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Kirkland Lake Gold: Great Earnings Under Weakening Gold

Mar. 05, 2021 3:40 PM ETAgnico Eagle Mines Limited (AEM), AEM:CA144 Comments
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  • 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.
  • Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Get started today »

Image: Detour Lake. Source: Company presentation

Investment Thesis

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.

The stock has underperformed the VanEck Vectors (NYSEARCA: GDX) and two of my leading long-term gold miners. Probably due to the acquisition of Detour Lake, which was completed in January 2020.

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

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This article was written by

Fun Trading profile picture
Fun Trading is a retired engineer and independent investor. In addition to writing on investing in all aspects of gold, oil, and gas, he runs his own portfolio..

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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Comments (144)

19 Mar. 2021
Also to bear in mind for all quality gold equities:

JSMineset in one of the more recent weekly discussions has noted that these respective gold equities prices are and have been administered by a few funds in their opinion.
Thus the continual shaking of the tree and the incredible undervaluation of the very few remaining quality ( mineable ounces ) listed gold equities.
In KL's case it would be naive to think that the big blue-chip producers would not have looked at KL and the very few others that may qualify.
Mineable ounces is the " key ".
Mineable ounces = Shovel-ready plus 8 years .
As I understand and in my opinion.
alex.c profile picture
I owned KL for a long time, and finally sold because I did not believe that the company could continue producing as much at such prices for much longer.
I am happy to see that the Detour acquisition is showing positive signs.

I have re-started a position today, I feel the extensive drilling at Detour and Fosterville, have given KL the opportunity to continue to grow for an extra couple of years.

I want to be optimistic, and management have shown us time after time that we should trust them. But Fosterville was a magical mining operation, and its life is ending. Maccassa only has another 4-5 years realistically, and I feel that everyone is living on the HOPE, that the extensive drilling being done at Detour will turn out to also have some of that Fosterville magic.

I am lucky to have profited from KL and to have sold at the top. I find the 30% drop in price justified, and it allowed me to re-enter KL. And I really hope for all of us that this story can continue for another 12 years.
But for now it is just hope.

I mostly trust the managing team to do the right thing when the going get slower. That would be not throwing money around, increasing the dividend yield and the share buyback program. But we still have a couple of years to remain hopeful!
Fun Trading profile picture

KL is a good long-term investment. However, KL is trading at resistance now you should have waited a little more before buying...
Taylor Dart profile picture

"Maccassa only has another 4-5 years realistically"

Based on what?

FY2021: 240k ozs
FY2022: 310k ozs
FY2023: 400k ozs
FY2024: 400k ozs
FY2025: 400k ozs
FY2026: 400k ozs

Reserves stand at 2.37 million ounces. That's six years of production and still leaves another 220k ozs left-over. In a normal year when drilling and exploration isn't an issue (ex-COVID) like 2019, Macassa replaced 110k ozs after 250k ozs of depletion, so it actually added 110k ozs after depleted ounces. If we assume they can find 300k ozs per year based on the higher exploration budget, we get the following numbers, and that assumes 400k ozs per year continues from 2026 to 2030.

FY2020: 2.37
FY2021: 2.43
FY2022: 2.42
FY2023: 2.32
FY2024: 2.22
FY2025: 2.12
FY2026: 2.02
FY2027: 1.92
FY2028: 1.82
FY2029: 1.72
FY2030: 1.62

Where are you getting 4 years of mine life left exactly? Are you assuming they will not find a single ounce in the next 5 years through exploration and actually lose ounces in the mine plan outside of depletion from production? Even if they don't find a single ounce, as pointed out above, there's still a 6-year mine plan.
18 Mar. 2021
A great share for share opportunity for Newmont.

Back of envelope would add similar percentage gold output to percentage dilution for Newmont capitalisation.

Instantly accretive to Newmont.

Mineable ounces is the key to prime opportunities.

