On September 28, 2021, Kirkland Lake Gold and Agnico Eagle Mines announced to the world a US$10.68 billion merger of equals, creating a Canadian gold mining giant with a reserve base of 48 million ounces of gold and an extensive pipeline of development and exploration projects around the world. The deal, which ostensibly looks like the largest merger in the gold sector since the $10 billion Newmont-Goldcorp tie-up in January 2020, will establish the new company as the gold industry’s highest quality senior producer, with the lowest unit costs, highest margins, most favourable risk profile and industry-leading ESG practices, according to both parties. “Logically speaking, these are the only two companies that a merger of equals make sense for, from our perspective,” says Kirkland Lake’s president and CEO Tony Makuch, who has been appointed to the same position in the merged entity, which will operate under the Agnico Eagle moniker after the deal is completed, either in December or early in 2022. “Both companies have been industry leaders in growing share value,” Makuch continues.
Kirkland Lake has delivered shareholder value from rapid production growth and lower unit costs over the last four years following timely acquisitions and investments in exploration at its three gold mining operations, in Ontario, Canada (Macassa, Detour Lake) and Victoria, Australia (Fosterville).
Meanwhile, Agnico Eagle has continued to hold its position as one of Canada’s senior gold miners with a precious metals production history dating back to 1957. Today, the company’s operations can be found across Canada as well as in mining-friendly Mexico and Finland.
Of the many synergies between the two businesses, perhaps the most apparent – certainly from a geographical perspective – is the opportunity for the new company to establish a dominant position in one of the world’s leading gold regions; the Abitibi-Greenstone Belts of Northeastern Ontario and Northwestern Québec.
Combined, the company will produce almost 2 million ounces (Moz) of gold per annum from the region, with over 16 Moz in reserves, along with a platform for exploration and development projects and existing infrastructure, including mills at Agnico’s LaRonde and Goldex mines in Québec and processing plants at Kirkland Lake’s Macassa mine and its shuttered Holt mill in Ontario.
In the Kirkland Lake region of Ontario, the companies have a unique opportunity to combine the Macassa and Holt operations with Agnico’s nearby Amalgamated Kirkland, Upper Beaver and Upper Canada gold projects, in what is one of the biggest single value drivers for the merger.
A Kirkland Lake crew is currently in the process of sinking the No. 4 shaft at the Macassa mine. Makuch says that same crew can be readily deployed to assist in the development of the Agnico Eagle projects.
“We have also built surface ramps at Macassa down to 300 metres, which can be used to create exploration platforms at the Amalgamated Kirkland property, adjacent to Macassa. Then you have then chance to grow a 250-350,000 ounces per annum new business in Kirkland Lake, leveraging the existing mills and tailings facilities.”
This is a great example of the merger being able to create a larger platform encompassing multiple operations in a single region and the opportunity to cross-pollenate ideas, particularly with regards to underground mining strategies.
“We talk about a ‘cultural fit’ and one example of this is that both companies have a strong focus on underground mining and have been underground miners for a long time,” Makuch explains. In fact, both companies are widely regarded as world-leaders in deep underground mining, which provides an opportunity to leverage each other’s expertise in areas where one company is more advanced than the other.
Makuch added: “Agnico are leaders in terms of innovation at their mines, specifically in relation to automation and digitalisation underground at LaRonde. We are doing this at Macassa now and we will be able to implement these changes quicker because Agnico has the technology in place and the working platform.”
Eyes on exploration
Further evidence of the aforementioned cultural fit is provided by both partners’ focus on exploration as a key value driver. Investors in Kirkland Lake can attest to the company’s significant exploration success across its three cornerstone assets.
At Fosterville in Australia, Kirkland Lake has achieved year-on-year exploration success since acquiring the mine in 2016. In the same time frame, the company has more than doubled reserves at Macassa. Meanwhile at Detour Lake, a 10 Moz increase in measured and indicated mineral resources (exclusive of mineral reserves) was recently announced after over a year of significant exploration success.
The Company’s extensive drilling programme is continuing, and Makuch believes that there remains considerable potential for additional growth in mineral reserves and mineral resources at Detour Lake, given the project’s 1,000 km2 land position in very favourable geology in the Abitibi region.
