- Kirkland Lake Gold posted another record revenue of $691.55 million for the fourth quarter of 2020 compared to year-ago revenues of $412.38 million.
- The company produced 369,434 Au Oz this quarter, and the price of gold for Q4 was $1,875 per ounce.
- KL is an excellent long-term investment.
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Image: Detour Lake. Source: Company presentation
Toronto-based Kirkland Lake Gold (KL) released its fourth quarter and full-year 2020 results on Feb. 25, 2021.
The company announced net earnings of $232.57 million or $0.85 per share in the fourth quarter of 2020 compared with $169.14 million or$0.80 in the fourth quarter of 2029. The adjusted earnings per share were $0.98, which missed analysts' expectations by a few cents.
However, I'm still puzzled by this slight underperformance when I look at the balance sheet. KL and GOLD are down about 5%, while NEM and the GDX are up nearly 8%.
The investment thesis with Kirkland Lake Gold is easy to present. As I said last quarter, the stock is a reliable long-term investment despite a gold price weakness that should be considered an opportunity.
However, it's crucial to trade the gold volatility and use about 30% to 50% of your KL position to profit from the gold sector's volatility, which is retracing now from a huge uptick last year. I call it trading your long-term position.
CEO Anthony Makuch said in the conference call:
Our earnings were very strong. Adjusted net earnings were $923 million or $3.41 per share. This increased 23% from 2019. Operating cash flow totaled just over $1.3 billion, and free cash flow increased 58% to $733 million. The key driver to our strong performance was significantly higher revenue and solid increases in gold sales.
Kirkland Lake Gold: Financials and Production in 4Q 2020
|Kirkland Lake Gold||4Q'19||1Q'20||2Q'20||3Q'20||4Q'20|
|Total Revenues in $ Million||412.38||554.74||580.98||632.84||691.55|
|Net Income in $ Million||169.14||202.88||150.23||202.02||232.57|
|EBITDA $ Million||284.96||388.41||309.63||383.92||456.66|
|EPS diluted in $/share||0.80||0.77||0.54||0.73||0.85|
|Cash from operating activities in $ Million||247.10||241.51||222.23||431.12||420.93|
|Capital Expenditure in $ Million||114.32||110.64||128.16||155.43||188.51|
|Free Cash Flow In $ Million||132.78||130.87||94.08||275.69||232.43|
|Total cash $ Million||707.21||530.90||537.39||848.52||847.63|
|Current and non-current LTD and capital lease in $ Million||15.32||26.36||28.51||26.20|
|Shares outstanding (diluted) in Million||211.39||258.36||277.27||275.47||274.98|
|Dividend per share $|| |
|Production Au Oz||4Q'19||1Q'20||2Q'20||3Q'20||4Q'20|
|Total Production gold/sold||279,741/sold 278,438||330,864/sold 344,586||329,770/sold 341,390||339,584/sold 331,959||369,434/sold 371,009|
|AISC (co-product) from continuing operations||512||776||751||886||790|
|Gold Price||1,481|| |
Data Source: Company filing
Note: Historical data from 2015 are available for subscribers only.
Kirkland Lake Gold also owns a stake in two gold companies as of Dec. 31, 2020:
- Novo Resources Corp. (TSE: NVO) 9,225,168 shares.
- Wallbridge Mining Company Ltd. (TSE: WM) 78,109,200 shares.
Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, and Gold Production Details
1 - Revenues were $691.55 million for the fourth quarter of 2020.
Kirkland Lake Gold posted another record revenue of $691.55 million for the fourth quarter of 2020 compared to year-ago revenues of $412.38 million. The company declared net earnings of $232.57 million, or $0.85 per diluted share. The adjusted earnings per share were $0.98, which missed analysts' expectations by a few cents.
The gold price realized this quarter was $1,875 per ounce, and the company sold 371,009 Au Oz in Q4.
The CEO said in the conference call:
With our record operating results in 2020, we finished year with a very strong balance sheet. Cash totaled just under $850 million. It's 20% higher than that than at the end of 2019, and that with no debt. Key contributor to our cash flow was our 58% increase in free cash flow to just over $733 million. As I mentioned previously, we also achieved $174 million proceeds from the sale of strategic investments and $75 million through a strategic alliance with Newmont relating to our gold complex and exploration in Northern Ontario.
