Kirkland Lake's Fourth Quarter A Strong Finish As Service Cage Benefits Felt
Seeking Alpha Analyst Since 2009
Kirkland Lake Gold (TSE:KGI)(AIM:KGI) finished its fiscal year strong, with figures released Thursday showing an uptick in revenue and record production for the gold miner's final quarter of fiscal 2013, a result in large part attributable to the completion of the service cage project which allowed for an almost doubling of hoisting capacity.
This increase of hoisting capacity - reported to gradually work up to the rate of 2,200 tons per day - is also integral to the newly-restated production guidance of 150,000 to 180,000 ounces of gold for the year to 30 April, 2014.
Net income before taxes for the Ontario-headquartered gold producer came in at $4 million compared to the figure of $9 million recorded for the same quarter the year before, for earnings of 6 cents per share, down from the year-ago figure of 13 cents per share. Revenue for the quarter ending April 30, 2013 was $54.5 million, up on the $40 million recorded a year earlier.
Both revenue and earnings beat analysts' estimates, which were for a profit of 4 cents per share on expected revenue of $45.5 million.
Cash flow from operations, a pivotal metric for miners, for the 2013 fiscal year was reported as $24.6 million compared to $51.2 million in fiscal 2012, a change the company attributes to lower full year revenue combined with higher non-production costs. The gold explorer and producer says it expects to see the level of cash generation grow as production increases and the high levels of project capital expenditure taper off during fiscal 2014, while allowing that falls in the price of gold may have a detrimental impact on cash balances.
Ounces produced in the quarter came in at 31,503 from 89,384 tons of ore processed - a record for both the company and the Macassa mine in Ontario -- at a head grade of 0.37 ounces of gold per ton (opt) and a gold recovery rate of 95.94 per cent. Ounces sold in the quarter came to 32,123.
Operating cost per ton was recorded as being $375, compared to the $249 per ton reported in the same quarter the year before, while the costs per ounce came in at $1,062 versus $735 in the year-ago period. Net of inventory adjustments, these costs were $325 per ton and $923 per ounce, respectively, compared to $281 per ton and $832 per ounce, a year ago.
This increase in costs year-over-year was attributed by the company to the training and development of additional labour as needed in advance of planned production increases.
Increases in both tonnage and grade -- head grade of ore coming from the South Mine Complex (SMC) of 0.44 ounces per ton (opt) for the quarter, up on the 0.33 opt recorded in previous quarters of the year -- realized in the SMC were attributable to the service cage being in operation during the quarter.
"With this cage available to move personnel and supplies, the main production hoist was freed to increase hoisting of both ore and waste and to sling mining equipment underground," according to a company statement released with the figures.
"The increase in capacity allowed the rate of development of higher grade ore mining workplaces under 53 Level in the SMC to increase. This brought additional high grade sources of ore into the mining cycle in late March and in April."
Broker Ocean Equities concurred, with an analyst note issued the morning of the release of the figures noting that "the strong fourth quarter partially offset the weaker preceding quarters."
"During FY'13, the company experienced several major expansion project issues that had a negative effect on ore production rates as well as a knock-on effect on the head grade of the operation... Q3'13 was when the tide changed for Kirkland; the critical service cage commissioning was completed and the mine could finally start to operate as intended."
The analyst went on to note significant expenses incurred in the last fiscal year - including $91.1m spent on infrastructure to upgrade mill capacity and develop the expansion project and $17.1m spent on exploration - pointing out that these expenses constituted up to 90 per cent of the anticipated total $95 million investment for the expansion project.
"The success of the company's endeavours was clearly shown when Kirkland broke ore production records in the fourth quarter and the head grade reporting to the mill rose to be in-line with historic averages," the analyst note read. "The recent trials of the mine are clearly seen in the recent ore production and grade figures from Macassa. The task for Kirkland now is to maintain the grade and continue its gradual ramp up of hoisting capacity. "
Ocean Equities pegged gold production from the company for the upcoming year as coming in at 160,000 ounces, saying it was "cautiously optimistic on the outlook for Kirkland," and noting that a combination of a production growth profile, a strong cash balance and a low market capitalization made the company "an interesting investment opportunity."
"Fiscal 2013 was a very challenging year," said chairman Harry Dobson in a company statement released with the figures, noting the strong finish of the final quarter, "as the service cage project completed and nearly doubled daily hoisting capacity from 1,000 to 1,800 tons per day. During fiscal 2014, the company will continue to implement its expansion plans to reach production of 2,200 tons ore per day, and with this throughput rate reduce its direct and all in costs of gold production.
"To this end, with expansion capital spending and activities 90 per cent behind us, and exploration spending and activities also reducing to a more sustainable level, the management team is focused on delivering increasingly solid quarters of operational performance going forward."
Shares in the company were trading up on the Toronto Stock Exchange the morning of the announcement, spiking more than 5 per cent with the addition of 28 cents in intraday trade.
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