Kirkland Lake Gold Ltd at Denver Gold European Gold Forum
Apr 05, 2017 AM CEST
NMI.TO - Kirkland Lake Gold Ltd Kirkland Lake Gold Ltd at Denver Gold European Gold Forum Apr 05, 2017 / 12:00PM GMT ============================== Corporate Participants ============================== * Tony Makuch Kirkland Lake Gold Ltd. - President, CEO ============================== Presentation ------------------------------ Unidentified Participant [1] ------------------------------ Tony, it's the red and green. No, the other one. ------------------------------ Tony Makuch, Kirkland Lake Gold Ltd. - President, CEO [2] ------------------------------ Thanks for giving the opportunity to come here present at the conference today. We've been coming here for a number of years. And I'll tell you, there's been some times when the sentiment in the market is a little bit maybe not as positive as it is, and I see a lot of positive sentiment here today. And actually we are in a good time. The price of gold in Canadian dollar terms is well little over CAD1,600 an ounce and, in Australian dollar terms, well over AUD1,600 an ounce. So these are good times. We should be happy with what's going on and focus on delivering value for shareholders. And that's what I will do in giving you a little quick update on Kirkland Lake Gold and we feel it's a really exciting company and a new company, new midtier gold producer. Just some forward-looking statement. I'm not going to read it. I will let you guys read through this. Okay, the first thing and really what this is all about and this conference is all about how -- what do we invest in, and where do we get return and recognize that we compete and a lot of different things for investment. But in terms of Kirkland Lake Gold and why people should invest in Kirkland Lake Gold, it's we need three main points. And maybe there is a four point I will point out on there. But one, we have an operating platform, a solid operating platform, in tier 1 mining jurisdictions in both Canada and Australia. So, we are in two good countries to mine, but also we've got really good geology, some very world-class deposits, both in Kirkland Lake at the Macassa and then down in Australia at the Fosterville Mine. Our guidance this year is over 500,000 ounces, actually being 525,000 ounces from the mine, so it's diversified. It's realistic guidance. And we give a little bit of thing here in terms of performance last year in terms of what Macassa produced -- 175,000 ounces, a record year for Macassa mine, and the Fosterville Mine, over 150,000 ounces, getting record results for Fosterville. We just came up at an updated mineral reserve for Macassa, increased it. It hadn't been updated in two years. Over 2 million ounces grading. Not only did we increase the reserve from a previously 1.4 million ounces in 2014 to 2 million ounces, we actually increased a grade too from 19 grams to 21 grams. And then Fosterville, the mineral reserve, came up an updated mineral reserve as well and, again, a significant mineral reserve increase to over 600,000 ounces at 9.2 grams, again, both an increase in reserves, significantly replacing reserves and adding to mine life, and improvement in grade. And there's still a large resource at these assets and these, we see them as very long life mines. We have a strong balance sheet. The Company is well-financed with over $235 million in cash as we came out of 2016, coming into 2017. And we've got very -- we think we are very competitive in a low-cost environment and we're looking at full-year operating costs of $5.71 an ounce and all-in sustaining cost of $9.25. And we also see from a -- in Australia (inaudible) in Q4 in terms of the performance and, again, where the Company sits. We have significant organic growth in the Company, both from an exploration point of view where you can -- a lot of exploration upside on all of the different projects. And we also have the potential for new discoveries and building new mines if we ever get that opportunity. We are spending a lot of money this year. We really -- how do you put it? Maybe I should say we are more aggressive in our exploration program. We're spending USD45 million to USD55 million on exploration on these properties. There was a significant exploration program in 2015 on these properties -- or sorry, and 2016 on these properties. We've really been ramping it up and you can see definitely growth and we think there's a lot of potential there in terms of what we are going to discover in terms of adding life to the mines and making -- and adding value for shareholders. And we talk about value proposition, but -- position here and where the Company is valued, but we have also just come up with a new dividend policy of paying $0.01 a share per quarter starting in the second quarter of this year. And really, that dividend we think is definitely a sustainable dividend and not a lot of upside in terms of where we can go in the future. This slide here just, you know, it shows you the operating platform of the mines, where they are in Canada and Australia. One shows a production in 2016, 542,000 ounces. So when we give our guidance of 500,000 ounces to 525,000 ounces, you can get a sense it's realistic. We did with the mine -- sorry, we did, as part of putting the Company together, we did decide to close the Stawell mine in Australia. And we put the Holloway