Kirkland Lake Gold (OTCPK:KGILF) surprised investors this morning by announcing that it had discovered an incredibly high grade gold deposit near the surface at its South Mine Complex -- the main part of its Kirkland Lake Deposit. Grades were absolutely stunning at over 400 grams per tonne (gpt.) near the surface and nearly 600 gpt. deeper below the surface. To give the reader an idea of how uncanny this sort of gold occurrence is the company reported an average grade of 15 gpt. in its last earnings report, and shares rose on that report because the grade was so high -- 50% higher than last year. While it is unlikely that the company is going to find a new deposit that contains over 400 gpt. of gold, these occurrences indicate that there is additional high grade gold near where the company is mining.
Shares soared 14% on the news, taking the stock to a new 52-week high. Shares have also risen more than 130% since the beginning of the year, and they are up more than 30% since I recommended them last July.
While I did point out the exploration potential last July, this is a very positive development. While the discovery was relatively small, and while we cannot extrapolate it out yet to a concrete resource estimate or to a cash-flow estimate, the potential is enormous. Gold rarely occurs with this level of concentration and when it does it is often near more gold, meaning that there is a heightened probability that Kirkland Lake Gold will be able to expand its resource further. Of course, until we see more details this is largely a speculation.
With the stock soaring so much on this news, it might be wise for investors to start to look for an opportunity to take some shares off the table, especially considering that we are probably years away from this discovery leading to actual cash-flow. The company has a $450 million NEV, which is somewhat high for a company that has just a 3.5 million ounce defined deposit and 150,000 ounces of production. Investors are betting that the company will be able to expand both the resource and production while bringing costs down. We have seen this so far this year which is why the stock is such a strong performer, but at the same time bets like this should be made when the market is out of favor. So I would be hesitant to add now and I would be looking to take some off the table.
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