Kicked On. Kirkland Lake Gold.

Kirkland Lake Gold, Kicked OnGraphic, STOCKjAW banne, Quality View

JANUARY 23, 2020

A

million miners grind ore for gold. It’s a tough business and the metal’s more difficult to find by the minute. The planet’s not making any more. Mining’s a “capital intensive” endeavor, and like oil, replacing reserves to ensure future production is critical. Kirkland just moved decisively on that, and is doing the rest of this business better than anyone else. The $11 billion dollar Toronto-based enterprise has an eye on it’s future, while also growing current production at 35% year-over-year. Anything else?


KL outperformed Microsoft over the past year, and savagely over three, and it’s half the price. It’s also trading here for a 13% discount to it’s near-term high. The company’s fundamentals shine like the sun, it’s balance sheet is bullet-proof, and it’s gobbled back 1.127 million of its’ own shares, while more than doubling it’s cash position. Impressed?

 

How ’bout this? If you’d have owned KL over this past year you’d be up 65%. Over the past three you’d be up 565%. What did CEO Tony Makach just say about KL’s performance? “We just had our best year ever.” And he’s got the metrics to prove it, as do we. “Kicked On.
Kirkland Lake Gold. ” 

 

 

 

Northern Exposure, Cicely, Alaska
The town of Kirkland is a real place, yet for nonresidents it may feel just as much like Cicely Alaska. Where’s Fleischman?

Toronto’s

a major city and many of the metrics created by Toronto-based Kirkland Lake Gold are major as well.  Frankly, KL’s kicking the ass of its’ industry.  Over a forward-rolling twelve month period, KL has grown EPS by 120.7%.  Again, that’s a forward-rolling twelve month metric, not calendar year, or fiscal.  Revenue.  If Q4 revenue estimates hold, which they will, KL is currently growing revenue at 55.5% y/y, $.9B to $1.4B. The company’s more than doubled its’ cash position and has almost zero debt.  Coverage on the company is mixed.  Example:   

 

“While the historical EPS growth rate for Kirkland Lake Gold is 98%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 99.3% this year, crushing the industry average, which calls for EPS growth of 65.6%.”–Yahoo Finance, “Here is why growth investors should buy Kirkland Lake Gold now.” Zachs.

https://finance.yahoo.com/news/why-growth-investors-buy-kirkland-174505825.html

 

 

The citation above comes from a Zachs piece, more Zachs promotion then genuine research.  Dated 12-31-19, thus  we assume the “99.3%” refers to FY ’19.  KL is yet to report Q4 numbers.  The “…historical growth rate…” statement isn’t connected to any time frame.   Here are the established facts.  In FY 2016 KL grew EPS by 909% y/y earning $0.38 a share, over 2015’s results.  In FY 2017 KL grew EPS by 100% y/y at $0.79 a share, and in 2018 it was 71% y/y EPS growth at $1.29 a share.

 

 

 

Q4 results are expected in February.  The consensus non-GAAP EPS estimate is for $0.81 a share.  That number would result in FY non-GAAP EPS of $2.68, setting a y/y growth rate of 107.7%.

 

 

 

KL Gold
Kirkland’s results are primarily driven by a pair of operations. The Macassa mine, located in the northeastern part of its’ home province of Ontario, and the hyper-productive Fosterville mine in the state of Victoria, Australia. Two additional mines, the Holt and Taylor, are also located in northeastern Ontario. The company’s ongoing “mineralization” or exploration process is revealing the presence of years of rich deposits to support KL’s increasing production. On top of that, the company’s now working out the details of the very promising Detour Gold acquisition.

Back

on November 25 investors spasmed on the news of the Detour Gold acquisition.  Shares leapt into a free-fall of more than 20%.  In the following days the company continued to provide information concerning the proposed acquisition.  Subsequently shares have recovered from the $39.44 low to today’s $43.26.  During that time institutional sources registered support for the move.  The shareholder meetting and vote are scheduled for tomorrow, 1-24-20.  Sj submitted our proxy as “FOR” the acquisition. 

