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Kirkland Lake Gold Ltd (KL) CEO Anthony Makuch on Q2 2020 Results - Earnings Call Transcript

About: Kirkland Lake Gold Ltd. (KL)
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Earning Call Audio

Kirkland Lake Gold Ltd (NYSE:KL) Q2 2020 Earnings Conference Call July 30, 2020 2:00 PM ET

Company Participants

Mark Utting - SVP, IR

Anthony Makuch - President, CEO & Director

David Soares - CFO

John Landmark - Co-Lead, Australian Operations

Troy Fuller - Director, Exploration in Australia

Evan Pelletier - VP, Kirkland Lake Mining

Duncan King - VP, Mining for Kirkland Lake

Eric Kallio - SVP, Exploration

Larry Lazeski - Business Improvement Manager

Conference Call Participants

Ovais Habib - Scotiabank

Cosmos Chiu - CIBC Capital Markets

John Tumazos - John Tumazos Very Independent Research

Joshua Wolfson - RBC Capital Markets

Carey MacRury - Canaccord Genuity


Good afternoon. My name is Chantel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Kirkland Lake Gold Second Quarter 2020 Earnings Call. [Operator Instructions]. Mark E. Utting, you may begin your conference.

Mark Utting

Thanks very much, operator, and I just want to thank everyone for joining us today. Welcome to our second quarter 2020 conference call and webcast. On today's call, we will review our results for the 3 and 6 months ended June 30, 2020. On the call today are many of our Kirkland Lake Gold senior management team. Speaking today will be Tony Makuch, our President and CEO; David Soares, our Chief Financial Officer; Duncan King, our Vice President, Canadian Operations; Evan Pelletier, our Vice President, Kirkland Lake Mining; and Eric Kallio, our Senior Vice President, Exploration. There are also a number of other members of the senior management team on the phone as well that may help with the Q&A session. As we did in Q1, we're doing today's call remotely, consistent with our COVID-19 health and safety protocol. After we go through the presentation, we'll then open the call to questions. [Operator Instructions]. The slide deck that we'll be referring to is available on our website, both on the homepage and in the Events section.

Before I get started, I would like to direct everyone to the forward-looking statements on Slide 2 of the slide deck. Our remarks and answers to questions may and most likely will contain forward-looking information about future events affecting our company. Please refer to Slide 2 as well as the forward-looking information section of our most recent MD&A dated July 29, 2020, for more information. Also, during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available in our most recent MD&A as well. Finally, I'll mention that all figures given today will be in U.S. dollars unless otherwise stated.

With that, I'll now turn the call over to Tony Makuch, President and CEO of Kirkland Lake Gold.

Anthony Makuch

Thanks, Mark, and as Mark said, thanks, everybody, for being on the call. It's nice to get -- to give an update on what's happening in Q2. I'm going to start on Slide 4 in the deck, and I think the one main highlight on this slide, I think maybe put -- bring to your attention is our number one priority is the health and safety of our people. And that's -- everything we do is all about that, ensure people come to work and work safe and go home safe to their families. And if you look at the results and you can see that we've had very good operating results in the quarter and it's really a testament to -- in these challenging times how the people have taken it seriously, have acted very professionally and carried out their work in a very responsible and safe manner. And we really have to thank the people for all the hard work that they did, and we look forward to continued success.

And then maybe I'll start by providing an update on where we stand on the COVID-19. As many of you know, we placed both Detour Lake and Macassa and reduced operations at the end of March, and we suspended operations entirely at the Holt complex. Fosterville remained in production, though, like all of our operations get implemented an extensive list of health and safety protocols, and we also suspended all nonessential work there, including work on some of the projects and the exploration drilling. Projects would have included the main thing was event raise, and we were doing some work on the water treatment plant.

We did redo most of our project work in late April, including shaft sinking and at Macassa. In terms of exploration, we've began the redeploying drills at Fosterville in April and started in Canada in May and this process is continuing, and we expect the ramp-up of drilling to go on for some time. We began calling workers back at Detour Lake and Macassa in early May, and by the end of the quarter, the workforces of both of these place were up -- back up to pre-COVID levels.

Operation at the Holt Complex remain suspended, and we recently announced that this will continue for the foreseeable future. With that, we transferred as many employees as we could to other Canadian operation in Macassa and Detour. We really -- we took advantage of this opportunity and contract -- contractors that we're working -- where we could put our own employees in, we put our own employees in to fill the role. And now as we go forward, we're looking at opportunities for what to do with the Holt complex, and one of the things there is there is some significant exploration upside on these properties and those are something we may look at in the future. But it got to be something that fits within our cost structure, and ensures a proper return for Kirkland Lake shareholders.

Finally, on COVID, as you may know, conditions are getting worse in the state of Victoria in Australia. They're in the midst of a spike in COVID cases and many parts of Melbourne are in lockdown or I guess the relative lockdown like we are in Canada. At this point, we really haven't been impacted in terms of production. However, we are monitoring the situation very closely, and we'll take the necessary steps to protect our people.

I'll turn your attention to Slide 5, and I just want to point out that we've -- within Kirkland Lake Gold, we've adopted the responsible gold mining principles that were developed by the World Gold Council. We're focused on a number of key areas related to governance. Governance [indiscernible] is fines or contact -- sorry, our conduct and how we manage our supply chain, how we understand the impacts in the virus, how we deal with regulators, et cetera.

On the social side, the health and safety of people. Given the rights labor rights and how we fit into our community and recognize the importance of the community and people. And also the third leg was on the environment, where we focus on understanding the environmental. What we need to do from an environmental stewardship point of view and devising our operating plans with mine closure and mines and work towards -- we are there. We do have an impact, but have our impact not be as bad as it needs to be per se.

