Thursday, 6 September 2012

Ocean Equities says Kirkland Lake Gold's Queenston deal "fully justified"

Ocean Equities issued comments Wednesday following the news of Kirkland Lake Gold (TSE:KGI)(AIM:KGI) announcing initial drilling results from the licences acquired from former partner Queenston Mining (TSE:QMI). 
Late last month, Kirkland Lake Gold wrapped up the acquisition of Queenston's 50 per cent interest in the seven joint venture properties that the two companies owned in the Kirkland Lake camp. 
Earlier Wednesday, Kirkland Lake Gold unveiled results from surface and underground drilling programs at its South Claims property, uncovering new high grade gold ounces.  
One hole in particular, AB-12-06, intersected 8.52 oz/ton (over 265 grams per tonne) gold over 3 feet of core length at a depth of only 300 feet (91 metres), clearly demonstrate an extension to the South Mine Complex (SMC) as well as the potential for near surface mineralisation. 
"These initial results perfectly illustrate the rationale behind the recent deal with Queenston and have already provided justification," Ocean Equities said in a note.
Kirkland employed two surface drill rigs and one of its six underground exploration rigs to follow up on earlier drill results from the licences that it previously held as a joint venture with Queenston. 
Drill hole SC-11-02 returned an intersection of 1.74 oz/ton (around 54 grams per tonne) gold over 4.6 feet was announced in February prior to Kirkland and Queenston agreeing to an acquisition deal for Queenston’s stake in the JV licences.
The latest drilling has targeted both near surface mineralisation as well as extensions to the SMC that extend onto the previously JV licence areas. Of particular interest is the near surface drilling results associated with the Amalgamated Break, an area of known high grade mineralisation. 
"These are the results that we have been waiting for. We were expecting to see some robust grade and widths from the 5300 Level drilling as the drive from the Macassa property onto the South Claims licence was well placed in an area of known high grade mineralisation and Kirkland has not disappointed," Ocean Equities said.  
"As usual the company has successfully delivered on the exploration front and more bonanza grade gold has been discovered at the SMC." 
In a note, Ocean Equities said that near surface exploration proves the geological model of the Amalgamated Break and highlights the potential for continued near surface exploration. 
Importantly these results come from an area that essentially lies above the SMC and ties in well with the deeper resources. However, the larger growth potential comes from exploration along the Amalgamated Break to the east where historic exploration success has been recorded, the capital markets firm said. 
Drill results at the 5300 Level are likely to quickly become part of the near to mid-term mine plan as Kirkland continues its development of the SMC, which is the source of the higher grade ore feed from the plant compared to the Main Break ore. 
There is already a resource of over 300koz gold on the South Claims licence and Kirkland will be able to add quickly to this total, Ocean Equities said. 
"Kirkland has set itself a resource target of 5 million ounces and drill results like these at the 5300 Level give us increased confidence that the company will be able to easily meet this target in the near term." 
Results from closer to surface are unlikely to figure in the near term mine plan for Kirkland, however, they do illustrate well the longer term potential for the mine and the company. 
Continued success in this area could support a Phase IV expansion at Macassa that would lift production above the Phase III expanded production capacity of 300,000 ounce gold per annum that is expected to be online by mid 2013.
"Clearly the resource potential of Kirkland’s historic mine is far from fully outlined, offer blue sky exploration upside as well as the significant share price increase we expect to result from successful commissioning of the increased production capacity," Ocean said in its note. 
"Furthermore we believe that Kirkland is an attractive company from an acquisition perspective as it combines solid production growth potential with exploration potential in a low risk jurisdiction with little social of environmental risk."

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