Kirkland Lake presses on towards lofty goals

Its latest quarterly results weren’t perfect, but Kirkland Lake Gold (TSX: KGI; US-OTC: KGILF) is making steady progress towards its goal of becoming a substantial gold producer in Ontario.

First-quarter results for the company’s 2014 fiscal year showed production of 30,316 oz. gold. While this amount is 4% less than what it turned out over the same period last year, the company has expanded its capacity.

The decline came courtesy of planned shutdowns and lower average head grades, but throughput was higher, climbing 6% to an average of 1,063 tonnes per day. This shows that Kirkland Lake is making progress towards reaching the 2,200 tonnes per day it would like to produce by sometime next year.

This quest for greater capacity led to the slightly lower numbers for the quarter, as planned shutdowns cut into production. The shutdowns were connected to its efforts to increase its hoisting capacity and processing plant capacity.

The company says average mine-hoisting capacity has increased to 2,200 tonnes per day, which is the good news. The bad news is that it took longer than expected to get the work done, which means that production time was lost. 

Despite this hiccup, Kirkland Lake maintained its guidance of 150,000 to 180,000 oz. gold production for the full year, although some see this as a little aggressive.

Cosmos Chiu, an analyst with CIBC World Markets, has a more conservative estimate of 147,000 oz. at total cash costs of US$1,024 per oz. for the year.

Chiu notes that if Kirkland is to meet its own guidance, tonnage and grade will have to increase in tandem.

And that is exactly what Kirkland Lake says it will do. The company is targeting a production rate of 1,400 to 1,600 tonnes per day in the near-term before reaching the 2,200-tonne-per-day mark in the first half of 2014.

To help it get there the company raised $69 million in convertible debt earlier this year, and as of the end of April had $76 million in its treasury.

While Kirkland Lake’s aggressive acquisitions over the years have allowed it to consolidate five former mines that historically turned out over 21 million oz. gold, its South Mine Complex will do most of the heavy lifting when it comes to feeding a hungrier mill.

The South Mine Complex has proven and probable reserves of 1.5 million tonnes grading 18 grams gold for 808,000 oz. gold, measured and indicated resources of 1.5 million tonnes grading 22.8 grams gold for 968,000 oz. gold and inferred resources of 1.2 million tonnes grading 23.1 grams gold for 824,000 oz. gold.

Its Main zone and other smaller deposits have combined proven and probable reserves of 1.7 million tonnes grading 13.1 grams gold for 646,000 oz. gold, measured and indicated resources of 2.4 million tonnes grading 13.1 grams gold for 903,000 oz. and inferred resources of 1 million tonnes grading 11.2 grams gold for 333,000 oz.

The company aims to reach a global resource of 5 million oz. gold, with all-in cash costs of under US$1,000 per oz.

CIBC’s Chiu rates Kirkland Lake as a “sector perform,” and has a $4.50 price target.