Kirkland Lake Gold Guidance Update

Kirkland Lake Gold provided 2020 guidance today. The guidance for 2020 excludes production from Detour as well as anticipated production from Northern Territory. While it includes guidance for the Holt Complex, that operation remains on review during 2020. As such, only guidance for Fosterville and Macassa was provided through 2023.

My quick take is positive. While we start to see production at Fosterville coming down slightly through 2023, the guidance assumes the operation is holding at a roughly steady state of 550-600k ounces for another year (previously we had guidance through 2022). That bodes well for the upcoming reserve update in February. We have also just learned that Robbins Hill will start to contribute in 2023, which kicks in presumably around the same time the ultra high grade at Swan is depleted (based on current information). The RH material will be critical in maximizing mill capacity and thus helping to offset the lower production that would have otherwise been anticipated due to lower overall grades at Fosterville. This mitigates any material production reduction at Fosterville beyond Swan depletion. While RH is kicking into gear, Macassa production will step up in 2022, providing additional production growth buffers beginning at around the same time. This in my view is a net positive.

Regarding Northern Territory, KL provided some good exploration results earlier this morning, which together with the significant amount of exploration done to date, culminated in the confidence of a potential restart in 2020 with the operation producing 120,000 ounces. This development, in my view, offsets any issues that could have arisen from any negative developments from the Holt Complex. Thus, the concern of that outcome has been mitigated. It also buys KL some time to strategically decide what to do with the Holt Complex, either aggressive exploration, reworking royalties, selling the property, or a number of other initiatives.

On the exploration front, it is clear based on today’s update that KL is not slowing down at Fosterville. In fact, they are significantly increasing exploration work there. According to the press release, exploration expenditures at Fosterville are targeted at $70 – $80 million, including $15 – $20 million related to the underground development for a twin 4.8 km underground exploration drive to connect Robbin’s Hill to existing mine infrastructure at Fosterville. Moreover, a total of 230,000 metres of underground and surface drilling are planned at Fosterville in 2020, with the primary targets continuing to be the Lower Phoenix system, Cygnet, Harrier, Robbin’s Hill and a number of regional targets. 230,000 metres is quite significant and the optionality for finding another “Fosterville” at Fosterville remains intact. In 2020, we will also learn more about what Harrier has in store. At Macassa, the optionality of the Amalgamated Break remains, with the story getting better as they get closer to completing the # 4 Shaft.

Having said all that, the Detour transaction remains an overhang to the stock until it closes. However, developments since the news release have been generally positive, thus mitigating the ill-conceived concern about why they did this transaction in the first place. Given the plethora of good news since, if KL can in fact do what they say they can do with Detour — that is unlock the value by raising production, lowering the operating costs, and generate resource accretion with value added exploration — the optionality is there for further growth going forward and the pendulum of negativity will quickly swing the other way. I’m warming up to that possibility, albeit slowly, and look forward to 2020.

Guidance: https://www.klgold.com/news-and-media/press-release-details/2019/Kirkland-Lake-Gold-Targets-Continued-Strong-Operating-Results-in-2020-Commencing-Three-New-Projects-to-Drive-Production-Growth/default.aspx

Northern Territory Exploration: https://www.klgold.com/news-and-media/press-release-details/2019/Kirkland-Lake-Gold-Intersects-High-Grade-Mineralization-at-Multiple-Targets-in-Northern-Territory-Results-Support-Potential-Resumption-of-Operations/default.aspx

Macassa and Amalgamated Break: https://www.klgold.com/news-and-media/default.aspx

Robbins Hill, Second Mining Operation: https://www.klgold.com/news-and-media/default.aspx

Fosterville Update: https://www.klgold.com/news-and-media/default.aspx

Disclaimer and Disclosures:

I own the stock. Therefore, I have an inherent bias.

I am not a certified investment professional. Assume everything I say herein is wrong. In fact, I am wrong more often than right. Do your own due diligence and consult with your own investment advisor. Do not buy or sell on anything contained herein.

I did not receive any compensation for this blog post. I did not receive any compensation from the company mentioned.

The content contained herein is strictly my opinion only. I do not warrant to the accuracy of the content or whether this is a suitable investment and disclaim any responsibility

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