🕐10.07.14 - 10:54 Uhr

INVESTEC: KIRKLAND LAKE GOLD : NO GREAT SURPRISES IN FY14A, FUTURE DELIVERY IS KEY




Kirkland Lake Gold (Price: 205p | Target: 209p | Rec: Hold) Kirkland Lake reported a FY14A loss of C$11m, with net cash outflows of C$39m leaving it with C$39m at the year end.

The Company is now quite different to the one that started the year, with new management and a new operational strategy, focused on lower production but higher-margin ounces.

With the share price currently close to our target price, we retain a Hold recommendation, noting that the valuation and earnings outlook is very much dependent on delivery of the revised production strategy. * Kirkland sold 125koz (+37% YoY) at cash costs of C$1,078/oz (-3%) and all-in cash costs of C$1,986/oz (-18%) to deliver a FY14A loss of C$11.1m (vs.

FY13A loss of C$3.6m, Investec forecast C$8.5m loss).

Operating cash flows delivered C$27.3m, but overall cash decreased by C$38.9m after capex and the Osisko payment, offset by the NSR royalty receipt, leaving the company with C$38.9m at the year-end (Investec C$34.4m).

Subsequent to the Y/E, KGI raised another $7.5m through issuing 1.9m shares at C$3.90/share (213p equivalent today).

Debt consists of C$17.0m in loans and C$126.5m in convertible notes (maturing 2017). * FY15 production guidance (announced previously) is 140-155koz, growing to 150-160koz and 160-180koz in FY16 and FY17 respectively, and our forecasts are in line with these ranges.

At our forecast FY15E all-in cash costs of C$1,358/oz and assumed gold price of US$1,300/oz, we expect the company to be modestly cash generative this year (+C$6.2m), with cash generation improving in later years as production lifts and unit operating costs reduce. * Kirkland Lake is still trading around our NPV-based TP (increased from 200p to 209p post FY14A and roll-forward of the model) and we retain a Hold recommendation.

Key risks remain the gold price and managing the liquidity position as production is ramped up, while encouraging near-surface exploration results offer potential upside.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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