Kirkland Lake Gold Kirkland Lake’s 3Q13 gold production of 22,261oz continued an improving trend through the year, but the current quarter will be the real litmus test.

With only c.60koz produced in the first three quarters of the year, KGI is under pressure to meet its revised FY13 target of 90-100koz.

The difference, however, is greatly improved haulage flexibility coming from the long-awaited service shaft (completed Jan’13).

We should now start to see a meaningful improvement in KGI’s production numbers.

Maintain buy.
* KGI produced 22,261oz in the 3Q, continuing improving but lacklustre production growth in FY13, from a low of 17,397oz in the 1Q.

We note that while gold production has lifted 28% from the 1Q, this has come primarily through improved grades, with milled ore tonnages lifting by only 5% over the period.

The 4Q should see a solid improvement in volumes, with haulage rates expected to be around 30% higher than achieved in the year so far.

* The difference in the 4Q is that the service cage is now operational (albeit six months behind schedule) and this should greatly improve the company’s flexibility, enabling it to clear a backlog of mining material going underground and freeing up the main production hoist to focus on hauling ore and waste to surface.

We should see gold production now increasing through a lift in volumes.

Looking ahead, the increased haulage capacity should then enable KGI to access higher grade mining areas, delivering also a lift in grades. * We believe that KGI is now at a turning point.

It has sufficient cash reserves ($71m at Dec’12, net of Queenston liability) to compete its expansion program ($25m still required), supporting a production target of 150-180koz in FY14. * Our TP, based on an equal blend of NPV and forward earnings multiples, has reduced slightly reflecting a reduction in our CY13E gold price assumption from US$1,800/oz to US$1,775/oz.
To access the full note please click here Analyst: Hunter Hillcoat
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