In my opinion.
Fun Trading profile picture

I think it could be possible. KL is a great company for such a merger.
@Fun Trading I doubt KL will be acquired without NEM paying a big premium.
Fun Trading profile picture
@Easy Al

If you consider a share swap, both companies could find a middle way that suits both. Makuch is a smart man.
awesome news release on drill results today. Detour is going to be a freaking grand slam for KL over the next 15 to 20 years. Long KL and will be buying more this spring and summer. Everyone is so stuck on what Fosterville is or isn't doing. If it cuts back and can maintain 350k a year roughly on top of the other 2 assets KL will be spitting out gold nuggets for wall street to come and find. As Jim Cramer would say "buy buy buy"
Fun Trading profile picture
@No prophet investor

Yes, I am quite surprised by the stock price performance. I am adding regularly.
Armen Aramis profile picture
@No prophet investor USA t-bill may rise more which will pull up interest rates. Europe and China then will buy US t-bills and this again may increase interest rates more which is a big headwind for gold. After 2008 USA was the only one with periodic high interest rates, stronger dollar compared to constantly zero interest rates on Europe and Japan. Now they saw printing money did not create inflation after 2008 and they’ll be doing it. Let’s face it I hate debt and money printing but it does help the economy. Let’s not forget why gold went up so much about a year ago - the virus. Many in other countries bought USD and many in USA and other countries bought gold as safe heaven if everything collapses. As soon as vaccine news came gold is on constant decline. Higher interest rates not always are bad for stocks but always bad for gold. KL is worth lot more even with $1,500 gold but for now unless gold price goes up no mining stock price goes up. Very bad technicals and momentum. If I had say 1 trillion I would buy entire KL at this price in a second buy it’s more complex in reality.
Fun Trading profile picture
@Armen Aramis

Thank you for your opinion Armen.

Yes, gold stocks are down quite a lot, but I see an opportunity right now, and I have accumulated KL and continue to do it. I am not sure it is the vaccine the reason. As a technical trader, I am basing the recent retracement based on the 10-year chart and the cup and handles... It works perfectly, and I could predict most of what happened until now without messing with anything else.

Best regards,
Krypto profile picture
Any comments on drilling results?
@Krypto the release adds to the likelihood of them developing a “super pit” at Detour, as the resource continues to grow,t
Fun Trading profile picture
Yes, I concur with Tony.
Krypto profile picture
@Fun Trading That is awesome - they already have an excellent published reserve, and I'm guessing that is now pretty conservative.
EliasMouawad profile picture
Nice article. To what extent is the 1.9 trillion stimulus bullish regarding the price of gold ?
Fun Trading profile picture

Not sure if it is bullish or bearish to tell you the truth.
alex.c profile picture
@EliasMouawad In theory all this money printing should be super bullish for Gold. The truth is that today, most of the stimulus money that should have gone into precious metals went into the crypto space.
I thought that was a joke until I learned that Bitcoin has a market cap of $ 1 trillion (while all the mined gold in the world has a market cap of about $ 7 trillion.
This does not mean that the situation won't change. But the gold bug that I am has to face the reality, that bitcoin has really changed the natural order of things! (for now).
EliasMouawad profile picture
@alex.c I thought bitcoin was a competitor to the US dollar. Gold is a commodity not a currency.
Brian Cellars profile picture
Thanks for the article. It's definitely a bargain at current prices, back to 2019 levels with gold price and production up significantly.
Fun Trading profile picture
@Brian Cellars

Agree, and I am accumulating now using my super gain in oil.
Brian Cellars profile picture
@Fun Trading I was on that train as well. :)
13 Mar. 2021
See Franco Nevada's recent record results and their opinion of their investment in the KL royalties.
Looks a great investment for FNV.
KL still too cheap.
Mineable ounces will always beat the " shovel-ready plus 8 years into the future " scenarios !.
Fun Trading profile picture

Thank you. If you want to read my article about FNV here is the link

Krypto profile picture
If they keep buying back 8% of the shares every year, after 10 years how many of today's shares will remain, assuming no stock issuances?

Current shares = 267 million

A = P (1 + r/n) (nt)

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)=
r = the annual reduction rate (decimal) 0.08
n = the number of times that interest is compounded per unit t = 1
t = the time the money is invested or borrowed for = 10

A = 267,000,000(1.08)⁻¹⁰

A = 267,000,000(0.463)

A = 123621000 million shares end of 10 years?


267000000x.92 = 245640000 end of year 1
245.6x.92 = 225 million end of year 2
225x.92=207 million end year 3
207x.92=190 year 4
190x.92=175 year 5
175x.92 = 161 year 6
161x.92 = 148 year 7
148x.92 = 136 year 8
136x.92 = 125 year 9
125x.92 = 115 million shares, end of year 10 approximately
Fun Trading profile picture

I see what you mean but your demonstration is not valid. I added a little KL today...
Krypto profile picture
@Fun Trading Well, if they continue to buy back the shares is the caveat. I'd be just as happy with buying out other mines.
What is not valid about it?