On the governance and social environment, again, without getting into too much more detail on this, you can -- it outlines a few areas here. I think one of the main points I want to point to is from a social point of view, from a people's point of view, we've had a significant improvement in our TMIFR medical injury frequency. Throughout the operations, we've improved almost 100% over the last few years. We're sitting at a frequency of 2.2 currently, and our target is to get below 1. So although we've made significant improvements over the last while, we're not there yet, and we're doing a lot of things in the company to get ourselves to that. We feel strongly that this is -- we don't have people come to work to get harmed, and we're going to do what we can to make sure people can come to work, do the work that they -- to earn living, they can have to go enjoy time with their family and their friends.

But also, we've developed a donation program from the company coming out of COVID-19. And the main thing I wanted to point out here is a number of main areas that we really want to focus on, mental health, addiction and homelessness. We think it's a critical area in terms of supporting people in the communities we live in. Youth training and employment, we really want to set things up for succession, and we intend to be -- we're building long lifeline assets at each of our mines. And we want to make sure that we are developing the people that can come into that and provide the opportunity for people. We're looking at elderly care as well as food and nutrition. We think these are pretty important areas as well.

And in terms of -- on the social side, we've updated our human rights policy, and we're focused on providing -- recognizing diversity and providing an inclusive workplace, and that we have all people to prosper regardless of any differences that may happen, right?

We also -- regarding on Slide 7. On the environment side, we are focused on a number of areas. I think one thing that we should highlight is Macassa mine has been the leader in Kirkland Lake Gold. We're using a battery technology on the ground. We started -- I mean it started before my tenure at Kirkland Lake Gold, and we just continued on with it. We've made a lot of improvements. It is -- we're still not quite there, but in terms of greenhouse gas emissions, we've recognized the importance of monitoring this and managing this and trying to -- and managing our carbon footprint. And we're working hard, and this is one of our priorities as we continue to advance our operations.

On the water side, we recognize water is important. Most of our operations are basically 0 discharge. And Fosterville, we recently put in a new water treatment plant to set it up for zero discharge and both at Detour and Macassa, we're working towards there. We focus on rehabilitation and one of the other areas is on tailings. In our tailings facilities, we monitor our tailings facility, both current operating ones as well as our historic ones or the ones we maybe have inherited for stability, et cetera. We do what we can to what -- look at the new engineering standards, adopt the highest level for dam standards in all jurisdictions, not just -- the high standards that there are, not just in the regulatory environment that we're in.

We've made significant improvements in the Macassa tailings facility. And some of the other things we're doing is we're focusing on new facilities where we look, especially in Kirkland Lake, where we go to thick and tail in order to minimize our footprint for the tailings area.

I'll now go to slide -- I believe it's Slide 8. And I'll talk about our financial and operating results in the quarter. And you can see, we did have a very strong quarter despite disruptions caused by COVID-19. Adjusted earnings were $0.79 per share, this increased from $0.52 in last year's second quarter and $0.70 in Q1 of this year. We did have a significant difference between adjusted earnings per share and earnings per share, which mainly reflected some noncash foreign exchange losses, which we had in Q2. David Soares, our CFO, he'll be talking a little bit later, and he'll give you a little bit more update on that or more color on that.

Once again, it was cash flow where our business really showed its strength. If we exclude the impact of a large tax payments in Australia related to the 2019 tax year, we generated operating cash flow of over $350 million and free cash flow of over $225 million during the quarter. We clearly benefited from a higher gold price, but our operating performance was very strong. Production was 332,000 ounces with sales of 341,000 ounces. Cash costs were $374 per ounce. But if you exclude Beater Lake, they were $241 per ounce if you want to compare it to that quarter a year ago.

On the same basis, all-in sustaining cost was $526 per ounce, both -- and again, both measures were significantly better than a year ago. And on Detour Lake, it had a very solid quarter, which I'll discuss shortly. I will say that we saw improvement quarter-over-quarter in terms of unit costs and looking at the gold full price, the timing of our acquisition of Detour Gold couldn't have been better and definitely are the actions that we were able to close hedges, both on gold hedges, currency hedges, and diesel -- fuel hedges has had a significant benefit to the company, to the operation, I should say.

Turning to Slide 9. We ended the quarter at $535 million of cash and no debt. It's maintaining yourselves in the industry-leading position in terms of our financial strength. We continue to return capital to shareholders, repurchasing 1.3 million shares during Q2, have brought year-to-date repurchases of just over 11 million shares for $380 million. We've also recently paid our second quarterly dividend of $0.125 per share, which we doubled in the first quarter of this year. Also during the first half of 2020, despite COVID, we achieved significant exploration success and I'll talk more about that in a moment.

Moving on to Slide 10. I already mentioned the strong performance at Detour Lake. I'll just add that we are very encouraged by what we see at Detour and believe that the best is still yet to come. This is really a world-class asset, world-class operation. The people are exceptional and definitely the doers, and we're pretty excited about what we have happening at Detour. And as it would have been a very challenging year, a challenging quarter due to COVID, it's up at Detour, but the -- excuse me, production at Detour was 132,000 ounces at a grade of 0.8 grams per tonne in the quarter. We expect to see better grades going forward as mining rates have ramped up. And we gave our guidance, we feel very strongly about meeting the production guidance for the year. So you can get the sense of the second half of this year, it's going to be a much better second half.

Cash costs and all-in sustaining costs both improved from the first quarter. And very importantly, Detour Lake continues to generate substantial free cash flow. It generated $89 million of free cash flow in Q2, and for the 5 months since January 31, has generated over $167 million of free cash flow, which is about 40% of the company's free cash flow so far and we expect production at Detour to increase, as I said, in the second half of 2020. And with the production increase and cash costs coming down and gold price where it is and now are going up. You can see it's a very robust project.

