In an Oct. 10 research note, analyst Cosmos Chiu reported that CIBC raised its price target on Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) to CA$67 per share from CA$64 to reflect the company's "outlook for near-term cash flow generation." In comparison, the gold explorer's stock is currently trading at around CA$59.14 per share.
Chiu reviewed Kirkland Lake's reported production in Q3/19. Total production of 248,000 ounces (248 Koz) during the quarter was a miss, as CIBC expected 255 Koz. The 240 Koz, however, took total H1/19 production to 695 Koz, which is "on track to meet overall guidance of 950 Koz to 1 million ounces."
The two strong project performers during Q3/19 were Fosterville and Macassa, Chiu noted, "demonstrating the quality of both assets that generate about 90% of the company's overall production." In Q4/19, production from those assets should more than offset any production shortfall from the Holt complex.
Fosterville's Q3/19 production was 158 Koz, a 13% quarter-over-quarter (QOQ) increase, driven by head grades of 42 grams per ton (42 g/t), which exceeded CIBC's 41 g/t projection. Year-to-date production at Fosterville was 427 Koz; annual guidance is 570–610 Koz. "We expect Q4/10 production of 171 Koz."
Q3/19 production at Macassa, where grades and throughput exceeded those in Q2/19, was 63 Koz, reflecting a 30% QOQ increase. "The strong throughputs demonstrate to us the water ingress challenges from Q2/19 were indeed temporary," Chiu indicated. Having produced 185 Koz so far in 2019, Macassa, too, is well on its way to meeting the year's guidance of 240–250 Koz.
Chiu commented that "the strong performance at Fosterville and Macassa should carry Kirkland Lake comfortably into its overall guidance range." Thus, CIBC raised increased its full-year production estimate on the miner to about 960 Koz.
Production at the Holt complex came in at 27 Koz, below CIBC's forecasted 39 Koz. This resulted from a slower ramp-up at Holloway than anticipated. The complex's H1/19 production was 82 Koz versus 2019 guidance of 140–150 Koz. CIBC expects Q4/19 production there to be about 30 Koz.
As for the balance sheet, Chiu reported that Kirkland Lake ended Q3/19 with $615 million in cash, a $146 million QOQ increase. CIBC expects the company to finish 2019 with more than $750 million in cash.
CIBC has an Outperformer rating on this Canadian gold producer.
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Disclosures from CIBC, Kirkland Lake Gold Ltd., Earnings Update, October 9, 2019
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Important Disclosure Footnotes for Kirkland Lake Gold Ltd. (KL) • 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.
