defined by AMDAD, while total tonnes from the above specified area are 38%

above those defined in the AMDAD model

 The stope grade defined by K92 at 6.53 g/t Au (Table 3) is 2.7% below the 6.71 g/t Au

defined in the AMDAD design (Table 2)

 The total contained ozs defined by K92 in the stopes (Table 3) is 3.6% above those

identified in the AMDAD design (Table 2), wh ile total ozs from the above specified area

are 13% above those identified in the AMDAD model.

Table 2 AMDAD Design

AMDAD Design

Level Classification Volume Tonnes Grade Ozs

m3 t g/t Au

1205 ‐ 1220 Inferred 3,876 11,240 5.83 2,107

1220 ‐ 1235 Inferred 3,736 10,834 5.96 2,076

1235 ‐ 1250 Inferred 2,603 7,549 7.48 1,815

1250 ‐ 1265 Inferred 2,330 6,757 8.36 1,816

Sub Total ‐ Stopes 12,374 35,360 7.05 8,015

Sub Total Development Inferred 10,534 7.20 2,438

TOTAL Inferred 45,894 7.08 10,453

Table 3 K92 Design and Actual

K92 Grade Control Design

Level Classification Volume Tonnes Grade Ozs

m3 t g/t Au

1205 ‐ 1220 Measured 2,479 7,189 5.34 1,234

1220 ‐ 1235 Measured 3,610 10,469 5.96 2,006

1235 ‐ 1250 Measured 2,689 7,798 7.32 1,835

1250 ‐ 1265 Indicated 3,538 10,260 7.35 2,425

Sub Total Stopes 12,316 35,716 6.53 7,500

Mined Dev to 31/3/2017 Measured 23,918 4.07 3,130

Planned Dev 1235/1250 Indicated 1,175 7.52 284

Sub Total Development 25,093 4.23 3,414

Total Meas + Indicated 12,316 60,809 5.58 10,914

The significantly higher tonnage of development material mi ned at lower grad e than predicted

from the AMDAD model is due primarily to the mi ning of lower grade material outside of the

defined stope areas which was identified duri ng face sampling. K92 mined and treated this

material as part of the commissioning process for the process plant.

Processing

The process plant throughput has ramped from just over 2,000 tonnes treated in January to

almost 12,000 tonnes treated in Ma rch. Despite treating only devel opment material assaying at

just under 4 g/t Au, the plant pr oduced saleable grade concentrat e during the enti re month of

March, with an average grade of 111 g/t Au. The final concentrat e produced has also averaged

almost 6% copper, which is over twice that produced by the previous operators. Unlike the

previous offtake agreements, the agreement wh ich K92 incorporates payment for copper, and

this level of copper increased the revenue for this first batch by approximately 4%. A total of 270

dry tonnes of concentrate was transported to the port of Lae during the month, while a number of

additional containers were loaded with concentrate and ready for transport to the port at the end

of the Quarter.

Recoveries have been steadily increasing as th e plant has moved towards steady state operations

and averaged 72% in March, despite the relatively low head grade. The plant demonstrated the

ability to treat in excess of 600 tonnes per day, while achieving grinds of in excess of 70% minus

45 microns, with only a light ball charge in the mill. This confirms the view of the Company that

the plant has significant excess capacity.

The newly installed and commissioned drum scr ubber is now fully operational and has allowed

the plant to treat extremely we t sticky mill feed from underground which would previously not

have been able to be handled by the crushing ci rcuit. The scrubber successfully removes all fines

and clays, allowing them to bypass the crusher and report to the milling circuit, while the coarse

fraction can be easily handled through the crushing circuit.

The new configuration with the dr um scrubber also provides significant flexibility to the process

plant, allowing the milling and flotation circuits to operate on feed from only the drum scrubber

undersize, only the crushed material from the Fine Ore Bin or a combination of the two.

During the quarter the Company purchased, installed, and comm issioned two 1,250 kW diesel

generators to provide complete standby power for the process plant, offices, workshop, and

camp. A third diesel generator located at the portal provides standby po wer for the underground

mining operations.

Table 4 Irumafimpa Resource and Category

Deposit Resource