Turning to Slide 11. We have consistently said that our 3 cornerstone assets are not just highly profitable operations. They are also 3 of the most exciting exploration stories in the industry. We do -- we do feel that the understanding the geology and making an aggressive stance in terms of where we think the geology is special is something important that's just driven value for Kirkland Lake shareholders. And we see that with the 3 assets, we did have a lot of success in exploration so far this year. I won't get into the details because Eric Kallio will discuss our exploration results later in the presentation. But at a high level, at Macassa, we continue to do -- we continue to show that we can grow the South Mine Complex. We are encouraged by drill results that happen both on the Main and the '04 Break and the Amalgamated Break. The Main and the '04 Break have been ignored for quite some time with the discovery of the South Mine Complex. Once the new shaft is in place, it really opens up the opportunity to go back and look and be able to mine again back on the Main Break, and more significantly, especially at that. And the Amalgamated Break is a whole new mineralized potential system. And things are -- as I've said earlier, things are very close to the number four Shaft. We've also, at Macassa, started the development of a new ramp from surface, which is going into some near-surface mineralization, which is a combination of -- which is a more '04 Break mineralization, some Amalgamated Break information -- sorry mineralization, some -- maybe some remnants of a South Mine Complex up higher and who knows what else. So we are very encouraged by the exploration upside even near surface at Macassa. At Detour, we recently put out results on some initial holes, which successfully intersected mineralization as attractive grades outside of existing mineral resources at 3 locations, in the Saddle Zone, both west of the Main pit at 58 North and at the North Pit.

And turning to Fosterville, we just issued a press release with encouraging drill results at a number of targets. Infill drilling at Swan, higher-than-expected grades. We've also intersected high-grade mineralization outside of existing mineral resources at Cygnet, Robbin's Hill in Harrier, and we continue to see that these are all very large gold systems, all contain physical gold, all contain the traditional sulfide mineralization and its extensive and be able to follow for quite a distance, both down plunge in these systems. And again, without me getting into much of it, I'll let Eric get into more of the details shortly.

Moving to Slide 12. We reissued the 2020 guidance on June 30 based on the progress we were achieving at Detour Lake and Macassa and ramping up from reduced operations, we felt confident that we could give a better picture now back to our shareholders of what was happening. Our production guidance is about 90% of the original guidance, with most of the reduction coming from the removal of the Holt Complex from our guidance after April 2. We are targeting 1.35 million to 1.4 million ounces this year, and are well positioned to achieve the target in entering the second half of the year.

Both operating cash cost and all-in sustaining cost guidance improved, and we are beating the new guidance range after the first half of the year. Sustaining capital has been lower than planned for the year-to-date, largely due to delays caused by COVID. You should see sustaining capital and all-in sustaining cost, in general, increase in the second half of 2020. But we remain very well positioned to achieve or beat our guidance for the year.

In addition, exploration expenditure guidance was reduced for the year, which largely reflects disruptions caused by COVID and delays that could move some work into next year. At $130 million to $150 million, it's still a very substantial program, and I would say that it is a much more focused program. And the main priorities are Fosterville, drilling underground at Fosterville, between targets at Harrier, Swan, Cygnet and Robbin's Hill. Looking at Detour, the whole sale area, the West Detour and we get to understand what's happening below the current pit and to the Western pit to grow resources as we say. We've indicated when we did the acquisition of Detour that we feel there's substantial growth in resources and potential reserves over the next year or 2.

And over at Macassa, we continue to be very, very excited about what we can find along the South Mine Complex and the Amalgamated Break. Overall though, our guidance didn't change that much, particularly if you factor out the Holt Complex, and we are in very good shape to achieve our reissued 2020 guidance as I said.

With that, I'll turn the call over to David Soares, our Chief Financial Officer.

David Soares

Thank you, Tony, and good afternoon, everyone. I'll be starting on Slide 13. As Tony mentioned, we had strong earnings in Q2 2020. Adjusted earnings totaled $202.9 million or $0.79 per share, a 52% increase from Q2 2019 and 13% better than last quarter. We had a significant difference between adjusted net earnings per share of $0.79 and net earnings per share of $0.54 in Q2 2020. The difference was mainly related to $72.8 million of noncash foreign exchange losses, reflecting the strengthening of the Australian and Canadian dollar against the U.S. dollar during the quarter. This FX loss was primarily driven by the conversion of our significant cash balance held in U.S. dollars in Australia and Canada, and was also impacted by the conversion of an Australian-denominated intercompany loan between our Australian and Canadian entities.

The other key difference between adjusted earnings and earnings related to $13.4 million of nonrecurring costs related to COVID-19. These costs were mainly labor costs and were incurred because we paid wages to people in the initial period that they were off during reduced or suspended operations. We also paid special bonuses to people who worked extra days and hours due to restrictions on movement of people at the time.

Turning to Slide 14. The key driver of improved earnings in Q2 was higher revenue. Revenue in Q2 2020 totaled $581 million, double the revenue of $281.3 million in Q2 2019 and higher than the $554.7 million of revenue recorded last quarter. Of the increase from a year ago, $171 million related to a 61% increase in gold sales to 341,000 ounces, a $396 per ounce increase in the average gold price to $1,716 per ounce, accounted for $135 million of the increase in revenue year-over-year. Compared to last quarter, we had a $44 million increase in revenue from $130 per ounce increase in the gold price from $1,586 per ounce in Q1. This impact more than offset a $5 million reduction from gold sales, with gold sales of 341,000 ounces in Q2, slightly lower than 344,000 ounces last quarter. The reduction was mainly due to the suspension of operations at Holt Complex, which had sales of 3,600 ounces in Q2 versus 29,600 ounces in the first quarter.

