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Monday, 17 September 2012
Kirkland Lake Gold maintains production guidance despite operational challenges, it says
Kirkland Lake Gold (TSE:KGI)(AIM:KGI) said today its revenues declined in its fiscal first quarter as it was impacted by production challenges, but the Ontario-focused gold producer maintained its output guidance for the year.
For the three months that ended in July, Kirkland's Macassa mine in Ontario produced 70,201 tons of ore at a head grade of 0.26 ounces of gold per ton.
A gold recovery rate of 95.2 per cent gave the company 17,396 ounces of gold in the latest quarter, with Kirkland selling a total of 19,964 ounces in the period, versus 24,178 ounces a year earlier.
The company said Thursday recovered ounces due to lower ore grades, primarily in the South Mine Complex, and lower ore tonnages produced as a result of an 11-day forest fire power outage in May.
It added that the ability to use waste-fill more effectively in the lower-grade Main Break area of the mine resulted in some overproduction of ore, which also slightly impacted quarterly head grades.
"The site team is to be commended for taking on the production challenges in the first quarter caused by the forest fires in Northern Ontario in May which impacted both operations and project expansion work," said chairman Harry Dobson in a statement.
"Production plans for the remaining three quarters in the fiscal year include moving to larger skip sizes and reflect the site team's determination to make up for the loss of production in the first quarter and to maintain guidance for this fiscal year to the range of between 180,000 - 200,000 ounces."
Indeed, Dobson further said the site team is continuing to target May 2013 for the completion of its expansion project, to reach the company's production target of 2,200 tons of ore per day.
The expansion project kicked off in January 2009 and was originally supposed to wrap up in December 2013.
"While there remains a lot to be done, the finish line is in sight, to emerge as a long-life, profitable, intermediate gold mining company," Dobson added.
Net loss before income taxes for the quarter was $0.3 million, versus a profit before taxes of $9.0 million a year earlier. On a per share basis, earnings amounted to 1 cent, down from 32 cents in the year-earlier period.
The loss in the latest period was due to the 11-day power and production outage in May, as well as lower revenues on account of lower grades.
Revenue was $32.6 million, down from $35.7 million in the same quarter last year. Though gold recovery was lower, higher average prices of $1,6335 per ounce helped push up revenues.
Total cash production costs for the quarter increased to $317 per ton of ore, or $1,280 per ounce of gold, due to costs associated with the power outage, the company said.
But Kirkland Lake stood firm on its guidance for the year and on its expansion plans, as it plans to replace the ten ton skips in the existing shaft conveyance with 12.5 ton skips in December this year.
This is in addition to other previously announced upgrades, the company added.
Capital markets firm Ocean Equities issued a rather positive research note based on Kirkland's quarterly results, saying that though grades were lower, more high grade ore is to come with production guidance still in reach.
"While today’s news may have a short term negative effect on the share price, we would argue that overall most of the positive news that Kirkland has put out recently, including the recent exploration success has not yet been priced into the share price and any weakness in the share price should be seen as an opportunity," Ocean's analyst noted.
"Clearly the road ahead for the company has become slightly bumpier given these operating figures, but today’s results should not obscure the overall potential of Kirkland and should be seen in context."
Kirkland is confident that the ore grade "will improve considerably" over the remainder of the year based on sampling of the ore blocks that are soon to be mined, Ocean's report said.
In other updates Thursday, the miner noted that the early trials of the prototype battery scoop underground have been "very positive", and this program is currently running well ahead of requirements.
After its first quarter, Kirkland wrapped up the purchase of Queenston's 50 per cent interest in the seven joint venture properties the two parties owned in the Kirkland Lake Gold camp. A final payment of $30.0 million is due in early December.
As of yesterday, the company, with a 944-strong workforce, had total cash resources of $47.7 million. It expects to have around 1,200 employees once it completes its mine expansion project.
Kirkland, which generated cash flows from operating activities of $2.4 million in the period, is focused on Kirkland Lake, Ontario in the Southern Abitibi gold belt. The company plans to boost production to between 250,000 to 300,000 ounces per year in several stages.