Kirkland Lake Gold

Meet the best performing mining stock on the TSX and TSXV in 2020



On September 15, 2020, Kirkland Lake Gold was deemed the best performing mining stock on the Toronto Stock Exchange (TSX) and Venture Exchange (TSXV), with incredible share price growth of 363% over the last three years. Kirkland Lake Gold’s President and CEO Tony Makuch tells RGN that the company’s inclusion on the TMX Group’s annual TSX30 ranking of the best performing stocks across all sectors on Canada’s main market primarily comes down to rapid growth in profitable, cash-flow generating production over the three-year timeframe. In 2017, the company produced 0.5 million ounces (Moz) of gold. This year, it is targeting over 1.35 Moz, thanks to a sustained period of growth via timely acquisitions and investments in exploration at its three gold mines; in Ontario, Canada (Macassa, Detour Lake) and Victoria, Australia (Fosterville).


“At the same time, we’ve been very competitive with our unit cost performance, generated industry leading financial performance and increased our balance sheet strength,” says Makuch. “Really that’s the true measure of production growth that creates value.” The sustained free cash flow generated by Kirkland Lake Gold has allowed it to return significant capital to shareholders from share buybacks and dividends. “We introduced both in 2017 and have increased the dividend over seven times since then. So far in 2020, we’ve returned over US$640 million to shareholders. There aren’t many companies that can say they return that much value.” Another key contributor to Kirkland Lake Gold’s success over the last three years has been its overriding commitment to responsible mining. “We’ve been working very hard to the promote sustainability of our business and believe that you cannot deliver results that place you in the TSX30 without being effective in this area.”


Kirkland Lake Gold entered 2020 by completing the transformational acquisition of Detour Gold for $3.7 billion in January. The all-stock deal, which was first announced in November 2019, gave the company ownership of Detour Lake, located within the Northernmost section of the renowned Abitibi Greenstone Belt.


The open pit gold mine has already made significant contributions towards the operational and financial success of Kirkland Lake Gold this year, according to Makuch. “Detour Lake has generated over 40% of our free cash flow in the first nine months of the year and we see great potential here to grow production, lower unit costs and unlock increased value.”


COVID-19 response


Kirkland Lake has also had to demonstrate an unparalleled level of flexibility and responsiveness following the unwelcome emergence of the COVID-19 pandemic this year. The company acted quickly to protect is people and communities at all sites during the height of the first wave in March.


“In Canada, a lot of our employees live in remote regions in James Bay. We sent people home, we gave people 14 days salary continuation and reduced operations at Macassa and Detour. Since then, strict protocols have become the new norm across our sites.”


Many new on-site protocols revolve around a tight adherence to social distancing guidelines, changing how employees are transported to and from the workplace and the proximity in which they can work in certain spaces, such as the cages that take workers to the underground Macassa mine.


“It’s taken a bit of time to get used to the changes, but our people have really taken on the challenge and worked things through. Everyone has adhered to the standards put in place and come up with new ideas which we have subsequently adopted.”


One by-product of the COVID-19 pandemic has been a flurry of ‘safe haven’ investment in gold throughout the year, which has boosted the price to record highs and brightened the horizons of gold mining companies around the world.


Lo and behold, Kirkland Lake Gold’s net earnings were up around 41% in the first nine months of the year on an adjusted basis, and it generated close to $700 million of free cash flow, excluding non-recurring items. While Makuch acknowledges that the high gold price has certainly benefited the industry this year, he is quick to highlight the strong performance of the company’s people this year in extraordinarily trying circumstances.


“We have tried to focus on keeping our costs down, which is a key success driver for our business. Our operating cash costs so far this year are just over $400 per ounce, with AISC of around $800 per ounce. Those are very strong numbers in our industry and support significant earnings and cash flow generation at much lower gold prices than we have today.”


“The price of gold has gone up and that has been beneficial for the company, and we feel very confident that the gold price is going to continue to be strong, but we build our business around keeping ourselves profitable and sustainable in a low gold price environment.”


Growing from the drill bit


The crux of Kirkland Lake Gold’s strategy is to secure long-term growth and value creation through success with the drill bit, and the company has been doing just that this year with exploration campaigns taking place at all three of the flagship assets, each of which hold significant upside potential in their own right.


