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KL Gold reports strong Q1

May 6, 2020

Kirkland Lake Gold Ltd. has entered 2020 in a favourable position.  Today's release of the company’s financial and operating results for the first quarter of 2020 . A number of key developments occurred in Q1 2020, including the unprecedented challenges related to the COVID-19 pandemic and extensive measures taken by the Company to protect its workforce; the acquisition of Detour Gold Corporation (“Detour Gold”) on January 31, 2020, with Detour Lake Mine contributing significant free cash flow in its first two months with the Company; as well as the suspension of operations at non-core assets. Also during Q1 2020, the value creation potential of the Company’s three cornerstone assets was demonstrated, with strong year-over-year growth in net earnings and earnings per share and record levels of gold sales, revenue, EBITDA and free cash flow being achieved.  The Company’s full consolidated financial statements and management discussion & analysis are available on SEDAR at www.sedar.com and on the Company’s website at www.klgold.com. All dollar amounts are in U.S. dollars, unless otherwise noted.

Key Developments Impacting Q1 2020:

  • Detour Gold acquisition: Completed acquisition of Detour Gold on January 31, 2020, adding a third cornerstone asset, Detour Lake Mine; Detour Lake is a large-scale open pit mine located in Northern Ontario with significant potential for growth in Mineral Reserves and production, improved unit costs and regional exploration success
  • COVID-19 response: Implemented extensive health and safety protocols to protect workers from COVID-19 virus; transitioned Detour Lake and Macassa mines to reduced operations and temporarily suspended operations at Holt Complex; Company commencing gradual recall of workers at Detour Lake and Macassa (Holt Complex remains on suspension); COVID-19 to impact production and costs during much of 2020
  • $20 million donation: Subsequent to quarter end, Kirkland Lake Gold announced plans to donate US$20 million over the next 12 months to medical, social and community organizations in the areas of Canada and Australia where the Company operates; donations to provide support to local health units and facilities, food banks, municipal services and other essential social support groups which may encounter difficulties due to slowing economies and reduced funding as a result of COVID-19
  • Company guidance withdrawn: Based on the move to reduced operations due to the COVID-19 pandemic, the Company withdrew its full-year 2020 guidance on April 1, 2020; Revised guidance to be issued as Detour Lake and Macassa make progress towards returning to more predictable levels of production; Holt Complex guidance discontinued; Company also withdraws three-year production guidance to assess long-term effects of COVID-19 and potential impact of pandemic on production profile of Fosterville, Macassa and Holt Complex and while it works to incorporate Detour Lake into the Company’s long-term business plans.

Highlights of Q1 2020 Performance 

  • Net earnings grow 84%: Net earnings of $202.9 million ($0.79 per share), 84% higher than $110.1 million ($0.52 per share) in Q1 2019 and 20% higher than $169.1 million ($0.81 per share) in Q4 2019: Adjusted net earnings1 totalled $179.2 million ($0.70 per share) versus $113.8 million ($0.54 per share) in Q1 2019 and $185.3 million ($0.88 per share) in Q4 2019
  • Revenue growth of 82%: Revenue totalled $554.7 million, 82% increase from $304.9 million in Q1 2019 and 35% higher than $412.4 million in Q4 2019 (Revenue from Detour Lake of $179.4 million in Q1 2020); gold sales totalled 344,586 ounces, 48% higher than 232,929 ounces in Q1 2019 and 278,438 ounces in Q4 2019; Average gold price of $1,586 per ounce versus $1,307 per ounce in Q1 2019 and $1,481 per ounce the previous quarter
  • EBITDA1,2 increases 94%: EBITDA of $391.5 million, 94% increase from $201.6 million in Q1 2019 and 37% higher than $285.6 million the previous quarter
  • Adjusted free cash flow1 of $191.4 million: Net cash provided by operating activities of $241.5 million and free cash flow of $130.9 million; Excluding the impact of $60.5 million of non-recurring transaction and restructuring costs, mainly related to the Detour Gold acquisition, adjusted net cash provided by operating activities totalled $302.0 million versus $175.8 million in Q1 2019 and $247.1 million the previous quarter, while adjusted free cash flow1 totalled $191.4 million versus $94.5 million in Q1 2019 and $132.8 million in Q4 2019 (Detour Lake Mine contributed $78.0 million of free cash flow from January 31, 2020 to March 31, 2020)
  • Strong financial position: Cash at March 31, 2020 totalled $530.9 million with no debt
  • Growth capital expenditures: Growth capital expenditures, excluding capitalized exploration expenditures, totalled $22.6 million, including $11.1 million related to the #4 Shaft project; Based on progress to date, shaft project scope and schedule modified with total project completion to depth of 6400 feet now targeted for late 2022, over a year ahead of original schedule
  • Exploration expenditures: Total exploration expenditures totalled $36.0 million, including $5.9 million of expensed expenditures and $30.1 million of capitalized expenditures; Subsequent to quarter end, the Company announced encouraging drill results at Macassa, including identification of new, large corridor of high-grade mineralization in close proximity to #4 shaft and continued expansion of the South Mine Complex (“SMC”)
  • 9.7 million shares repurchased: 9,713,500 shares repurchased in Q1 2020 for $329.8 million (C$443.1 million)
  • Quarterly dividend doubled: Q1 2020 dividend doubled to US$0.125 per share, paid on April 13, 2020 to shareholders of record on March 31, 2020
  • Solid operating results:

