Kirkland Lake Gold producing gold, jobs and dividends around the world
The Abitibi Greenstone Belt has produced hundreds of small to large mines over the past 100 years and there’s always one company that rises above the others. That company today is unquestionably Kirkland Lake Gold.
The company is setting new standards in sustainable development, safety, community investment, production, and of course, shareholder value.
Mark Utting, Vice President of Investor Relations for Kirkland Lake Gold, outlined the senior producer’s forward-thinking business strategy to delegates at the Mining the Abitibi Virtual Conference.
As a senior producer, Kirkland Lake Gold has the Macassa Mine foundational asset in Kirkland Lake, the Detour Lake Mine north east of Cochrane, which they acquired last year and the Fosterville Mine in Victoria, Australia.
“These are three very profitable operations,” said Utting. “All three of these assets have significant value creation upside that can be realized and we are realizing through a continued investment in exploration drilling and in-capital projects and we have a very extensive program going on at all three of them.”
Given how profitable the company has been, it’s not surprising Kirkland Lake Gold (KLG) has a very strong balance sheet. At the end of March, KLG had just under $800 million of cash and no debt. Typically, over the last few years, the company has spent over $500 million in capital expenditures, and it will be a little more than that this year. In terms of total procurement, last year, they spent USD$1.2 billion in total goods and services and over $300 million in wages and benefits.
“We are a company very committed to responsible mining and all issues related to ESG. We recently published our 2021 sustainability report. What it indicates is a great deal of work in the area of disclosure and reporting,” said Utting.
The strategy of KLG has been to identify assets where they see an opportunity to create unlocked value that is not currently recognized in the value of the asset or necessarily the share price of the owner.
“Fosterville, and I’ll say it’s value that can be unlocked through a commitment to exploration drilling and investment. Fosterville is a perfect example of this, we acquired it in late 2016. The market did not like the deal: our share price went down 45%. But what we saw was an opportunity for grades to get meaningfully better at Fosterville through extensive exploration drilling. And in the first year, we owned it, we spent more on drilling than had been spent through the entire life of the underground mine. As many of you will know, it was a complete success story for us. We proved we were right, we transformed the mine, and today Fosterville is truly one of the most profitable mines certainly in Australia and if not, the world.”
The same market reaction happened when KLG acquired Detour Lake. The market didn’t like it, and KLG proved market-experts wrong.
“We believe we’re going down much the same road with Detour Lake which we acquired a year ago January. We believe at Detour Lake and this is largely the investment thesis for the transaction, that there is a much larger deposit along the Detroit mine trend and is currently reflected in the mineral reserves of the mine, and this provides substantial opportunity for value creation.”
Kirkland Lake Gold did 70,000 meters of drilling last year at Detour and over 270,000 meters this year. “We’ve had significant success. I think we’ve had five or six press releases now and what we’re seeing is that we’re right - and we think we’re poised to create significant value at Detour.”
Leaders in minimizing carbon emissions
Kirkland Lake Gold has pledged to achieve net-zero carbon emissions by 2050. “We already have an industry leader in minimizing these emissions. We followed up that pledge with a commitment to invest $75 million a year for five years in three key areas, advancing and commercializing alternative fuels and energies and creating the mines of the future through greater use of digitization and automation. Both of these are squarely aimed at helping us to further reduce our emissions. About a third of these funds will be invested in our communities like Timmins, Cochrane, and Kirkland Lake.”
The company is a leader in minimizing carbon emissions already. In fact, according to the World Gold Council, Kirkland Lake Gold’s greenhouse gas emissions, on average, are about a third of the industry average. The Macassa Mine has some of the lowest greenhouse gas emissions in the industry by virtue of the fact about 90% of the vehicle fleet is battery powered. “We also do very well in water management and area mine reclamation,” said Utting. “I can tell you last year Detour Lake Mine won the Tom Peters Memorial Mine Reclamation award for its progressive reclamation program. It involves rehabilitating 10 hectares of land per year starting in 2019.”
Of the $1.2 billion of procurement spent last year, about $800 million of it was in Ontario and most of it was in Northern Ontario. Over $300 million of total salary and wages, about $240 million of that in Canada and the vast majority of it is in Ontario.
