Shares in Kirkland Lake Gold Ltd. posted their biggest daily jump in almost four months after the mid-tier miner beat analyst expectations in the second quarter, boosted its production forecast and delivered promising drilling results.
Toronto-based Kirkland Lake earned a US$61.5-million net profit for the three months ended June 30, a 78-per-cent year-over year increase.
Production at the company’s high-grade Macassa mine in northern Ontario hit a record 60,500 ounces of gold in the quarter, thanks to higher grades and lower costs.
Cash flow per share came in at 54 US cents, five cents better than the Street predicted. Meantime, Kirkland Lake’s cash position swelled by US$43-million to US$318-million.
“Another good quarter for Kirkland as it continues to pad its balance sheet with more cash to fund various growth initiatives,” Phil Ker, analyst with PI Financial, wrote in a note to clients.
Kirkland Lake’s shares closed up 6.4 per cent to close at $30.25 on the Toronto Stock Exchange on Wednesday.
The miner says it will likely produce 635,000 ounces of gold this year, about 15,000 ounces more than previously estimated. Unlike many of its higher-cost competitors, which are increasingly mining lower grades of gold, Kirkland Lake’s two biggest mines are low-cost and extract high-grade ore.
"The $239 cash costs at Fosterville make it feel like the 1980s,” quipped independent analyst John Tumazos during a conference call with Kirkland Lake’s management team on Wednesday.
Back in the 1980s, when gold was trading around US$350 an ounce it wasn’t unusual for mining companies to have costs in the US$200-an-ounce range. But nowadays low-cost mines such as Kirkland Lake’s Fosterville property in Australia are a rarity.
Kirkland Lake inherited Fosterville as part of its $1-billion acquisition of Newmarket Gold Inc. in 2016. Last year, Fosterville produced 264,000 ounces of gold, making it the company’s biggest mine. Kirkland is hopeful it can boost its production to 400,000 ounces by 2020. Fosterville holds 1.7 million ounces in “reserves” – gold in the ground that can be mined economically. But Kirkland Lake is optimistic that recent drilling success means a good chunk of Fosterville’s economically less certain “resources” will soon be upgraded to reserves.
“We anticipate a very significant resource-to-reserve conversion at Fosterville at the second half of this year," said John Landmark, vice-president, exploration, Australia, in the Wednesday conference call.
Kirkland Lake is the best-performing stock in the materials sector of the S&P/TSX this year, up 57 per cent. Nevsun Resources Ltd., currently the subject of a hostile takeover attempt by Lundin Mining Corp., is the second-best performer, with a 56.5-per-cent return.
The return for Kirkland Lake is all the more impressive considering that gold bullion has fallen this year by about 6.5 per cent amid a strengthening U.S. dollar. Since gold is priced in U.S. dollars, a stronger dollar makes the commodity more expensive for non-U.S. investors.
Kirkland Lake has also benefited from having operations in two of the most mining-friendly jurisdictions on the planet. Canada and Australia are virtually free of geopolitical risk, a factor that has weighed on many miners over the past 12 months. Barrick Gold Corp., for example, is negotiating to try to end a tax spat between its subsidiary Acacia Mining PLC and the Tanzanian government, while large copper producer First Quantum Minerals Ltd. has been accused by the Zambia Revenue Authority of drastically underpaying import duties.
Niall McGee