Kirkland Lake Gold (TSE:KGI) (LON:KGI) on Monday said that with the completion of its service cage project at its Macassa gold mine in Ontario, it will this month begin the ramp up to its "second milestone" production rate of from 1,400 to 1,600 tons per day (tpd).
The gold mining company also said that based on preliminary production results to the end of January, it is "on track" to meet its previously announced guidance for fiscal 2013, of 90,000 to 110,000 ounces of gold sold.
The service cage, which was finished at the end of last month, will be used initially to clear a heavy backlog in material waiting to go underground, and to free up the main production hoist to reduce a heavy backlog of ore and waste ready to be hoisted to surface.
The company's planned production ramp up is expected to hit the 1,400 to 1,600 tpd milestone sometime between August and October this year.
"The service cage now being operational is a major milestone for the company," CEO Brian Hinchcliffe tells Proactive Investors.
"With this bottleneck now firmly out of the way, daily ore tonnage can ramp up to the 1,600 tons per day level, and will send people, equipment and supplies down to the mine in a much more efficient and time-effective manner.
"We are looking forward to expected quarterly improvements in production results going forward," Hinchcliffe adds.
In a morning research note, Ocean Equities' analysts said the news is positive for Kirkland as the service cage is "perhaps the most important piece of equipment at Macassa", transporting employees and equipment from surface down to the production levels.
"The company had experienced some issues while installing and commissioning the equipment, but these have been overcome," the capital markets firm said.
In its statement Monday, Kirkland said it plans to further boost hoisting capacity at Macassa to 2,200 tons per day.
"Hopefully the company has now drawn a line in the sand and can begin to rebuild development momentum and ramp up hoisting capacity," the Ocean Equities' analysts noted.
"Looking at the fundamentals of the company, with its 3 million ounce resource in the measured and indicated category, including reserves, Kirkland has an enterprise value per ounce of less than $120."
The research firm noted further that roughly 80 per cent of the project budget for infrastructure upgrades has been spent on the phase II and III expansion programs that will lift hoisting capacity to 2,200 tons per day, and having completed a second convertible debenture fundraising in late 2012, the company "should be well funded" to complete the expansion.
"Kirkland now has to rebuild its development and production momentum," said Ocean's analysts.
"We maintain our view that the market reaction to Kirkland's production guidance reduction was heavy handed however, it is now down to the company to meet its near term development targets and production targets."
Kirkland Lake is located in Ontario's Southern Abitibi gold belt and the gold mining company is based in the historic Kirkland Lake Gold camp, which has produced 22 million ounces of gold in its 100-year history.
The company's three-phase, development and mine refurbishment program is aimed at increasing production and requires relatively low capital expenditures as there is substantial infrastructure already in place.
Its project consists of the Macassa property and operating underground gold mine, four contiguous gold properties known as the Lake Shore, Wright-Hargreaves, Teck-Hughes and Kirkland Minerals properties and their respective, formerly producing, underground gold mines - collectively called the South Mine Complex - as well as a mill and processing facility.
Ocean Equities said it expects "a steady improvement" in the grade of ore hoisted from the South mine complex as Kirkland improves access to the higher grade ore areas.
Final production results for the company's fiscal third quarter and for the first nine months of the year are expected to be released February 11. Kirkland's fiscal year ends April 30.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.