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Tuesday, 14 May 2013
Kirkland Lake Gold regains momentum after "stellar" quarter
Kirkland Lake Gold (TSE:KGI)(AIM:KGI) has revealed impressive operational results for its fiscal fourth quarter, which analysts say mark a "stellar end" to a year in which the company regained mining access to the higher grade ores at its Macassa mine.
The company told investors Tuesday that 89,384 tons were produced at a head grade of 0.3673 ounces per ton, at a recovery rate of 95.94 per cent, for output of 31,503 ounces of gold.
In the month of April alone, it produced a total of 15,464 ounces after the company completed an increase to its hoisting capacity. This latest month saw the high-grade Macassa mine in Ontario record daily ore tonnage of 1,192 tons, with head grades of 0.4501 ounces per ton.
"While the latest month’s results are anomalous in the general mine plan for Macassa, it demonstrates the potential for the mine to yield such high grade material," said broker Ocean Equities in an emailed research note sent on Tuesday.
Average daily ore tonnage for the three month period to the end of April was 1,004 tons per day, slightly surpassing the upper end of the company's own 900 to 1,000 tons per day target for the quarter. With increased hoisting available at the site for just three months, the company is already showing significant improvement.
"The fourth quarter results tell the story. Not so much the eye catching 0.4501oz/ton average grade achieved during April but the increased hoisting rate of 1,004 tons/day for the quarter," Ocean's analysts wrote.
"This shows that the mine is no longer in catch-up mode, regaining lost ground from the service cage commissioning, but is actually using the increased hoisting capacity as intended to bring more ore to surface."
Indeed, the gold mining company is looking to gradually boost its hoisting capacity at Macassa, taking rates to between 1,400 – 1,600 tons per day in its fiscal second quarter, for an eventual increase to 2,200 tons per day.
For its entire fiscal year 2013, which ended April 30, 91,518 ounces of gold were produced, meeting the company's revised production guidance announced last December, and highlighting the back-end weighting of the year's results and the effect of the increased hoisting capacity.
"With the increased hoisting capacity available this quarter, the company is now starting to realise the benefits of its production expansion plans and develop higher grade stopes on the lower levels of the South Mine Complex," said chairman Harry Dobson in a release Tuesday.
The company's project consists of 13,000 acres of five contiguous formerly producing gold mines - Macassa, Lake Shore, Wright Hargreaves, Teck-Hughes, and Kirkland Minerals - which historically produced 21 million ounces of gold grading 15.1 grams per ton and for the first time are being developed and explored under one owner.
Gold production restarted in 2005 from the most western portion of the camp, the Macassa mine, and the current focus is on expanding production to 2,200 tons per day from the historic Main/'04 Break, and a new discovery area, the South Mine Complex (SMC).
The company today maintained its production guidance for fiscal 2014 of 150,000 to 180,000 ounces.
"The latest results show that Kirkland has regained some momentum at Macassa and the priority for Kirkland is to now sustain this momentum. The cautious optimism will help prevent over-reaching at the mine and the company stresses that the next hoisting capacity increments will ramp up gradually," noted Ocean Equities in the research report.
Kirkland is also sitting on a "very robust" $50 million cash buffer, says Ocean, after accounting for provisions for near-term developments and the final payment in the purchase of Queenston Mining's stake in some joint venture concessions.
The brokerage firm says it is confident in the fact that Kirkland offers a good opportunity to invest in a near-term growth story with low financial risk and in a low-risk jurisdiction, given the fact that the company has $50 million of cash in its coffers, along with a low market cap of $235 million.
"The operating risks have been fully illustrated by the recent past and so are well understood but most likely overstated at this point, reflected in the share price. The long term investment thesis for Kirkland remains intact and now the major teething problems of the expansion programmes should be behind the company."