Kirkland Lake Gold outlook sees steady production growth

Kirkland Lake Gold (TSX: KL; NYSE: KL) expects production growth of 10%-15% annually over the next three years with consolidated output of 740,000-800,000 ounces of gold in 2019, 850,000-910,000 ounces in 2020 and 945,000-1.05 million ounces in 2021.

Production growth in 2019 will be driven by the company’s Fosterville mine in Australia, 20 km from Bendigo in the state of Victoria. Fosterville is forecast to churn out between 390,000 and 430,000 oz. gold next year, while the Macassa mine, 580 km north of Toronto in Kirkland Lake, is expected to produce 230,000 to 240,000 oz. gold. The Taylor and Holt mines in Matheson, Ontario, are forecast to produce 50,000 to 55,000 oz. gold and 70,000 to 75,000 oz. gold, respectively.

Looking beyond 2019, Fosterville will provide more than 500,000 oz. gold in 2020 rising to over 575,000 oz. gold by 2021, the company says, while production at Macassa will reach 245,000 to 255,000 oz. gold in 2021, with output increasing significantly in 2022 with the start of production from the new #4 shaft.

Management announced plans at the start of this year to sink the new shaft, which will have a hoisting capacity of 4,000 tonnes per day and will help the company’s plan to increase production at the mine to over 400,000 oz. gold a year over the next five to seven years.

At its Holt and Taylor mines, meanwhile, Kirkland Lake expects to produce more than 120,000 oz. gold in both 2019 and 2020, rising to more than 130,000 oz. gold in 2021.

The company forecasts 2019 operating cash costs per oz. sold will improve to between US$360 and US$380, down from its current 2018 guidance of US$385 to US$410 per oz., and all-in sustaining costs per oz. sold will range from US$630 to US$680 per oz., down from 2018 guidance of US$735 and US$760 per oz.

Expenditures on exploration next year will be between US$100 million and US$120 million, with US$85 million to US$100 million of that targeted for Fosterville and Australia’s Northern Territory, where the company is evaluating the potential to restart operations as early as the second half of next year at its Cosmo mine and Union Reefs mill. (Kirkland Lake Gold suspended operations at Cosmo in June 2017.)

In Toronto, Kirkland Lake Gold is currently trading at $31.75 per share within a 52-week range of $16.54 and $32.21 per share.

Brian Quast of BMO Capital Markets raised his target price on the stock to $32.50 per share from $30.00 following the company’s guidance release.

“With solid organic growth, it’s hardly surprising that Kirkland Lake trades at a premium to other medium-sized producers,” he states in a Dec. 11 research note “Kirkland Lake trades at 2.5 times net present value and 9.4 times 2019 estimated cash flow per share, a distinct premium to other medium-sized producers, which trade at 1.5 times NPV and 5.6 times 2019E CFPS.”

CIBC’s Cosmos Chiu has raised his 12-18 month target price from C$36 to C$40 per share.