Earnings for full-year 2020 were $2.91 per share compared with $2.65 per share in 2019. Net sales grew 78.3% year over year to $2,460.1 million.
Kirkland Lake Gold continues to show exceptional strength in this segment. The quarterly free cash flow was $232.43 million, and the 2020 FCF is $733.07 million.
Based on the free cash flow, Kirkland Lake Gold announced that it would increase by 50% its quarterly dividend to $0.1875 per share effective in 4Q'20.
3 - Available capital, no debt, and ample liquidity and share buyback. The company has no debt and excellent liquidity and cash. Total cash at the end of December was $847.64 million. I have indicated earlier in the table that the company only shows current and long-term capital leases for $26 million.
Kirkland Lake repurchased 18,925,900 shares in 2020 for $732.4 million.
Also, 1,074,100 shares were repurchased in the first week of January 2021 for $46.3 million.
Total is 20 million shares bought in 2020 for $38.935 per share.
Quick Presentation and Review of 4Q'20 Gold Production
Below are the three producing mines for Kirkland Lake Gold. The few charts below can really demonstrate the progress achieved by the company.
- Macassa mine in Northeastern Ontario, Canada.
- Fosterville mine is located in the State of Victoria, Australia.
- Detour Lake open pit mine in northeastern Ontario, Canada.
- Taylor and Holt mines, both located in Northeastern Ontario, are often described as the Holt Complex. Not producing now.
The company produced 369,434 Au Oz this quarter, and the price of gold for Q4 was $1,875 per ounce.
The amount sold was 371,009 Au Oz in Q4'20. All-in sustaining costs or AISC came lower with $790 per ounce this quarter. AISC increased with the addition of Detour Lake but still below the industry average.
Below is a quarter-to-quarter comparison for the three producing mines. Full production started in 2Q'20 at the Detour mine and is now reaching the same level as Fosterville. Note: The Holt complex was placed on care and maintenance. As we can see below, the Detour Lake and Fosterville mines are the two leading gold producers and represent 85.8% of the total output for 4Q'20.
Below highlight for Detour Lake:
Note: The company received permits to increase from 75K T/day to 90T/day in 2020.
One issue: I have heard a few times in the past is related to Fosterville mine and its life of mine LOM, which is quite low. I believe it is not a problem, and the company is expanding its reserves.
AISC Table below Newmont (NYSE: NEM), Barrick Gold (NYSE: GOLD), Agnico Eagle (NYSE: NYSE:AEM), and Kirkland Lake. We can see that Kirkland Lake shows the best AISC despite Detour Lake's addition in the mix.
From Fun Trading data (more data are available to subscribers only).
2021 Guidance and Reserve 2020
Reserve "proven and probable" increase 3% year over year.
From the Presentation.
For 2021, the company expects total gold production between 1,300,000 ounces and 1,400,000 ounces.
AISC for gold is expected between $790 and 810 per ounce in 2021. Operating cash costs per ounce for gold are projected between $450 and $475.
Conclusion and Technical Analysis
Kirkland Lake Gold is an excellent gold producer. The balance sheet is pristine, and the growth prospect is impressive.
Furthermore, management under Tony Makuch is first class. It's hard for me to find any flaws in the business model.
The only problem is the weakness of the metal. However, weakness should be considered as an opportunity when presented with such great fundamentals.
KL forms, in my opinion, a descending channel pattern with resistance at $40 and support at $31.80. Descending channels are short-term bearish.
The short-term trading strategy is to accumulate below $33.50 and start selling between $39 and $40.50.
However, KL is highly correlated to the gold price, and it is fragile now. I believe it has reached a bottom between $1,700 and $1,675 per ounce, but it is not sure yet. Thus, accumulate carefully.
Note: The TA chart must be updated often to be relevant, and a few days can change the chart pattern substantially. I only update my TA chart for subscribers only.
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Analyst’s Disclosure: I am/we are long KL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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