Looking ahead at EBITDA, as shown on Slide 15, Q2 2020 EBITDA totaled $310 million, a 67% increase from $186 million in Q2 2019. Compared to last quarter, EBITDA was lower than the $391.5 million in Q1. The change from last quarter relates to net earnings, which were lower even though adjusted net earnings increased. I already mentioned the $72.8 million of FX losses in Q2. While in Q1, we had $73 million of gain from FX due to a weakening of the Aussie and Canadian dollar compared to the U.S. dollar at the time.

We will look to take advantage of any future triggering events that will allow us to convert to a U.S. dollar functional currency, which will significantly reduce these FX fluctuations from period to period. Excluding FX gains and losses, we would have compared favorably to last quarter in terms of EBITDA.

Turning to Slide 16. It looks at our cash and cash flow. On the slide, you will see that our operating cash flow was very strong, but was impacted by the $132.6 million tax payment in Australia, which I want to emphasize is the final tax installment we had to pay for our 2019 tax year in Australia. Other factors impacting our cash was ongoing investments in our key assets, which mainly accounts for the $128 million of cash used for investing activities. Cash used for financing activities of $90 million reflected the $49.9 million we used to repurchase $1.3 million of shares in Q2 that Tony mentioned earlier as well as $34.7 million used for dividend payments.

Slide 17 looks at the change in cash in a different way. You can see that the largest contributor to growth in cash was from our operations, which generated about $322 million of cash, which is before interest, income tax paid and the impact of changes in working capital.

Slide 17 also highlights the impact of income tax date on cash during the quarter, mainly reflecting that $132.6 million payment made for Australian tax payments for the 2019 tax year.

With that, I'll turn the call over to John Landmark, Co-Lead of our Australian Operations.

John Landmark

Thank you, David, and good afternoon, everybody, from Melbourne. I should just mention, I also have with me Brian Hagan, who's our fellow Co-Lead of Australian operations. I'll be talking to Slide 18. Fosterville had another strong quarter in Q2 2020. We produced 155,000 ounces. Production increased 10% from Q2 2019 with higher tonnes processed mainly accounting for the increase. The average grade for the quarter was 39.5 grams per tonne, roughly the same as a year earlier. Production in Q2 compared to production of 160,000 ounces last quarter when the average grade then was 42 grams per tonne. Cash costs in Q2 2020 were $129 per ounce, similar to both prior periods. All-in sustaining costs improved, averaging $273 per ounce versus $318 in Q2 2019 and $313 last quarter. The change reflected lower levels of sustaining capital, which totaled $11 million versus $23 million last year and $16 million in Q1. The reduction largely reflected the impact of COVID-19 protocols, which led to the suspension of project work and the deferral of some expenditures. We expect higher levels of sustaining capital in the second half of the year. I will point out that our all-in sustaining costs of $273 was achieved despite the new 2.75% royalty that started on January 1 this year. The new royalty added $6.9 million or $44 an ounce to our all-in sustaining costs in Q2 2020.

On a year-to-date basis, we produced 315,000 ounces in the first 6 months of 2020 at operating costs of $127 and all-in sustaining costs of $293 per ounce. Entering the second half of the year, we are well positioned to meet our guidance for 2020 of 590,000 to 610,000 ounces of production at cash costs of $130 to $150 per ounce. In terms of projects, despite disruptions, we've done well. Our new ventilation system was completed during Q2 2020 with the new system now fully operational. We also completed our new refinery during the quarter and are moving forward with a number of other projects. Finally, Tony mentioned that we're seeing a spike in COVID cases in Victoria. For the most part, it has been restricted to Melbourne, though in recent days, it does appear to be expanding to other areas, including Bendigo. I just want to reiterate that we're monitoring developments carefully. We have extensive protocols in place, and we are making arrangements around remote work and risk assessments for people coming from impacted areas. As always, we will do what we need to protect our people foremost.

I'll now turn the call over to Evan Pelletier, who's Vice President for Mining Kirkland Lake.

Evan Pelletier

Thanks, John. I'm starting on Slide 19. Macassa produced 42,000 ounces in Q2, which was lower than both Q2 last year and the previous quarter. There was a significant impact related to COVID-19 and the transition to reduced operations. Part of the impact related to the fact that Macassa produces using a shaft and poses its challenge when coming to social distancing, we have extensive protocols in place and our people are doing an excellent job.

Operating cash costs for the quarter averaged $547 per ounce in Q2 2020 versus $446 in Q2 2019 and $536 in the previous quarter. Lower sales volumes were the key driver of the higher cash cost per ounce. All-in sustaining cost per ounce averaged $841 versus $788 million in Q2 2019 and $850 the previous quarter. Again, lower sales volumes were the key factor driving the increase. Sustaining capital expenditure declined in Q2 2020, totaling $10 million versus $17 million in Q2 2019 and $14 million last quarter. The reduction was related to disruptions caused by COVID. We will see a pickup in sustaining capital in the second half of the year as work levels increase.

On a year-to-date basis, production totaled 93,000 ounces at operating cash cost of $541 and an all-in sustaining cost of $686. Looking ahead, we have a workforce back to pre-COVID levels and are expected to see increased productions based on higher tonnage and better grades over the balance of the year. Our guidance for the year is producing 210,000 to 220,000 ounces at a cash cost of $490 to $510 per ounce, and we are confident that we will achieve these targets.

Turning to Slide 21. Despite losing a month of shaft sinking in Q2 due to COVID, the 4 Shaft is progressing very well. During the quarter, we sank the shaft 617 feet for a total of 2,577 feet by quarter end. We are currently at about the 2940 feet level, and we are averaging over 11 feet per day, which is better than plan . We're also making good progress with steel installation and putting in place all required infrastructure. On our last call, we discussed the change in scope to the project, which is going to allow us to complete the 4 Shaft over a year sooner than initially planned by late 2022 at a lower capital. We are very much on track to achieve the new schedule.

