Kirkland Lake has Record Earnings and Doubles Dividend
This blog reported earlier on an announcement by Kirkland Lake Gold on preliminary production and revenues for Q3.It proved to be quite accurate on both counts.Revenues were $381 million compared to $281 million in Q2 and $222 million in Q3 2018.Production was 244 thousand ounces compared to 212,000 ounces in Q2.Whereas adjusted EBITDA was $296 million versus $185 million in Q2 and $148 million in the same quarter in 2018.And capital expenditures were slightly ahead of Q2 at $50 million.Their cash position was at about $615 million which showed a 31% increase from Q2.
Increases in Cash Balances
This blog forecasts that production from it's two main mines (Fosterville and Macassa) will increase in Q4.The price of gold will liklely remain in a range around $1460 -$1500 an ounce.And the result of this will be an increase in KL's cash balance.What will KL do with all this cash?Now it is clear that they will use cash and shares to buy all of or a major stake in Detour Gold.Their proposal for all Detour Gold shares is valued at $4.9 billion(CAD) and each share of Detour will be worth .4343 of the newly formed company.Kirkland Lake has not taken it's proposal to the Detour Gold board instead it put it out to shareholders to accept.But Detour shareholders are not acting favourably yet to Kirkland Lake's offer of a 24% premium.This blog believes that Kirkland Lake may have to acquire 5-10% of outstanding shares on the open market and pursue the acquisition on a hostile basis.At this time the premium seems adequate to this blog given their present level of earnings. But it is clear that Detour Gold shareholders do not seem rewarded for their significant(15.41 million ounces) but low-grade ore deposit.It is also clear to KL that Detour Gold does not have the capital to extract gold from their sizeable deposit and Kirkland Lake Gold probably does.
New Ore Deposits at Fosterville Mine
At the same time Kirkland Lake Gold reports that underground drilling has shown high-grade results of 45 to 87 grams/tonne in the Lower Phoenix fault structure .The drill results extends the Swan Zone and proves the continuity( a further 950 metres) of the Lower Phoenix Gold system in the Lower Phoenix fault.This mineralization is in addition to their estimate given in February of 5.75 million ounces.Yet it does not include detailed discovery of the further south Eagle fault which has been reported to have an even higher grade of gold.The new findings are likely to increase production of the Fosterville mine slightly in Q4 and significantly in 2020.Investors should also expect exploratory drilling on the Eagle fault in 2020.This new production from the Fosterville mine will help to increase free cash flow and pay for the doubling of the dividend payable in January2020.
Conclusion
This blog believes that KL does not have enough momentum in their proposal to acquire all DGC shareholders.But Kirkland Lake has not put a minimum limit on their offer.As DGC has not moved up to the KL offer price this presents a buying opportunity.As Kirkland Lake has a sizeable cash balance and debt capacity a substantial number of shares can be obtained on the open market.This is a perfect chance for Kirkland Lake Gold to acquire a major stake in Detour Gold.In the meantime KL mineral reserves, earnings and dividends keep rising. https://www.brookfield.com/
Increases in Cash Balances
This blog forecasts that production from it's two main mines (Fosterville and Macassa) will increase in Q4.The price of gold will liklely remain in a range around $1460 -$1500 an ounce.And the result of this will be an increase in KL's cash balance.What will KL do with all this cash?Now it is clear that they will use cash and shares to buy all of or a major stake in Detour Gold.Their proposal for all Detour Gold shares is valued at $4.9 billion(CAD) and each share of Detour will be worth .4343 of the newly formed company.Kirkland Lake has not taken it's proposal to the Detour Gold board instead it put it out to shareholders to accept.But Detour shareholders are not acting favourably yet to Kirkland Lake's offer of a 24% premium.This blog believes that Kirkland Lake may have to acquire 5-10% of outstanding shares on the open market and pursue the acquisition on a hostile basis.At this time the premium seems adequate to this blog given their present level of earnings. But it is clear that Detour Gold shareholders do not seem rewarded for their significant(15.41 million ounces) but low-grade ore deposit.It is also clear to KL that Detour Gold does not have the capital to extract gold from their sizeable deposit and Kirkland Lake Gold probably does.
New Ore Deposits at Fosterville Mine
At the same time Kirkland Lake Gold reports that underground drilling has shown high-grade results of 45 to 87 grams/tonne in the Lower Phoenix fault structure .The drill results extends the Swan Zone and proves the continuity( a further 950 metres) of the Lower Phoenix Gold system in the Lower Phoenix fault.This mineralization is in addition to their estimate given in February of 5.75 million ounces.Yet it does not include detailed discovery of the further south Eagle fault which has been reported to have an even higher grade of gold.The new findings are likely to increase production of the Fosterville mine slightly in Q4 and significantly in 2020.Investors should also expect exploratory drilling on the Eagle fault in 2020.This new production from the Fosterville mine will help to increase free cash flow and pay for the doubling of the dividend payable in January2020.
Conclusion
This blog believes that KL does not have enough momentum in their proposal to acquire all DGC shareholders.But Kirkland Lake has not put a minimum limit on their offer.As DGC has not moved up to the KL offer price this presents a buying opportunity.As Kirkland Lake has a sizeable cash balance and debt capacity a substantial number of shares can be obtained on the open market.This is a perfect chance for Kirkland Lake Gold to acquire a major stake in Detour Gold.In the meantime KL mineral reserves, earnings and dividends keep rising. https://www.brookfield.com/
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