I added today as well.
Fun Trading profile picture
What is not valid is to consider an indefinite buy-back doesn't work that way, and you have to set a limit in price or amount generally yearly. However, I agree with you. With the huge cash position they have now, it would be good to acquire some producing mines that are not expensive with growth potential. This isn't easy now but feasible.
The issue is that any acquisition could be a potential negative for the stock, and the best course of action now is to sit on the cash and grow it until a REAL opportunity comes. Maybe give an extra-dividend to shareholders would be great.
Armen Aramis profile picture
I sold all my position from KL and bought Bitcoin about 2 months ago. Whatever loses I had got already compensated. Nobody to blame. Bitcoin just became a legitimate asset class and is disrupting gold big time. Until Bitcoin gets its fair market share - at least 5 trillion it will keep on disrupting gold. Nobody was thinking about this while gold price got so high mainly due to digital etfs, but bitcoin does it much better.
Fun Trading profile picture
@Armen Aramis

Seems extreme to me. You could have spread the risk by selling a portion only. What you are doing is chasing rainbows, no disrespect. It is like saying I use my gun to play roulette Russe and look, it worked fine...
You go for the brighter light and you know what happens to the fly when it sees the bright light ultimately it gets burnt.
Do not try to find a shorter way to get rich, use patience, focus, and logic.
Armen Aramis profile picture
@Fun Trading in general you are right, but bitcoin has just emerged as a legit asset class. Before everyone was calling it speculative, now nobody does that. I can always pickup gold stocks when I see they start recovering. I have all asset classes except gold because I see bitcoin getting lot more market cap from gold otherwise gold should have been now in mid 2000s and KL $55-60. I was thinking Facebook libra would shut up bitcoin, but Feds didn’t let Libra to even start, but they can do nothing with bitcoin. It’s now so common that if Feds Atari messing with bitcoin people may revolt. It was pain for me to buy gold, but it’s easy to buy bitcoin and move with you wherever you go. How you can move your gold unless it’s digital? Also if gold price goes to $5k companies will start mining more, bitcoin price can be $100k or $10mil but it cannot be mined more.
Fun Trading profile picture
@Armen Aramis

I understand your reasoning, and you may be right. What I am saying is that you should not do all or nothing. This is gambling. It would be best if you looked for a middle way. Focus on asset allocation and spread the risks.
Believe me, I have made all the mistakes in the book, and I know what I am talking about.
Buying KL now is a good opportunity and selling KL at a loss is a mistake, no matter why you did it.
I am not really buying the Bitcoin story, and I see hugely risky trading in this sector.
However, I wish you the best of luck and be very, very careful.
Very educative article. Thank you. What a sharp change in sentiment

A few months ago it was a great buy between 41 to 46

Now it’s a strong sell around 39

I’ll look to make another purchase around 29 for a move to the upper 30’s

My original price target was 60-65 within 1 year. But this may be capped at 40 for the near future according to the techs
Fun Trading profile picture

You are welcome. Yes, it was a PARTIAL sell at around $40. KL is one of my long-term investments.
Tim Paul profile picture
Excellent article and update. Am familiar with Kirkland Lake purchase of Detour Lake gold as I owned Detour to my good fortune. Detour is a tremendous long-life asset -13 years approx with promise of expansion. I bought KL at a PE of 9 this morning...astounding value here.
Fun Trading profile picture
@Tim Paul

Thank you. Yes, I am adding...
Krypto profile picture
@Tim Paul I added as well. With the excellent balance sheet of KL, lower gold prices might allow for acquisitions and growth while waiting for gold to go higher. Some companies may need the money.
Tim Paul profile picture
@Krypto Company also owns shares in some promising juniors. I wish they would purchase gold reserves to add to their strong balance sheet. KL could indeed become a legitimate "bank".
Great analysis on KL. I’ve owned this miner for several months now. Thought it bottomed around Thanksgiving time. Currently under water, but holding onto this one. Should eventually pay off. Keep up the great work that you provide to your readers.
Fun Trading profile picture
@Reloader Will

