Kirkland Lake Gold (KL) Reports Q1 EPS of $0.77

Kirkland Lake Gold (NYSE: KL) reported Q1 EPS of $0.77, versus $0.52 reported last year. Revenue for the quarter came in at $554.74 million, versus $304.91 million reported last year.

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• Company guidance withdrawn: Based on the move to reduced operations due to the COVID-19 pandemic, the Company withdrew its full-year 2020 guidance on April 1, 2020; Revised guidance to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.”

For earnings history and earnings-related data on Kirkland Lake Gold (KL) click here.

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