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Alberto Abaterusso
Alberto Abaterusso
Articles (1386) 

Kirkland Lake Gold Rises on Strong Production Results

Macassa and Fosterville continue to impress. The stock is not cheap but 2018 is still full of catalysts

July 11, 2018 | About:

Kirkland Lake Gold (NYSE:KL) advanced 0.4% to $22.32 per share on the New York Stock Exchange on the heels of the release of second-quarter production results.

Kirkland Lake Gold delivered 164,685 ounces of gold at Macassa in Ontario and Fosterville in Australia, easily surpassing its target for the second quarter.

At Macassa and Fosterville, the operator could supply the market with record volumes of quarterly output for 60,571 ounces and monthly output for 31,710 ounces. The second volume refers to the production of gold the company made at Fosterville in June. Compared to 2017, the second quarter production of gold grew 2.7% on a consolidated basis. In one-year, production at Macassa increased 32.5% while Fosterville was almost flat.

Operations were driven by a positive ore grade encountered during mining.

Kirkland Gold operates two other mines in Ontario. the Holt mine contributed with 13,712 ounces of gold, a 9.2% decline year-over-year, while the Taylor mine produced 12,940 ounces of gold, a 6% increase from the prior-year.

During the second quarter, the miner placed a total of 164,305 ounces of gold on the market.

For full fiscal 2018, Kirkland Lake Gold is still guiding a gold production of over 620,000 ounces. The forecast volume is on a consolidated basis.

The market is not offering a compelling entry point in Kirkland Lake Gold since the share price is sky high when compared with the 200, 100 and 50-SMA lines.

The current market capitalization is $4.76 billion. The h52-week high is 22.47 per share. The 52-week low of $8.59 is nearly 160% far from the current share price. That is because the stock has climbed 134% for the 52 weeks, outperforming the Van Eck Vectors Gold Miners ETF (GDX) by more than 130%.

The stock is also above the industry with reference to the price-book ratio and the Enterprise Value-to-Earnings Before Interest Tax Depreciation and Amortization, or Ebitda, ratio. Kirkland Lake Gold has ratios of 4.01 times and 11.59 times versus industry medians of 2.06 times and 9.9 times.

Over the last three months, Wall Street increased the mean rating from 1.9 to a current 2.9. Despite that, 10 analysts out of a total of 11 believe that the stock will outperform within the following 52 weeks of trading. Only one analyst suggested holding shares.

By the end of the year, the company will have fed the gold market with more than 600,000 ounces, as operations continue to focus on ore bodies characterized by superior concentrations of gold in the ore at Macassa and Fosterville.

Another catalyst is based on improved grade-control practices at Macassa. The application has already resulted in a higher-grade output coming solely from mine production. I expect a high grade ore will boost production for many years, as underground in-fill drillings continue to be successful at the South Mine Complex of Macassa.

Higher levels of production are expected at the Holt mine and higher ore grades are assumed at the Taylor mine for the remaining part of the year. This should boost the value of the stock.

Balance sheet

Strong second-quarter operations enabled the company to close with $43 million in cash on hand and securities, a 16% growth from the prior quarter.

The company is distributing part of its free cash flow to its shareholders in the form of quarterly dividend. The second cash quarterly dividend of 3 cents for the current fiscal will be paid on July 13. 

(Disclosure: I have no positions in any security mentioned in this article.)

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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