I will now turn the call over to Duncan King, Vice President, Canadian operations.

Duncan King

Thanks, Evan. Turning to Detour Lake on Slide 21. The mine produced 132,000 ounces in Q2, which compared to 92,000 ounces for 2 months in Q1. Grades remained fairly low in Q2, averaging 0.79 grams to the tonne. The lower grades have largely resulted from processing higher volumes of stockpiled material than normally would be the case, which is typically lower grade than mine production. Our unit costs improved compared to Q1. Cash costs averaged $573 in Q2 compared to $696 the previous quarter. All-in sustaining cost improved to $1,090 from $1,108 per ounce. Sustaining capital totaled $66 million in the quarter.

As we have mentioned previously, all of Detour Lake's capital is reported in sustaining, with the exception of a small amount of capitalized exploration. So our AISC of $1,090 is really an all-in cost. On a year-to-date basis, production at Detour Lake totaled 223,000 ounces at average cost of $628 and an all-in sustaining cost of $1,098 per ounce. Our guidance for the year is 520,000 to 540,000 ounces of production at operating cash costs of $610 to $630 per ounce. With mining rates increasing, we expect to see better grades in the second half of the year, and we remain confident that the reissued 2020 guidance will be achieved.

With that, I'll turn the call over to Eric Kallio, Senior Vice President of Exploration.

Eric Kallio

Thanks, Duncan, and good afternoon, everyone. My first slide today will be 22, which is from Macassa, where exploration in Q2 started at slower-than-planned rates, but then picked up quite a bit as the quarter progressed. In our view, still managed to show some reasonable progress on our projects. We also obtained what we believe are some very good results from drilling, which we announced in April and illustrated on the current slide.

It is indicated the new drilling was done from the East limit of the 5300 level and resected a number of high-grade zones to not only extend the SNC by another 75 meters to the East, but also defined a new high-grade corridor on the Main break, east of number four Shaft, which at this point measures over 700 meters long by 300 meters high and remains open for extension, both along strike and to depth.

Although, I'm not going to be reporting any new intercepts today, I believe we did continue to make some good progress since that press release, including more drilling in that same area, extended the drift further to the East and now have a new platform that will allow us to reach even further along the structure. And looking to the future, we see things starting to really pick up even more from where we were in June. We averaged about a number of maybe only about 2 drills in Q2 from a lot of the time, but as of the end of July, we're up to 7 and 8, and we expect to be running at 9 to 10 drills for the remainder of the year, which is very close to our original plan.

Turning over now to Slide 24. I'm going to talk a little bit about Detour. And what we see is an image for the Detour property, illustrating the initial results from the large drill campaign, which we commenced in March and we announced in June. As we announced, the drilling that we're doing is part of the 250,000-meter program being done over the next 1.5 years, supply information for an updated resource and potentially expanded mine plan at the site. Results on the plan are from the Main and West pit areas of the property. And as indicated -- show 8 holes in total with 3 specifically targeting the large gap between the West and Main pit, which we call the Saddle Zone, where there's been very limited past drilling, no current reserves and very limited resources.

As mentioned in the release, all the holes here were very successful, but we're especially pleased with the ones from the Saddle as all 3 intersected very broad zones of mineralization, with attractive open-pit grades and several high-grade subintervals showing us that there could be potential for underground reserves at depth. We're also very happy that all the holes seem to intersect the targets very close to our projections and contain similar grades and style mineralization that we see in the West and Main pits. So this makes us feel very good about our chances for continued success in the future.

But turning on -- turning over now to Slide 24, we're looking at a long section through the Main and West pit areas and showing the current reserves, key drill targets and new holes. It's indicated the current reserves are contained in 2 Main pits below defined by colored blocks, and the key target areas are the areas between these, which we call the Saddle, as well as the area below the West pit, where there are no current reserves and very little past drilling. So in terms of new holes, we see that they intersect both the East and West sides of the Saddle Zone in an area directly on-strike with mineralization from the Main pit. So a lot of area to still drill, but a very good start to the program so far.

Turning on now to Slide 25. We see results from the 58 North Zone at Detour, where we also had some very positive news. Project is located 8 kilometers to the south of the Main pit and nearby to the lower Detour deformation zone, and has an existing underground resource, which we believe has excellent chances for expansion and eventually supplying higher-grade feed to the Detour mill. As indicated, the key deposit here is located near the intersection of an East-West trending shear structure, with a series of porphyries and the new drilling focused mostly on the West side of the current resource, which is outlined in the orange. As indicated in the release, results of the program were very successful and added 175 meters strike length to the West side and had some of the best grades that have been seen in this resource area. Considering these and the results in the Saddle area, we believe things are going very well at Detour at this time and now putting most of our new efforts towards speeding up the drilling and getting the results coming even faster.

And in summary, overall, I would say Canada, I would say that despite the continuing turmoil focus, we still managed to have a reasonable success with advancing our projects, and things are picking up for the future.

And so now with that, I'm going to turn it over to Australia and going to Slide 26, where we had slightly less drilling again than planned in Q2. But just released, I believe, are some very exciting results from Fosterville from several different target areas, including the Swan, Cygnet, Harrier and Robbin's Hill. The best results overall were from the Swan zone, where we had several new holes from both win in -- both within and proximal to the current mineral reserves, turning from extremely high-grade visible gold intercepts. The new results were obtained during infill drilling of the reserves near the intersection of the Swan and the Swan footwall splay and were very encouraging to us due to the fact that they were much higher than expected for this area.