Thank you very much, it is appreciated.
Siyu LI profile picture
The observation of its relatively poor performance to GDX/NEM is spot on and unjustified. Its top-notch mgt, solid past M&A/operating record, and tier1 gold mines, yet recent relative poor performance compared to its peers make it a good buy.
@Siyu LI wrong you are
@jalanj Yoda,u are not!
06 Mar. 2021
Too cheap and Newmont likes underground stuff and Barrick.....?.
All need the mineable ounces.
I think Agora media has had a target price of US73.00 for awhile now perhaps.
Very leveraged stock in safer locales.
In my opinion.
Bought at 33. Also have and like NEM, GOLD and WPM.
KL is a pure gold play. We can see volatility but I expect more QE and some sort of yield curve control to support gold. Given this, KL is an excellent investment and their low production cost + lack of debt will let them survive easily any temporary gold price weakness.
What is the long term potential of the shares. With my view on gold and having heard the call with the CEO discussing the potential 10 yr life of the Australian operation I see the price going above 100 long term. This is a realistic price if all goes well. There are risk, as always.
Fun Trading profile picture

Difficult to venture into the long-term potential... At the speed, gold is moving all over the place we can't focus on the long term maybe a year at the most?
@Fun Trading I mostly invest with 5 yr horizon. Gold cannot be traded im my view. It often moves in ways that make no sense because somebody sells 400 tons worth of derivatives on the Comex. For that reason gold investments need to ne long term and stop losses avoided as the players definitely go for the stop loss levels. Invest only what you don't need to touch for a long time and study fundamentals and prices. As prices and fundamentals (especially company specific) change, reevaluate. For me fundamentals of gold prices are not going to change as all Central Banks are firmly focused on money printing. They call it new MMT. In fact, it is as old as civilization but the name is sexy!
Fun Trading profile picture

You have made some good points but I do not agree with what you said here:

"Gold cannot be traded im my view. It often moves in ways that make no sense because somebody sells 400 tons worth of derivatives on the Comex"

I believe it can be traded and if you look at the chart you will see that it is quite simple.

Good article thanks and interesting AISC comparison. By the end of June 2021, they will have approaching $1bn in cash while being debt -free; expecting reserve growth to be organic; having a low AISC; and presumably expecting PM prices to increase further MT/LT? Are they the Apple of mining? Saving up for a really big staff Christmas party? Sorry to bang the drum again, but we are in a world where investors want either massive SP growth (NOW.....!!!!) or dividend returns. KL offers neither - plus 50% is a start from a low base but the train has kinda left the station given the price fall. Barrick have seen their folly with this one-off payment, but again it's a bit late. Have you noticed that every 2nd comment on NEM articles now refers to the 3.8% dividend? Perhaps no one buys PM miners for dividends, but - all things being equal - dividends do seem to affect the actual choice of miner bought (talking LT holds here, not junior miners).

Anyway, at least management are moving in the right direction with the +50% increase. Probably wondering what to do with the rest of the cash - if they are not going to distribute it, why don't they just buy Venezuela or something? Already have a reasonabl holding of KL and might buy even more in the sale ("But hey!!! An equally-good NEM pays 3.8%........").
connjoltrane profile picture
@Norman Bates at Disneyland Who cares what "investors are demanding now" if that's not going to create long-term value? They are currently paying out 30% of free cash flow. If gold goes to 1300, that will be what, 75% of earnings? I'd rather they'd have the cash optionality to reinvest in the business and/or buy back shares. The dividend is 2.2% and will get be raised over time. It's not productive to think in the short term, I'd like to hold this for 10+ years and Tony Makuch seems to be in the right frame of mind to do that.
@connjoltrane No, I am not saying they need distribute the entire cash balance now - I am saying that mining companies need to become share-holder friendly entities, unlike before. I have just listened to an interview where the current CEO of a mining company said that a prior acquisition of A$1bn - made in a prior bull market - has been written off in full (.....). One example (of many) of how mining companies have squandered funds in the past. The outperformance of NEM perhaps supports the view that the market agrees.
connjoltrane profile picture
@Norman Bates at Disneyland I get your point, gold miners have a bad reputation for capital allocation. However, Kirkland Lake is not squandering funds: they made a great acquisition last year in Detour and are investing heavily into their mines, while returning 850 million to shareholders. The mistakes of gold miners were not having an excess of liquidity but having too much leverage and overpaying for assets for short-term gains, neither of which KL has been doing.