 

Metric after metric KL is flogging industry averages and results from individual companies such as widely respected Agnico Eagle Mines Ltd(AEM).  On the same forward-rolling twelve month basis Agnico Eargle’s one year EPS growth rate is -344.3%.  It’s sales growth rate is 2.7%.  KL’s is 47%.  Below are the margins vs. the industry average.

 

 

 

KL Quality vs. Industry
*Data source S&P Compustat.

Kirkland

is a growth story.  Buying growth is tricky.  Common problems include ridiculous valuations, zero earnings, hyper-levels of cash burn, shaky balance sheets, unproven management, and prices that have run too far too fast to trust.  KL suffers from none of the above.  However, KL is currently lagging many peers in price performance, including the infinitely-less sound AEM.  AEM’s run 13.7% in six months.  Meanwhile KL’s dropped -6.4%.  AEM’s gone flat since it’s near-term high of $63.91 late last summer.  It’s now $61 exactly, pre-market 1-23-20.  And what is KL’s larger picture?

 

Kirkland Lake Gold Ltd. KL:NYSE 1-22-20

KL, 1-22-20, Long-term
This 156 week chart clearly displays KL’s current technical challenge. It’s indeed make-or-break time(SJChart.)

      The

best scenario in buying high growth is to have a high-quality temporary problem.  The best problem is technical weakness.  It’s not fundamental, and it provides better prices to the disciplined.  That’s KL now.  It’s pulled back from a near-term high of $49.78 in mid-November.  As of pre-market this morning(1-23-20) it sits at $43.26.  That’s a 13% drop in two months.  Here’s that picture:

 

Kirkland Lake Gold Ltd. KL:NYSE 1-22-20

KL, 1-22-20
Of the myriad of troubles that plague growth stocks by far the most preferable is short term technical deterioration.  For one thing,it’s temporary. That’s KL now. As the long-term weekly chart above plainly demonstrates, the long-term trend remains intact. A break will create a better entry point.  Yet, the 1, 2, 3, rise-and-rest pattern is precisely what sustainable growth looks like(SJChart.)

  

Mining companies thrive or  dive on production metrics.  The key metric for gold miners is ounces produced, or “poured.”  Second comes cost.  That metric is “AISC” or “all in sustaining cost,” also calibrated in ounce. KL’s consolidated 2019 AISC is $520-$560(USD).  Agnico Eagle’s latest report puts Q3 AISC at $903 per ounce.

 

 

The Fool on  KL’s Q3 results:

“On

October 9, Kirkland Lake announced record production for its third quarter of 2019: nearly 250,000 ounces in Q3 and almost 695,000 ounces year-to-date (YTD). Record quarterly production totaling almost 160,000 ounces from the Fosterville mine, which has increased its production every quarter of 2019, was the primary driver. In all of 2018, Fosterville produced over 356,000 ounces, so producing 44% of this amount in just three months is a significant feat. This increase in production resulted in a cash position increase of 31% ($146 million) during Q3, bringing KL’s total cash and equivalents to $615 million. YTD, this represents an increase of 85%, or $283 million. “–“Kirkland Lake is as good as gold.” fool.com.

https://www.fool.com/investing/2019/10/14/kirkland-lake-is-as-good-as-gold.aspx”

 

 

Balance sheet shootout.

AEM vs. KL

KL, Financial strength
As a reminder. Smaller numbers mean less debt.

 

Estimates 2020

A building phase.

The

January 17, 2020 CFRA Research report rates KL a “Strong Buy.”  The report estimates FY EPS of $2.61, a decrease of -1.9%.  Oops.  Yet behind that lies the rest of the story.  Revenue?  CFRA puts annual revenue growth at 78.4% year-over year.  If correct, that would prove the highest in four years.  That’s known as “ARG” or accelerating revenue growth.