And although the total extents of the high-grade and the effects on reserves are still unknown at this time, we do have a lot more drilling planned for the Swan in the second half of the year, areas down plunge and this will be coming from a new hangingwall drift that was actually installed during the quarter. So this gives us a whole lot more options to hopefully find the same kinds of things happening. Also included in the raise was new results for Cygnet, which returned significant intercepts of up to 100 meters north of this -- of the current resource as well as from areas immediately down dip into the South of current reserves at Harrier, which both have the potential to add reserves in the near term in locations close by to current mining.

And then to add to these, we also had some very good results from Robbin's Hill, which indicated not only some excellent results up to 950 meters down plunge of the current reserve, but also a potential extension of the overall system up to 2 kilometers along strike and then new zones occurring in the hangingwall. Important to note as that some of these new zones that we're locating along strike and in hangingwall do have quartz in visible gold, which are the hallmarks, of course, for the Swan and what we are really looking for.

Overall, we're very encouraged by the drill results we're seeing in all of these target areas, and we believe that they all continue to present significant growth opportunities for the company with the high-grade potential.

And with that, I will now turn the call over to Tony Makuch, and he's going to round out the presentation.

Anthony Makuch

Okay. Thanks, Eric, and thanks, everyone, John and David and Mark and everybody for presenting. And anyway, you can get very excited about Kirkland Lake Gold, not only industry-leading in terms of earnings, strong cash flow generation, but you get the sense that there's exceptional exploration upside, lots of gold on the properties. We are really, really good geology, and it's pretty exciting times in terms of what's happening in the company.

And if you look at the results, and again, just to reiterate, it's been a challenging environment with COVID-19. We still -- the people of this company still continue to turn in this all the quarter. And we really, again, have to acknowledge all the hard work and specialism and the responsible safety that's been taking place in this company. And we generated $225 million of free cash flow to over $400 million year-to-date, excluding the unusual items.

Again, we have industry-leading financial strength. And on the other side, we're focused on return to shareholder. We continue to buy back shares and -- as well as we've raised our dividend. And you can see there's lots of upside in terms of where dividends and return to shareholders can go in this company. And again, I'll go back to, we have 3 outstanding assets in our portfolio. We are very, very excited about the acquisition of Detour Lake. We continue to see tremendous upside in this mine, and I think we are going to work over the next while to demonstrate that the value of Detour Lake would be -- what was the previous value of Kirkland Lake by itself was before we acquired Detour Lake. So just hold on and keep your -- and that is a forward-looking statement, by the way.

Anyway, we do see continued exploration success going on the year. As Eric mentioned, and you get the sense on the amount of exploration we're doing this year, we do -- we are -- we're drilling just for -- because we -- on the study of the geology we're looking for, we want to study geology for deposits, and we expect to get significant news flow from exploration drilling over the year as we progress and even into next year.

And then finishing up here, we -- you can see the first half of the year, which we had some good solid results. We did have a very strong second quarter, but we are really poised for a strong second half of the year and well positioned to achieve the reissued 2020 guidance.

And so with that, I'll thank everyone for listening, and I'd be happy to take any questions that anybody might have. Take care.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from Ovais Habib with Scotia Bank.

Ovais Habib

Congrats on a good quarter despite the challenges with the COVID impacts. Only a couple of questions from me. First of all, in regards to production at Detour and Macassa, so great to see that Detour and Macassa operations are kind of ramping back up nicely going into the second half. You mentioned workforce have returned to pre-COVID levels and specifically at Detour. The question is, have you brought back all the trucks and shovels? Or will this be a ramp-up throughout Q3?

Anthony Makuch

No, we are pretty much have almost everybody working that can be working at this point in time. And we have a lot of other work happening, too, at that site now with the with the TMA and some of the other capital projects that maybe have been put on hold. So we do have a lot happen -- we're being challenged by COVID-19 and by providing social distancing, both in and out in the workplace, but also in the kitchen, et cetera. I think people are doing an exceptional job there. But we are pretty much at back to normal levels. And we do have all of our equipment if it's operating, planning to be operating or planning to mined.

Ovais Habib

So then in terms of throughput levels and mining levels, I mean that's -- you're back to pre-COVID levels as well?

Anthony Makuch


Ovais Habib

Okay. Perfect. And then just switching gears on my end on exploration. So regards to your release from Fosterville today, though that release obviously contained some positive infill results from Swan and small step-outs from Harrier and Robbin's Hill. There were some larger step-out as well. But is the focus for 2020 drill program to continue with infill at Swan and primarily improve the reserves going into the next reserve update in the early next year?

Anthony Makuch

Maybe I know Troy Fuller is on the line. I can let him answer a few of these questions, but our priorities with all of our exploration. Number one, first priority is to replace reserves mines, so some of that is upgrading resources so that we can move from inferred, et cetera, to indicated or measured. So we can convert it to reserve, so that's one of our priority. The second priority is looking for extensions. And third priority, looking for new mineralization. But Troy, I don't know if you want to give a little bit of color, if you're okay with that.

Troy Fuller

Yes. Sure, Tony. Yes, certainly, we are looking to focus our drilling on reserve extension and particularly in the Swan. So we've got a hangingwall drive that we've recently established. And a lot of the focus of the drilling is on the 150-meter down-plunge extension of the mineral reserves, so there is a real focus on that. But additionally, we still continue to undertake our step-out programs. For the remainder of the year, our regional exploration has slowed. But obviously, we'll get back into that as soon as we're able.


Our next question comes from Cosmos Chiu with CIBC.