The goods and services from companies with indigenous ownership totaled $263 million. “This is an important part of our efforts to build, maintain and continue to improve our association and our relationship with our indigenous partners. We make significant direct payments. We have constant consultation. We believe we’ve made good progress at Detour Lake with our relationships with the First Nations. We have an IBA in place at Macassa and our other assets in that area and it’s a similar situation in Australia as well. This is a very important to us and a very important part of our business.”
Utting and Kirkland Lake Gold aren`t shy when it comes to predicting the future. “We find ourselves, in terms of the potential for Kirkland Lake Gold to outperform the industry. I know a lot of companies or virtually every company will tell you that, but I’ve got some very specific reasons I’m going to point to.”
“First, at the end of last year, we had to announce to the market that we expected to have a weak first quarter, at least very weak relative to the other quarters of 2021. Well, we actually beat the guidance we had put out for that quarter. But even more important, we’re now poised to have three very strong quarters over the rest of the year.
The other reason Utting says they think they’re going to outperform is because they have a number of key valuation catalysts coming in a relatively short period.
“First, at Detour Lake, I mentioned the exploration drilling end of January, issued a technical report in March on the work we had done, but did not reflect the exploration success we’re having. It showed a number of improvements and in itself was a key milestone for the company. But what we’re looking at doing is issuing a new mine plan in the first half of 2022 which will bring in all the exploration success we’ve had and the full impact of business improvement initiatives we’ve been doing. And we think it’s going to include significant value creation opportunities and could be transformational for the mine.”
At Detour, the company saw an opportunity to take down sustained costs from close to $1,200 an ounce before the deal to under $800 an ounce, and KLG is on track to do that and that’s significant value improvement potential.
“This just shows you our track record of financial performance,” said Utting. “As I said, we really led the industry over the last few years in earnings and we generate a lot of free cash flow. What this shows is we’re the low-cost producer in the industry and 100% of our assets are in top tier assets. And relatively speaking, we have a long life line index. So you would think we would have a premium valuation. Where we`re valued today, I would say there’s significant upside in terms of the multiples on our company.”
At Macassa, KLG is in the process of building a new mine. They’re sinking the number four shaft, it’s over a month ahead of schedule, and it’s targeted to be done in the second half of next year. “At that time production will increase by 150,000-200,000 ounces. All in sustaining costs this year to be somewhere around $800 an ounce will improve to under $600 an ounce, and it’ll start a whole new chapter in exploration in the Kirkland Lake camp.”
Even though Kirkland Lake Gold’s flagship mine is more than 100 years old, the future upside is incredibly attractive.
“It really gets back to the fact of what we look for in assets that we acquire,” said Utting. “Because essentially, the Kirkland Lake Gold of today really came together through the acquisition and combination of four junior producing companies to make one much stronger one. But what we look for, is that opportunity to create value or the opportunity to crystallize unrealized value that we see is not reflected in the current value of the company.”
Utting says the current three assets involve drilling and realizing value, “And then you do your investment, and it gets into your operations - you work very hard at achieving operating excellence and then you get the kind of results that we’ve had. But with these three assets, what you find then is there are new opportunities that continue to come up - so that explore, develop, operate, cycle continually repeats itself. And we think that’s going to be the case for these three assets for a very long time.”
In addition to the company’s incredible success at all three mines, they also announced the establishment of a Canadian Operations Centre in Timmins. “We’re very pleased to have opened up our office in Timmins. You know, we have a couple hundred people, I believe, working there. And obviously, a lot of you will know Tony’s born and raised in Timmins and there’s other people within our company that are as well. I personally have a great deal of affection for Timmins. I worked with Lake Shore Gold for nine years and it became sort of a second home for me up there, almost going to Timmins West Mine and Bell Creek. And I love the community, absolutely love it up there.”
“But from a business standpoint, this is a real opportunity for us, because we have Detour Lake, we have Macassa, we have other assets up there and to create sort of a central hub, if you will, know that’s just good business because it gives you the opportunity to leverage the skill sets and leverage the people you have in multiple different areas and to locate them centrally, really offers a number of advantages for us. And let’s face it. I mean, when it comes to mining, I mean, Timmins is such a hub and censor center for it; to have your office in the midst of it all just provides a great situation, I think, for us and for Timmins as well.”
“In terms of the investments we make, we’ve made a number of investments in junior exploration companies and development companies. “Let’s face it,” said Utting. “Along the Abitibi Greenstone Belt and along the Porcupine Destor Fault, there’s just a whole lot of geology to like. So it’s going to be an area in which we continue to be very active.”
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