🕐13.09.12 - 10:27 Uhr

INVESTEC: KIRKLAND LAKE GOLD - CHOKED UP WITH WASTE - BUY



Kirkland Lake Gold (KGI.L) Investec Securities Price: 815p | Target: 1007p | Rec: Buy FY13 is a transition year for KGI as it expands its shaft haulage and hence its production capacity.

We therefore expected a gradual ramp up in production from a weak first quarter, albeit that the 1Q13 was even weaker than forecast.

The key reason for the weakness – operational inflexibility due to haulage constraints – is also the critical focus of the current expansion program.

The weak 1Q therefore justifies the path that KGI is taking.

Maintain Buy. * The 1Q13 headline numbers were production of 17,396oz at cash costs of $1,276/oz versus 27,496/oz at $735/oz in the 4Q12 and versus budgeted production of 23,000oz.

KGI delivered 1Q13 gross profit of $6.0m ($11.4m in 4Q12) and a loss before tax of $0.3m ($7.9m profit in a 4Q12). * The reduced production was largely an impact of lower grades, while the higher costs were a consequence of the forest fire-related power outage in May, plus the lower gold production.

* While KGI ended the period with $73m in cash, this is currently $52m, post the 2nd tranche Queenston payment of $20m, with the final $30m payment due on 3 Dec 2012.

* FY13 is a transition year and this is one quarter in a longer term story in which FY13 production had been expected to be erratic, hence why we assumed 166koz vs.

guidance of 180-200koz.

With the ramp seemingly going slower than expected, our number now looks more realistic, rather than very conservative.

* We are not changing our FY13E production assumptions, but will look to review these as 2Q13 progresses.

Our target price, based on an equal blend of NPV and one-year forward earnings estimates, remains at 1007p To access the full note please click here Analyst: Hunter Hillcoat To receive further information or change your Research Preferences please email: South Africa or United Kingdom IMPORTANT NOTICE: This communication forms part of an electronic communication sent to the intended recipient (or such persons authorised representative) for their sole use and is subject to important legal and regulatory restrictions, qualifications and disclaimers ("the disclaimer") that may be accessed and read by clicking on the following hyperlink:http://www.investec.co.uk/about-investec/what-we-do/investment-banking/investec-securities/company-research/morning-meeting-comments.html or copying the address into your Internet browsers address bar.

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