Cosmos Chiu

I guess my question is also on the exploration results that came out about an hour ago now. You kind of talked about the infill drilling here at Swan, still kind of early on. But I'm just wondering if you can give us a sense of how that can improve -- potentially improve your reserves. If I remember correctly earlier on this year when you converted some of the inferred into reserves, you lost some grade. I'm just wondering if these results today, and certainly, they're great, 900 -- almost 1,000 gram per tonne over 8 meters here. Is that going to add back some of that grade that you "lost" earlier on this year?

Anthony Makuch

Troy, I mean, it may be a little bit early to answer that question. But Troy, can you give some color on that or you feel comfortable?

Troy Fuller

Yes, yes, sure. I certainly -- we did see some reductions with the end year model update and that was primarily driven by some volumetric reductions in the models. So we did see some reduction there. These recent drill results have been exceptional and very high grade, and they're right along the intersection zone of the Swan and the Swan splay. And 2 of those results are greater than 5,000 gram meters and 3 of the results are greater than 1,000 gram meters. And what we're seeing is the continuity of a very high-grade shoot day. We're still doing the work to understand the impact on reserves, but it looks very encouraging. It's very much higher grade than what we expected in the zone. I hope that answers your question.

Cosmos Chiu

Yes. And then, Troy, I guess a lot of it was based on infill drilling as we saw today. Any potential for stepping out in Swan? Because if I remember correctly, at one point in time, the Swan was somewhat contained, but any -- were there any kind of encouraging results coming out of potential step-outs? I guess my point is, could we see the footprint of Swan get bigger potentially? Or is that not the case right now?

Troy Fuller

Yes. We're seeing certainly potential to extend the reserve levels in Swan through current drilling. And look, a lot of our drilling in the second half of the year is directly down plunged from the Swan reserves itself. So we'll be in a better position at the end of the year, I guess, to see what sort of grades we get to the south of where we are now.

Cosmos Chiu

Okay. And then the second part of my question here is, certainly very encouraging results out of Robbin's Hill and Harrier, but the grades are not the same as Swan as sort of expected, not yet. I guess my question is, what's the potential of potentially finding some of these bonanza grades at potentially Robbin's Hill and Harrier. I guess at one point in time, the theory was as we go deeper in Robbin's Hill, it could get higher grades. To be honest, I haven't looked at all the drill results I came a little earlier today. But is that still the case in terms of potentially finding a new Swan maybe? And what's the potential here at Robbin's Hill and Harrier?

Troy Fuller

Yes. Certainly, at Robbin's Hill in our recent release, one of the deepest intercepts, in fact, the deepest intercept on the down-plunge projection of the Curie mineralization intersected visible gold at about 1 kilometer vertically below surface. So we are encouraged by what we're seeing there. We know we encountered the visible gold at similar elevations in the Lower Phoenix system, in Eagle and Swan. So we are very encouraged by what we're seeing in the early stages of drilling, but we've got quite a bit more drilling to go to fully realize the potential. And in Harrier, yes, we are seeing visible gold at depth in the system. We still have a lot more drilling to do there to fully understand the structural architecture. But as we're drilling, we're learning and developing our models. And absolutely, we think there could be something still down in the Harrier system.

Cosmos Chiu

And then at one point in time, the highest potential was something that you had called Harrier deeps. Are you -- the results that came out today, I guess, is just semantics. But are we into Harrier deeps now? And in terms of priority, has Robbin's Hill sort of surpassed Harrier/Harrier deeps.

Troy Fuller

Yes. So Harrier, we did see some solid results come out in the press release on the Harrier Base Fault. Further down plunge, they are a little bit weaker. The mineralized system is still alive, and there is still potential further down plunge. But what we're seeing at Robbin's Hill is the emergence of visible gold at depth. We're seeing strong sulfide results over a long [indiscernible] extent. So we are being more aggressive with our Robbin's Hill drilling programs and are also pushing the growth decline out towards Robbin's Hill, which will provide an exploration platform for further drilling.


Our next question comes from John Tumazos with John Tumazos Very Independent Research.

John Tumazos

Concerning the $573 cash cost at Detour seems really great. Was there a temporary benefit from crude oil and very low in April or the C-dollar week or if you sent some of the workers home, that means you've probably sent the contractors home and you didn't have to feed the workers, were those temporary benefits? Or should we look at it that the cost could fall to $500 when the grade rebounds in your mining rather than milling stockpiles or it falls to $450 if you have autonomous trucks or $400 when you get more tonnes down the road when you expand? It seems exciting.

Anthony Makuch

Well, thanks, John. I mean, first off, I mean it's a lot of all of those what you said, definitely the fuel prices coming down has helped, currency changes has helped. And as we go forward, I mean there are potential cost savings or improvements a lot. Again, we're focused on improvements by increasing -- further increasing results with the same cost. So you can get a sense that as we progress, you can get a sense that, yes, you produce more with the same amount of work and the same amount of money, we expect to see cost coming down, but we are working at a lot of areas and to improving. We don't -- I mean a lot of that is going to take -- it's going to not just all happen in the next 3 months, I think -- but I think if you look over the next year or 2, you're going to see some significant improvements at Detour, significant savings, significant increases in production, reductions in costs. And yes, it is an exciting time. And we all have the right pricing and a very motivated workforce and very capable work up there at Detour. So it is exciting time.

John Tumazos

What is the timetable for autonomous trucks? Is it 3 to 5 years out when the current fleet wears out?

Anthony Makuch

No, we're actually looking at that, and we're reviewing options of what we can do. I'm not sure if we can go 100% to autonomous trucks. We are looking at bringing -- improving our infrastructure up there. It is one of our -- one of the things we are looking at, though, combined with a number of other areas to take advantage of technology, right?