Of course you don't spend all of the cash right away, but let's not assume they don't have a use for that cash. They could announce an acquisition or a special dividend/mass buyback tomorrow for all that we know. I'm sure they are buying back shares aggressively at these levels.

I hope they keep the dividend at a level that is sustainable through bad gold prices, and use excess cash to buy back stock or reinvest/make responsible acquisitions. I don't see any reason to be pessimistic.
panzer profile picture
Fun, you say that KL had another stellar earnings release and is an excellent long term investment, but the market clearly disagrees. And yes, you are correct I agree that Detour was the right purchase at the right time. Still the market is down these past 9 months from 56 to 34, even though everybody in the gold sector pretty much knows that earnings would be terrific, and they were. Yes, one can say KL is not the only one getting hammered, but it has gotten hammered as much or actually more than others, and it is supposed to be a real stud, a bell weather, a rock of Gibraltar. So what is the issue? My take is reserves. I would say a year ago, the company was still proncing and preening over the stupendous Australian property, Fosterville, will visions of another world's best discovery dancing like Sugar Plum fairies, in investor's heads. ......Detour was an admission that no such new discovery would be immediately forthcoming, so that purchase was digested. Now however, we are another almost year later, and no new Bonanza discovery? The reserves are now far from plentiful. Most say that the way to keep long term, massive annual growth is through the drill bit, but what is going on? For KL to spend its cash horde on another Detour would be a serious nutcruncher for shareholders. ....Ya gotta have these 10 and 15 year long life mines, if you are gonna crank out 2.5 million ounces per year, and so imho KL finds itself in a serious dilemma. What do you think? (personally, if I were them, I would go out right now and buy a couple 4-5 million ounce discoveries in canada, and grab a fast 9 million potential ounces. Thinks are gonna get kind of tight with KL if they go another 2 years eating away at their dwindling reserves>...Each quarter that passes gets a little tighter. what do you think?
@panzer hiya, tony Makuch is talking about Fosterville being a ten year resource from today.....they’re spending a truckload on drilling extensions as we speak....also Detour is probably going to develop into a “super pit”...I’m backing up the truck at these levels. Feeling grateful for another chance to build a decent sized position, tony
Sandy Lighthouse profile picture
@panzer Reserves may not get replaced at Fosterville but Detour reserve increases should more than make up for that. Reserves company wide should increase over next 5-10 years even without new properties IMO.
@panzer nobody reads you novel length responses dude stop. You have no idea what you are even talking about anyways.
Krypto profile picture
It looks to me like they retired 7.6% of their shares in the last year - very impressive.
20 million out of about 260 million outstanding - am I wrong?
Fun Trading profile picture

Yes, it is about right based on the shares outstanding diluted of about 274.8 million. Hopefully, they will continue in 2021.
Krypto profile picture
@Fun Trading In my experience when companies buy back shares, have no debt, and are run by skillful leaders then investors are rewarded eventually. Obviously, they cannot control the gold price but neither can anyone else.
Why are the Taylor and Holt mines being held back right now?
alexkubica profile picture
@Krypto the management decided to focus on the core mines and they suspended operations in Taylor and Holt mines to rehabilitate them, I think they said it's expected to be a 3 year program
Dick_Jones profile picture
Been buying heavily on recent lows, second largest position after BABA. "High Conviction"
Fun Trading profile picture

I think it is an excellent time to accumulate.
Victor Pepel profile picture
@Dick_Jones BABA and KL are also in my top 5
@Fun Trading Thanks for another informative column on KL. If I remember correctly, KL started to under-perform once it announced acquires Detour. It appears some people were worried the future of Fosterville. The subsequent development of Fosterville so far has not reduced the concern. In the recent BMO conference, the CEO of KL was saying that Fosterville may be operated for another 10 years, though he did not say at what production level. See here (toward the last few minutes of the video) bmo.qumucloud.com/...

While KL bought back almost 19 million shares in 2020, the diluted shares outstanding, according to your table, actually went up from 258.36 M in Q1 to 274.98 M in Q4. It is true that the share count dropped from 277.27 M in Q2 to 274.98 in Q4. Since the purchase of Detour was closed in Q1, all shares for the purchase, including Detour options, should be issued in Q1. Do you know why such a significant discrepancy between Q1 and Q4, considering the 19 M buy back ? Is your diluted share number weighted and averaged over the quarter ?
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