 

 

 

Kirkland’s 2020 EPS guidance, dated December 19, calls for $2.92 a share.  Yet many moving parts, foremost the Detour acquisition, renders all estimates particularly speculative. 

 

 

 

  Schwab Equity Rating International provides a stock  rating of A. Out of four analysts currently tracking the company, the mean forecast for FY 2020 is $2.64, adjusted down -0.37% over the past month.  That represents a slight FY EPS decline as well.  Of the four analysts following, the range is wide, $2.07-$3.15.  

 

 

 

Kirkland, Franklin Sports Bar
The Brick–oops, we meant the Franklin Sports Bar in Kirkland Lake, Ontario. You’re gonna see a lot of hockey here, and the Toronto Blue Jays & Raptors.

_Up To the Minute_ 

2020 Q4,& FY 2019 Press Release.

January 9,

 

*Production up 21% y/y, driven by record quarterly production at Fosterville mine.

*FY 2019 consolidated production up 35% to 974,615 ounces.

*FY 2019 cash and equivalents increase $323 million or 112% totaling $705 million.

*FY total share repurchase of 1,127,000 common shares at $42.8 million(USD) through the Company’s normal course issuing bid(NCIB.)

*Total FY 2019 poured gold sales of 979,733 ounces.

*Share price appreciation of more than 60%.  Two dividend increases totaled more than 50% to $0.06.

*Agreement November 25, 2019 to acquire Detour Gold Corporation expected to increase Company’s free cash flow, Mineral Reserves and production, and other synergies totaling $75-$100 million annually.

CEO Tony Makach:

“Kirkland Lake Gold had its best year ever in 2019. We increased production 35%, more than doubled our cash position and continued to achieve significant exploration success.”

“FY 2019 production increased 35% from 723,701 ounces in FY 2018. The main contributor to the strong growth
compared to FY 2018 was record production at Fosterville, mainly due to a significant improvement in the average grade reflecting the ramp up of production from the high-grade Swan Zone.”–Tony Makach, President/CEO Kirkland Lake Gold.

 

 

 

KL 100 year celebration
100 years in the making. Kirkland Lake residents enjoying the Centennial street party.  They do that stuff in Cicely too.

Is

KL a buy?  Is Kirkland Lake Gold a good stock?  Yes–it’s both.  we Hold it.  If you’re willing to own stock, as we are, Kirkland is as good as it gets.  But if you’re not feeling patient, go bowling instead.  KL is only growing fundamentally stronger, while insuring it’s future.  The proposed acquisition of Detour will pay off for years.  The purchase price is reasonable, 25% over current Detour share price.  Meanwhile, KL’s near-term price-action is weak, suggesting a very possible break in its’ long-term trend.  Underlying fundamentals remain bullet-proof.

 

Technicals are short term indicators.  In KL’s case they represent an opportunity to build a better cost basis, scaling-in if prices continue to show weakness.  Savvy growth investors fully realize the devestation of buying high, and the patience required to wait, or even pass.  KL is providing a very reasonable entry point here, now.  A partial position here makes sound sense.  If the price and technicals suddenly strengthen, fill the position on a weak day.  If not, watch and scale-in as prices fall.  As always good investing and good luck.

 

 

Northern Exposure, dialogue

 

 

 

 

“Fireside chat with Tony Makach”

KL President and CEO

Kirkland’s EV trucks

 

Kirkland Lake Gold

Our Business” Investor Relations

https://www.klgold.com/our-business/default.aspx

 

 

 

That Investing Journey

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Additional resources:

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https://www.schwab.com/public/schwab/client_home
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2 thoughts on “Kicked On. Kirkland Lake Gold.

  1. It’s no secret I like gold and Kirkland is my favorite miner.
    I believe this was your best work to date.
    Many Thanks for the confirmation!
    With very best regards, Steve Fitz.

    Like

    1. Thanks so much. Kirkland is amazing, and has a bright future. 2020 looks to be a building yea, and the company will likely be occupied with the Detour acquisition among other structural changes.

      Like

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