    • Production of 330,864 ounces, 43% increase from 231,879 ounces in Q1 2029 and 18% higher than 279,742 ounces in Q4 2019 (excluding Detour Lake, production totalled 239,309 ounces, with change from prior quarters relating mainly to grades at Fosterville, which at 42.4 g/t increased 46% from Q1 2019 and compared to record grade of 49.3 g/t in Q4 2019)

    • Production costs totalled $161.6 million ($87.8 million from Detour Lake Mine) versus $70.0 million in Q1 2019 and $71.2 million the previous quarter

    • Operating Cash costs per ounce1 of $440 ($319 excluding Detour Lake) compared to $290 in Q1 2019 and $255 in Q4 2019; excluding Detour Lake, change from previous periods largely reflected lower sales and higher levels of operating developments at Macassa during Q1 2020 (lower sales due mainly to reduced average grade from record high of 29.6 g/t in Q1 2019 and lower tonnage versus Q4 2019 largely reflecting impact of reduced operations due to COVID-19)

    • AISC per ounce sold1 of $776 versus $560 in Q1 2019 and $512 the previous quarter; excluding Detour Lake, AISC per ounce averaged $619, with the increase from prior periods due to lower sales and higher operating cash costs at Macassa (variance to Q4 2019 also resulted from increased sustaining capital expenditures from low levels during Q4 2019 due largely to increase in capital development metres and the timing of equipment procurement).

    (1) See “Non-IFRS Measures” later in this press release and starting on page 24 of the MD&A for the three months ended March 31, 2020.
    (2) Refers to Earnings before Interest, Taxes, Depreciation, and Amortization.

Tony Makuch, President and Chief Executive Officer of Kirkland Lake Gold, commented: “Throughout my career, I have seen that, in times of adversity, quality people rise to the occasion. Faced with the challenges of the COVID-19 pandemic, our team did extremely well protecting themselves and each other, while also turning in a very solid performance for the quarter. As a company, we have also risen to the occasion to support our local communities. We are donating US$20 million to assist community groups in the areas of Canada and Australia where we operate in recognition of the essential services that these groups provide and the challenges they are, or may be, faced with in obtaining funding and social assistance as a result of a slowing economic environment.

Turning to our Q1 2020 performance, we achieved strong earnings growth year over year and generated significant free cash flow. Our production increased from Q1 2019, even excluding Detour Lake, with Fosterville continuing to be a key driver of our performance. Looking at Detour Lake, the mine contributed $78 million of free cash flow in its first two months since the acquisition, and that included a period of running at reduced operations. In addition, we took steps to remove non-core assets from our portfolio, including placing the Holloway Mine, part of the Holt Complex, on care and maintenance, and suspending test mining and processing, as well as all exploration activities, in the Northern Territory. We also temporarily suspended operations at the remainder of the Holt Complex as part of our COVID-19 protocols. We have since extended the period of temporary suspension at these assets. Our non-core assets have not been contributing to shareholder returns for the Company, and when you consider the exceptional value of our three cornerstone assets, Fosterville, Macassa and Detour Lake, the right course of action clearly is to focus our investments and management time on realizing their full potential.

“Speaking of value potential, all three of these assets have substantial exploration upside, which we expect will drive future growth in Mineral Reserves, mine lives and possibly production levels. Last week, we saw a good illustration of this upside, with encouraging drill results being released at Macassa. These results included the continued expansion of the SMC. Very significantly, they also included the identification of a new, large corridor of high-grade mineralization along the historic Main Break below the former workings at the Kirkland Minerals property.  At 700 metres long and 300 metres high, this corridor has considerable potential, which is enhanced even more by the fact it is located in close proximity to the location of the new #4 Shaft, which we now expect to complete by late 2022, over a year ahead of the original schedule. We also have equally attractive exploration targets at Fosterville and Detour Lake and, though our exploration programs have been disrupted by COVID-19, we are taking steps to resume work and continue to see exploration success at our cornerstone assets as an important potential catalyst for value creation in 2020.”


