In a Feb. 21 research note, Cosmos Chiu reported Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) released a company-wide resource update, in which total reserves expanded 24% to 5.75 million ounces (5.75 Moz).
"Overall, our net asset value per share increases to $18.11 from $17.23 on the increased reserves and guidance update," Chiu added. As such, CIBC increased its target price on the company to CA$53 per share from CA$48. In comparison, the current share price is CA$48.08.
Chiu relayed that most of the reserve increase came from Fosterville's Swan zone, where reserves doubled to 2.3 Moz at 49.6 grams per ton, surpassing CIBC's forecast of 2 Moz. Reserves also grew outside of Fosterville by 3%. At Macassa, for instance, 250,000 ounces (250 Koz) were added through conversion of Measured and Indicated (M&I) ounces. However, 1.6 Moz of M&I plus Inferred resources were removed; to supplant those, Kirkland plans to drill about 90 kilometers there this year.
Also at Fosterville, the reserve grade increased, by 43%. As such, Kirkland revised its 2019 guidance upward to a range of 920 Koz to 1 Moz at an all-in sustaining cost (AISC) of $520–$560 per ounce versus its previous projection of 740–800 Koz at an AISC of $630–680 an ounce.
The new guidance included Kirkland's decision to restart the Holloway mine. Management expects to start production there at 20 Koz and ramp it up to 50 Koz by 2021.
CIBC has an Outperformer rating on Kirkland Lake, which, Chiu noted, "remains one of our Top Picks, and we see the potential for more than $400 million in free cash flow in 2019."
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Disclosures from CIBC, Kirkland Lake Gold Ltd., Earnings Update, February 21, 2019
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Important Disclosure Footnotes for Kirkland Lake Gold Ltd. (KL)
• Kirkland Lake Gold Ltd. is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months.• CIBC World Markets Inc. has received compensation for investment banking services from Kirkland Lake Gold Ltd. in the past 12 months.
• CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Kirkland Lake Gold Ltd. in the next 3 months.
