While its latest quarterly results were not flawless, Kirkland Lake Gold (TSX: KGI) is showing itself to be making steady progress towards its goal of being one of the more significant gold producers in Ontario.
First quarter results for the company’s 2014 fiscal year are in and show production of 30,316 oz of gold. While that amount is 4% less than what it turned out over the same period last year, the company showed progress towards its goal of significantly expanding its capacity.
The decline came courtesy of both planned shutdowns and lower average head grades, but throughput was actually higher as it climbed 6% to an average of 1,063 t/d. That shows that Kirkland Lake is making steady progress towards its goal of reaching 2,200 t/d sometime next year.
And indeed it is that quest for greater capacity that led to the slightly lower numbers for the quarter as planned shutdowns cut into production. Those shutdowns were connected to its efforts to increase both hoisting capacity and the capacity of the processing plant.
The company says average mine hoisting capacity has now been increased to 2,200 tonnes per day. And while that work moved it closer to its ultimate goal, the two to three weeks it lost in normal production time over the quarter was more than it had bargained for.
Despite the minor hiccup Kirkland Lake maintained its guidance of 150,000 to 180,000 oz of gold production for the full year, although to some ears the target seems a little lofty.
Cosmos Chiu and analyst with CIBC World Markets has a more conservative estimate of 147,000 oz at total cash costs of US$1,024 per oz for the year.
Chiu notes that if Kirkland is to meet its own guidance both tonnage and grade will have to increase in tandem.
And that is exactly what Kirkland Lake says it will do. The company is targeting a production rate of 1,400 to1,600 t/d in the near term before reaching the 2,200 t/d mark in the spring of next year.
To help it get there the company raised $69 million in convertible debt earlier this year and as of the end of April had $76 million in its treasury.
And while Kirkland Lake’s aggressive acquisitions over the years have allowed it to consolidate five former mines that historically turned out over 21 million oz of gold, it is its South Mine Complex which will do most of the heavy lifting when it comes to feeding a hungrier mill.
The South Mine Complex has proven and probable reserves of 1.54 million tonnes grading 18 g/t Au for 808,000 oz of gold; measured and indicated resources of 1.46 million tonnes grading 22.8 g/t Au for 968,000 oz of gold and inferred resources of 1.22 million tonnes grading 23.1 g/t Au for 824,000 oz of gold.
Its Main zone and other smaller deposits combine to have proven and probable reserves of 1.7 million tonnes grading 13.1 g/t Au for 646,000 oz of gold; measured and indicated resources of 2.4 million tonnes grading 13.1 g/t Au for 903,000 oz and inferred resources of 1.01 million tonnes grading 11.2 g/t Au for 333,000 oz.
The company has a stated goal of reaching a global resource of 5 million ounces of gold and all-in cash costs of under US$1,000 per oz.
CIBC’s Chiu has Kirkland Lake rated as “sector perform” with $4.50 price target
In Toronto on August 23rd the company’s shares were up 6%, or 24¢, to $4.48 on 463,000 shares traded.
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