In response to the extensive global health risks resulting from the COVID-19 pandemic, the Company introduced a number of measures in March to protect employees, their families and the Company’s communities. The health and wellbeing of the Company’s workforce is Kirkland Lake Gold’s top priority. Among these measures, the Company took steps to reduce the number of people at mine sites by transitioning to reduced operations at Detour Lake (effective March 23, 2020) and Macassa (April 2, 2020), and temporarily suspended operations at the Holt Complex (April 2, 2020). In addition, the Company introduced an extensive list of health and safety protocols including remote work wherever possible, medical screening, enhanced cleaning and hygiene practices, increased food safety, social distancing of workers and the increased reliance on technology such as hosting virtual meetings. As part of the health and safety protocols, the Company also suspended all non-essential work at, and visits to, all of the Company’s mine sites, including all exploration drilling and reduced levels of work at a number of projects, including the #4 Shaft project at Macassa and surface infrastructure projects at Fosterville. Operations have continued at Fosterville throughout the COVID-19 crisis, with the Company’s health and safety protocols having been introduced.

On May 6, 2020, the Company announced that it was beginning to recall employees who were off work as part of the COVID-19 protocols. The Company expects the ramp up of business activities to be gradual with the timing to be determined by ongoing government actions and other developments related to the pandemic. The Company does not anticipate achieving full production levels during the second quarter of 2020 and anticipates seeing some impact on production and costs during most of the year. At the current time, it is not possible to estimate the extent to which the COVID-19 pandemic will impact the Company’s business performance in 2020.

Guidance Withdrawn 

On April 1, 2020, the Company withdrew its 2020 guidance, which had been released on December 18, 2019 and updated on February 19, 2020 to reflect the acquisition of Detour Gold. As a result, there is no review of performance against 2020 guidance included in this press release. The Company plans to release new guidance for 2020 once Detour Lake and Macassa have returned to more predictable levels of production. Included in the new guidance will be revised production and cost targets for Detour Lake, Macassa and Fosterville. 2020 guidance for the Holt Complex is being discontinued given that these assets remain on temporary suspension with no timeline for a resumption of operations currently being contemplated. The Company is also withdrawing its three-year production guidance while it assesses the long-term effects of COVID-19 and the potential impact of the pandemic on the production profile of Fosterville, Macassa and Holt Complex, and while it works to incorporate Detour Lake into the Company’s long-term business plans.

Acquisition of Detour Gold 

On January 31, 2020, the Company acquired all issued and outstanding shares of Detour Gold Corporation (“Detour Gold”), through a plan of arrangement announced on November 25, 2019. Pursuant to the plan of arrangement, Detour Gold shareholders received 0.4343 Kirkland Lake Gold common shares in exchange for each Detour Gold share held immediately prior to closing of the Arrangement. In aggregate, the Company issued 77,217,129 common shares of Kirkland Lake Gold to former Detour Gold shareholders as consideration for their Detour Gold shares. In addition, all outstanding stock options of Detour were exchanged under the agreement. Subsequent to the share issuance, Kirkland Lake and former Detour shareholders owned 73% and 27%, respectively of the shares of the combined Company. With the completion of the transaction, Detour Gold has become a wholly owned subsidiary of Kirkland Lake Gold, and the Company is now the owner and operator of Detour Lake, a large-scale, open-pit gold mine in Northern Ontario. The acquisition adds a third cornerstone asset to the Company’s portfolio, with 2019 production at Detour Lake of 601,566 ounces. Like Macassa and Fosterville, Detour Lake combines free cash generating operations with significant in-mine growth potential and attractive regional exploration upside.

From January 31, 2020 to the end of Q1 2020, Detour Lake produced 91,555 ounces of gold, with gold sales totalling 110,456 ounces, operating cash costs per ounce of $696 and AISC per ounce sold of $1,108. For the same period, revenue from Detour Lake totalled $179.4 million, earnings from operations were $45.3 million and the mine generated $78.0 million of free cash flow (non-IFRS measure). The $78.0 million of free cash flow in Q1 2020 (excludes transaction related costs).

Non-Core Assets

Recognizing the Company intention to focus on its three cornerstone assets, Fosterville, Macassa and Detour Lake, the Company designated the Holt Complex and assets in the Northern Territory of Australia as non-core on February 19, 2020 with plans to consider all options to maximize value. In March, the Company discontinued activities at two locations: it transitioned the Holloway Mine, part of the Holt Complex, to care and maintenance, and also suspended test mining and processing, as well as all exploration drilling, in the Northern Territory. The Company also announced the temporary suspension of operations at the remainder of the Holt Complex (Taylor and Holt mines and Holt Mill) as part of the Company’s COVID-19 protocols. As at May 6, 2020, these assets remained on temporary suspension.

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