At Fosterville, in the Australian state of Victoria, Kirkland Lake Gold has achieved year-on-year exploration success since acquiring the underground mine in 2016. In particular, the discovery of the Swan Zone has been a key value driver and has helped boost production to over 600,000 ounces this year.


In addition, the company has grown the Fosterville reserve from around 240,000 ounces at just under 7 g/t in 2016 to 2 Moz at over 22 g/t this year. “Ounces have gone up, grades have gone up and the costs have gone down, which has created significant value,” Makuch explains.


“We think that there are more high-grade zones at Fosterville and we continue to drill there. We could be one drill intersection away from a whole new level of success there.”


Likewise, at the Macassa mine in Kirkland Lake, Ontario, the company has grown reserves from just under 1 Moz at 20 g/t in 2016 to 2 Moz at over 22 g/t, with plenty of additional exploration opportunities available, including continuing to grow the high-grade South Mine Complex (SMC) and identifying new areas of high-grade mineralisation along the Amalgamated Break and the historic Main/’04 Break.


Recent drilling has intersected exceptionally high grades in an area where the SMC approaches the Amalgamated Break. In addition, a new high-grade corridor of mineralisation has been identified along the Main Break, near the location of a new shaft that Kirkland Lake Gold is sinking.


The #4 Shaft, which is slated for completion in late 2022, will result in significantly higher production at better unit costs, and will also improve working conditions in the mine and support long-term exploration across the vast Kirkland Lake gold camp, most of which the company now owns.


“It is a century-old camp, but there is a lot of gold left to be found and we are sinking a new shaft at Macassa because of the size of our current reserves and the tremendous potential to add more through continued exploration success.”


But Makuch is perhaps most excited by the growth potential at Detour Lake, which is already one of largest open-pit gold deposits in the world with mineral reserves of 14.8 Moz at 0.97 g/t. Kirkland Lake Gold is drilling a number of in-mine exploration targets after recent drilling revealed that mineralisation is open down dip of the Main Pit and in areas between the Main and West pits.


“We’ve had significant exploration success in the Saddle Zone between the West Pit and the Main Pit. With that success, and the mineral inventory we have right now, we believe it is possible to double the reserves at Detour Lake. That’s a forward-looking statement, but we feel pretty confident that the opportunity is there.”


And to give an idea of the broader exploration potential in the region, Kirkland Lake Gold’s land position at Detour Lake covers over 1,000 km2 along the Abitibi Greenstone Belt, which is the largest mineral-rich belt of its kind in the world.


Responsible and sustainable


While the company’s exploration prospects have certainly appealed to investors, Makuch also credits Kirkland Lake Gold’s focus on ESG in the last few years for its high-ranking position on the TSX30 this year.


However, he makes it very clear that the company’s emphasis on sustainable and responsible mining is not simply to accommodate modern investor demands, but because caring for its people, its communities and the environment is inherently the right way to run a business.


“The health, safety and wellness of our people is paramount. After this, we try to build our supply chain in the region and give back through investments in social and recreational programmes in the communities where our people live.


“We are focused on working with the traditional landowners in our area and don’t look at it from a business perspective, but a relationship perspective. We are one big family and we treat everyone with respect.


“We also treat the land with respect and understand the importance of natural resources like water in the regions where we operate. If we can focus on these [aforementioned] areas, then the results will speak for themselves.”


Clearly, Kirkland Lake Gold views ESG, like exploration, as a core component of its business, one that is critical for success. “As a gold miner producing in two of the world’s greatest mining jurisdictions, Canada and Australia, ESG is central to everything we do; it impacts every aspect of our business and it is the key to maintaining social licence.”


Makuch points out that, at the end of the day, success comes down to people, and Kirkland Lake Gold is blessed to have a team possessing unsurpassed knowledge of how to build and grow profitable, value-creating gold mines.


“We have a strong track record in terms of operational and financial performance and that, more than anything else, speaks to the quality of our assets and the quality of our people. With the progress we, as a team, have achieved, we have generated industry-leading earnings, cash flow and balance sheet strength and delivered superior returns for our shareholders, without whom we would not be in business.”