Kirkland Lake Gold Q2 Production Preview

The end of June has arrived. That means quarter close is here and the start of Q2 production reporting season is upon us. Kirkland Lake Gold typically reports quarterly production results within the first two weeks following the quarter close. For example, fourth quarter 2018 production metrics were released on January 8 while first quarter 2019 production metrics was released on April 5. Therefore, I would anticipate second quarter production numbers being released to the market prior to July 12.

Expectations for Q2 production has largely been established as management has done a good job guiding the market. During Kirkland’s Q1 earnings conference call in May, Tony Makuch stated: ….”Maybe Q2 a lot similar to Q1 and then Q3 and Q4 are really really going to be strong quarters.” We know that Q1 production numbers came in at 231,879 ounces and Q4 production numbers came in at 231,217. Therefore, we can establish a minimum baseline of Q2 production coming in at around 232,000 +/- a few ounces. Look out for anything higher than that, as that would add further credence to my theory established in the ensuing paragraphs.

After Q1 earnings, Kirkland Lake increased the low end of their annual production guidance range from 920,000 to 950,000 while keeping the top of the range intact at 1,000,000. This implies an annual production mid-point of 975,000 vs. 960,000. With 231,879 already produced and a guide of 232,000 expected for Q2, that would put Kirkland Lake at 464,000 at mid-year. This would mean to get to the mid-point of this year’s guidance, Kirkland Lake would have to average 255,500 per quarter in the second half.

Ian Holland stated during the first quarter earnings conference call that Fosterville’s Q2 will be broadly similar to the 4th quarter of last year and Q1 of this year. That would therefore imply a Q2 production number of between 124,000 and 128,000. We know based upon management’s guide that Fosterville production is back-half loaded. Specially, on the earnings call, Ian stated that production improvement in the second half will largely be on the back of higher grade in Q3 and Q4 and is largely based on sequencing control. The higher production will be predominantly a grade-driven increase. With production in Q1 at 128,000 and a baseline established for Q2 at 126,000, that would put Fosterville at 43% of the mid-point of its annual guidance. Not a bad place to be given the second half guide and the historical conservative nature of their guidance philosophy, particularly when it comes to Fosterville.

As for Macassa, the mine is coming off of a very robust Q1 production number (72,776), which led management to increase annual guidance from 230,000-240,000 to 240,000 to 250,000. Macassa’s quarter was not a one off quarter, either. Management expects the performance to continue as they alluded on the earnings call. Specifically, management expects strong production performance to continue right throughout the year as mining at the 5700 level is expanding and the expectation of similar grades with a new stope at end of June coming online. This will give them 4 similar grade stopes to mine from here on out. If Q2 production at Macassa follows a similar output as Q1, that would put Macassa at 59% of annual production at the middle of the year.

Putting it all together: (1) Tony alluding to Q2 being similar to Q1 comments; (2) the back-half at Fosterville being guided to be the strongest and with Q2 being similar to Q1 comments would put Fosterville at 43% of the mid-point of its full year guidance of 570,000-610,000 and thus well-positioned to meet its full-year production guidance; (3) Macassa 1Q not a one-off comment in the Q&A earnings call, but even if it slows down a bit, Macassa is performing well in excess of its quarterly 62,500 production run rate to achieve the high end of guidance at 250,000; and (4) the conservative nature of management’s guidance philosophy, which they have already improved upon twice this year.

All of this leads me to conclude there are more surprises coming. Macassa is on pace to exceed annual guidance while Fosterville is about to start the stronger portion of its year. All else being equal at the Holt Complex, I have Kirkland Lake slightly exceeding the top end of its 1,000,000 production guide number, excluding re-start at Northern Territory. The estimate does build a little margin of error and is relying a bit on forward-looking statements made at the time of the earnings call in May. That being said, look out for a Q2 number being stronger than Q1. That will be your clue.

That’s all for now.

Source:

First Quarter Conference Call Webcast https://event.on24.com/eventRegistration/EventLobbyServlet?target=reg20.jsp&referrer=https%3A%2F%2Fwww.klgold.com%2Finvestors%2Fevents%2Fdefault.aspx&eventid=1956490&sessionid=1&key=227C353DED624047D20F83E000D7C93D&regTag=&sourcepage=register

First Quarter Earnings Report https://s21.q4cdn.com/967674075/files/doc_financials/2019/q1/pr-Q12019May62019FINALrev2.pdf

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