Thursday, 13 December 2012

Kirkland Lake Q2 cash flow quadruples sequentially despite expansion project delays

Despite some delays in the expansion program at its Kirkland Lake operations in Ontario and a lowered full year production outlook, Kirkland Lake Gold (TSE:KGI) (AIM:KGI) has still more than quadrupled its cash flow sequentially, and generated revenue of $37.1 million in its second quarter.
The company said that it remains committed to executing the expansion project – a milestone that it said is key to becoming “sustainable and consistently profitable”. 
The project, which is near completion, will give Kirkland a production capacity of 2,200 tons of ore per day (tpd).
For the quarter that ended October 31, cash flows generated from operating activities were $10.5 million, compared to $2.4 million in the previous quarter and $13.4 million a year earlier.
Revenues stood at $37.1 million, up from $32.6 million sequentially, but down from $40.3 million year-over-year.
The company produced 70,800 tons of ore, at a head grade of 0.30 ounces of gold per ton (opt) and a gold recovery rate of 95.74 per cent, to generate 20,358 ounces of gold in the second quarter. It sold 22,345 ounces of gold.
Following the quarter’s end, in early November, Kirkland completed a $68.5 million private placement of convertible debentures. The funds will be used in part to finance portions of the expansion project that had been expected to be funded from production, it noted.
“The current critical path activity for this expansion project is the service cage project,” said chairman Harry Dobson.
“Regrettably, delays in completing this critical path activity have resulted in a delay in the overall project, and are preventing the company from meeting its production goals for the current fiscal year.”
Accordingly, Kirkland is reducing its guidance for the year ending April 30 to between 90,000 to 110,000 ounces of gold sold. 
“This setback notwithstanding, the company does remain committed to reaching production capacity of 2,200 tons per day as close to the original plan target date of January 2014 as practicable.”
Kirkland’s chief operating officer, Mark Tessier, noted that the company is projecting the completion of the service cage by the end of the third quarter.
“The company is also slowing the expected rate of that ore tonnage ramp up to reflect the additional time that will be required to hire and train needed underground workers, and to reflect the time that will be required to complete the development work in the mine that has been delayed." 
As at December 12, work remaining on the service cage project included some ongoing trials and upgrades planned for operation of the hoist in cage mode, as well as the completion of shaft work between 53 level and 54 level. Additionally, 50 to 60 per cent of the required station work has been completed, the company said. 
Currently, Kirkland noted that the hoist is operating in cage/work platform mode for shaft work “with no issues”, and is also being operated in cage only mode on a spare/trial basis with no issues. 
 The company said its prototype battery scoop is currently commissioned and in production and “performing very well”. It added that the new ball mill is also currently on site.
Looking ahead, the company is aiming to increase the capacity of the mine hoisting plant to 2,275 tons per day of ore and waste in January 2013. Additionally, the targeted implementation of newly designed 12.5 ton skips in January 2014 will bring the capacity of the mine hoisting plant to 3,200 tons per day.
Kirkland noted that the expansion project budget remains on track at $95.0 million, of which $72.7 million had been spent by the end of October. 
Work on next fiscal year's budget will begin soon, and the company said it will be based on gold sales of 150,000 to 180,000 ounces for fiscal year 2014.
In the second quarter, Kirkland posted a net loss of $0.8 million or one cent per share. This compares to a net loss of $0.3 million or breakeven per share in the previous quarter, and a net income of $11.8 million or 16 cents per share in the year-ago quarter.
Operating costs rose to $360 per ton or $1,253 per ounce of gold from $316 per tonne or $1,276 per ounce in its first quarter and $277 per ton or $793 per ounce in the same quarter last year.
The company said it expects to lower operating costs to less than $250 per ton once the mine expansion project is complete, with improved results expected beginning in its fourth quarter. 
As at December 12, Kirkland had cash resources of $101.1 million. 
Kirkland Lake is located in Ontario’s Southern Abitibi gold belt and the gold mining company is based in the historic Kirkland Lake Gold camp, which has produced 22 million ounces of gold in its 100-year history.
The company’s three-phase, development and mine refurbishment program is aimed at increasing production and requires relatively low capital expenditures as there is substantial infrastructure already in place. 
Its project consists of the Macassa property and operating underground gold mine, four contiguous gold properties known as the Lake Shore, Wright-Hargreaves, Teck-Hughes and Kirkland Minerals properties and their respective, formerly producing, underground gold mines - collectively called the South Mine Complex – as well as a mill and processing facility.

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