So it's working now, right? There are autonomous trucks operating at that various mines. And prior to COVID-19 happening back in March, we were talking to some other operations, some other groups about can we go visit and see what's going on, that's been delayed by what happened, but it doesn't stop us from the long term into what we're going to try to do to improve working conditions, improve opportunities for people, at the same time, look at making it safer and just cost and improvement -- improve the overall operations. We're not going to -- we're not waiting for it, and it's not like we have to reinvent a lot of this stuff, John, and it's just a matter of us getting the time to move. And we're not going to just wait for the trucks to wear out. If we see the opportunity, we're going to go. We have the financial strength to do that. And by the way, a lot of our trucks are -- have the capability and a lot of our equipment has capabilities. We already are manning -- running the drills -- a number of the drills remote at this point in time.


Our next question comes from Josh Wolfson with RBC Capital Markets.

Joshua Wolfson

So last third quarter conference call for Detour, one of the opportunities the company had talked about was expanding daily permitting for a throughput up to about 90,000 tonnes a day, which was planned for 2021, and they said it could have happened or could have been realized against within 12 months. Has there been any progress on your side in advancing that opportunity? And is that something we should think about incorporating into our forecast for 2021?

Anthony Makuch

It is -- we are working on that. We do have that advancing as peak. I'm not sure that -- if you may get the approvals in 2021, but then it's going to -- we do have a lot of capital programs planned leading up to being able to increase throughput [indiscernible] if we -- if you -- we can give you a little bit more color on that. But that is our plan. I think we didn't pick up Detour to continue at 21 million tonnes a year. [indiscernible] grow production and grow mill throughput and it's -- net debt [indiscernible] together. So [indiscernible] 2021 that will get to that full 90,000 tonnes and will see incremental improvements year-over-year over the next 2, 2 to 3 years.

Joshua Wolfson

Got it. Okay. And then second question, I guess early in the quarter, there was an announcement that had talked about the hiring of a special adviser with the focus, I guess, more on the junior and exploration part of the sector. Is there any read-through we should have with the company sort of M&A strategy with this update?

Anthony Makuch

No. I mean really, the -- what you're referring to is we appointed Greg Gibson, where he's helping me and work with me as an adviser. I mean the biggest thing we're looking at is, Josh, as we see the opportunity for continuous improvement and business improvement in the company, whether it's ensuring we get value, getting the value for the integration we see at Detour, looking at costs, looking at our business processes, at all of our operations, how do we perform better, developing different extended management systems into cost management or management accounting, understand cost drivers, understand the business. And so we're really working towards building our own internal, if you want to say, management consulting group that can go around the operations and look where we can improve. And so it's a group of people that can be put into help and allow our operating people to focus on the operations. We see lots of upside in improving efficiencies in the company, and being able to -- John Tumazos' indicated, some things such as going to autonomous trucks, et cetera, we're trying to man up the company, people up the company, I should say, and build the resources and the strength that can go and move a lot of things forward.


Our next question comes from Kent Keen with S&P Global.

Unidentified Analyst

I'm just curious, how are you looking at your $1,300 an ounce reserve price just with higher gold prices now. I think we've seen a lot of mining companies say they're going to stick with their sort of $1,200-ish in ounce reserves for now? How are you looking at yours?

Anthony Makuch

I mean I think at this point in time, we probably are going to stay with where we are. I mean really the forecast -- the fundamentally, the value, we want to make sure we ensure we get margin and we don't dilute the business. Now where the opportunity lies is if we are -- if we say -- I'll use an example at the Detour, let's say, we think we can get up to 90,000 tonnes a day, if we do 90,000 tonnes a day at our current reserves as stated and the gold price as stated and then we still have additional throughput, we can bring incremental ore and you could do that. But our focus is on maintaining margin. We're not going to start lowering that expectation in this period of time. We are into short-term gain. I mean if this price of gold continues on, and we feel confident it's going to be here for 10, 20 years, then I guess we can start looking at what we might do with reserves. But at this point in time, it's -- we're not planning to increase the -- lower the grades that we mine just because the gold price is higher.


Our next question comes from Carey MacRury with Canaccord.

Carey MacRury

Just a question back on Detour, just in terms of the mining rate now that you're back up and running there. Is that -- do you have any guidance on the tonnes planned to move in H2, the previous management team had parked a bunch of trucks and were still able to keep the mill full, so just wondering of what the mining rate?

Anthony Makuch

Well, I think -- but the trucks that were parked were some trucks that were sort of -- no -- odd trucks out of the fleet, and there's a -- you got to maintain your fleet of trucks. I think there's 35 trucks. Is Larry on the call? I believe Larry Lazeski's on the call, if you want to give a little color to that, or Duncan, do you want to give a little color to that?

Larry Lazeski

I can speak to that, Tony. It's Larry.

Anthony Makuch

Yes. Thanks, Larry.

Larry Lazeski

Yes. We're back to full complement of all of our main production equipment is operating. We are running a fleet of 35 trucks and anticipate to be at full production levels for the rest of the year, give or take, 290,000, 300,000 tonnes a day.

Carey MacRury

290,000 to 300,000?

Anthony Makuch

Yes. Total ore and waste, yes.


There are no further questions at this time. I'll now turn the call back over to the company for closing remarks.

Mark Utting

Thanks very much, operator. It's Mark here. And thanks, again, everybody, for participating in our call today. As you heard, we had a very successful second quarter, very strong profitability and cash flow generation, and we've had very, very encouraging exploration results so far this year at all 3 of our cornerstone assets. Looking ahead, we're well positioned entering the second half of the year to achieve our guidance, and we expect to see even stronger results, particularly at Macassa and Detour Lake as we go forward as they've ramped up. And we think we're well positioned, too, to have quite a bit of news flow to deliver to the market. So thanks, again. We're looking forward to our next call to update you on our progress again.


This concludes today's conference call. You may now disconnect.