“We’ll spent almost $190 million on exploration at our three key assets, and we see the same culture and fit with Agnico in terms of their focus on this crucial part of the gold mining business. I see some significant exploration upside in Agnico’s portfolio in Northwestern Québec and Northeastern Ontario, plus at other assets around the world.”
For example, Agnico’s Kittilä mine in Finland is the largest primary gold producer in Europe, with a significant resource and reserve currently in place. However, Agnico has drilled holes down to 2,000 metres that are showing significantly higher grades and widths than what is currently being mined closer to surface.
“It’s an area that is wide open for exploration. There are other juniors in the region that are exploring and having success. It’s also similar geology to what we see in the Abitibi, so we’re pretty excited about what can happen there,” Makuch said.
Over in Nunavut – where Agnico has the distinction of being the only gold producer in the entire territory – the companies believe that the giant Meliadine mine has significant exploration upside, while the Amaruq satellite project has the ability to replace and grow reserves from the open pit Meadowbank mine 50 km away.
Then there is the Northernmost Hope Bay project, which is in its infancy and set to become a source of new gold reserves for years to come with the right amount of investment in aggressive exploration. Finally, Agnico is working on a couple of exploration properties in Mexico – an unfamiliar jurisdiction to Kirkland Lake, but one that excites Makuch nonetheless.
“We both know that to unlock value through exploration you need to spend money on drill holes. We’ve been doing that and continue to focus on key areas where we can have a significant impact in terms of extensions of known systems and new discoveries that can create new value, similar to what we’ve done at Fosterville, at Macassa and what we’re currently doing at Detour Lake.”
Combining ESG values
Additional synergies lie within Kirkland Lake and Agnico Eagle’s unwavering commitment to creating value through responsible mining and sustainable development, which are ensconced in the overarching ESG concept. Both companies see themselves as long-term environmental stewards in the regions they operate, which has brought about commitments to net zero emissions by 2050 or sooner.
“Kirkland Lake and Agnico are both very focused on what needs to be done to achieve this goal, in terms of looking at alternative fuels for how we operate equipment at our mines, alternative ways to extract gold and better ways to treat the land and the water that we use.”
From a social standpoint, both companies have developed strong working relations with local indigenous groups. These relationships are built on the premise of respect and recognition of the need to partner with all regional stakeholders.
A full description of both companies’ ESG commitments can be found in their annual sustainability reports, which are becoming thicker documents by the year. Makuch recognises the importance of ESG reporting and acknowledges that Kirkland Lake can learn from Agnico Eagle’s more comprehensive style of sustainability disclosure.
On a personal note, Makuch cannot wait to get started in his position at the helm of the combined company, which will bring together two very talented teams. “My experience is in mining and is focused on people; you see that same focus on people at Agnico,” he said.
“I’m excited to start working with some really good people and be able to build ideas for how we take our assets to the next level, which will definitely involve the prism of automation, digitisation and new innovations.”
Business as usual
While the takeover countdown has begun in earnest, it remains business as usual for Kirkland Lake as it moves through the final quarter of what has already been a successful year from an operational, financial and ESG point of view.
As always, one of the key focus areas for Kirkland Lake in 2021 has been improving the workplace for its people, promoting health and safety and reducing workplace injuries. According to Makuch: “As a company we aim to provide a safe workplace and all workers are committed to working safely for themselves and others. We’ve made significant improvements but still have a long way to go. Fundamentally we don’t want anybody hurt on the job. That’s a big part of what we’re trying to accomplish in 2021 and 2022.”
On the operational side, Kirkland Lake expects to achieve the top half of its full-year 2021 production guidance of 1.3–1.4 Moz for the year. The Company is also targeting the best unit cost performance among senior producers, with all-in sustaining costs expected to average $790 – $810 per ounce sold in 2021.
Makuch concludes: “We have a strong track record for achieving operational excellence and delivery of strong financial results that create value for our shareholders, our people and our communities. We see similar strong performance and results coming out of Agnico.
“What that demonstrates is that our merger is creating a true industry leader in the gold sector, one that warrants a premium valuation and is well positioned to generate superior long-term shareholder value. We also both return significant capital to shareholders through dividends – and in the case of Kirkland Lake, our share repurchase programme – and with the combined company’s substantial financial strength, it will be very exciting to see where that goes moving forward.”