mine up in Canada in maintenance. Both mines combined produced 60,000 ounces of gold, but they didn't meet a criteria of sustainable production at a high level and at all-in sustaining costs of USD950 an ounce or under and cash costs of USD650 an ounce or under. We're going to do some work with them and we're going to see what we can do to bring these back if that's the case. But on the other side, we have moved people and, etc., from these assets over to other mines and we are working towards creating more value for our shareholders. I mentioned about the balance sheet, where the Company sits. Maybe the two takeaways from this slide is the Company is financially strong; we do have two convertible debentures, one coming due in June of this year, second one coming due in December. I will tell you, the first one, we are probably more than likely going to be paying it off in our cash. The second one we probably will, too. But time will -- a lot of things can happen between June and December of this year in terms of where our share price goes, etc. But our preference is going to be to pay both of them off in cash. We do have cash. We are generating free cash flow close to $10 million a month. And we are going to use our cash for the right thing in terms of creating value for shareholders and eliminate this debt. And as I mentioned, we created a dividend policy and to say the dividend policy, the dividend amount that we are paying, is equivalent to the interest. We have been paying on the converts the last five years. So, we're just going to now take that money and give it to the shareholders and stop borrowing money. This slide is just -- quickly, it just gives an outlook of our guidance per mine coming into 2017, and maybe a couple of takeaways from this. We talk about the 500,000 ounces to 525,000 ounces. You will see here in the Macassa mine, we are increasing production at Macassa I mentioned at 175,000 ounces in 2016. We are increasing production 100,000 to 185,000 ounces in 2017. A lot of that is grade driven. Similarly, the Holt mine, we are increasing production slightly in 2017 from 60,000 ounces to 65,000 to 70,000. Taylor Mine produced 40,000 ounces in 2016. It's increasing productions for the Canadian operations, so going from just about 295,000 ounces in 2016 to 300,000 to 315,000 ounces in 2017. And similarly, Fosterville produced 150,000 ounces in 2016. We are guiding, at this point in time, 140,000 to 145,000 ounces, but I will say we are probably going to end up beating that guidance. And then we have Cosmo, which we are looking to produce about 60,000 to 65,000 ounces. In terms of these mines, the criteria I mentioned to you about USD650 or USD675 as we given our guidance here, US amounts or under, they all meet it except for Holt, from a cash cost point of view, and Cosmo. And then from an all-in sustaining cost point of view, they all meet it except for Cosmo. Our goal is to work to get -- have Cosmo meet these objectives and certainly have Holt meet the objectives for cash costs, because we think it's important that we manage our cast costs so that we have money to reinvest and capital, sustaining CapEx, whether it's equipment, whether it's diamond drilling, whether it's new development, in order to really sustain the business. This is why this opportunity is here with these assets. These were part of three junior companies that maybe didn't always have the financial resources that we have now. And if we put in an operating discipline of -- operating cash cost of where they need to be, and then give ourselves room and responsibly reinvesting into the operations, we feel that we've got a significant long-life assets and cash flow generating business here. I'm just going to talk quickly about three -- the main assets within the Company. That's the Macassa Mine, the Fosterville Mine, and the Taylor Mine. This represents well over 70% of the production from the Company. And we see actually, besides that, there is also growth potential at these assets with extra milling capacity. If you look at what we did in 2016 on these three mines, cash costs were under USD525 and all-in sustaining costs were below $850. From an exploration point of view, there's -- the Fosterville, it's -- and I'll show you something. It's a large land area that has been very much unexplored and, again, new discoveries at Fosterville, Macassa. We see -- it's definitely in a right area from an exploration point of view as well. And we have significant exploration back to along the Porcupine-Destor Fault, which is part of the St. Andrew's properties. And then you get a sense on what 2016 production and what the reserve lives looks like at these mines. So first off, Macassa, this -- what we tried to show here in the box is showing the performance that the mine had in 2016 on a quarter-by-quarter basis. I mentioned to you that we are looking in 2017 to produce 180,000 to 185,000 ounces. You can look at the production we did in Q4 last year and you can say, well, we have given conservative guidance. We want to give guidance that we can meet or beat. You can see definitely the improvement in grading. Grade is really the king at Macassa. It's a large high-grade reserve at Macassa. And grade and production is helping in terms of us reducing cash costs, and you get a sense of what the cash cost per ounce would be. On the exploration side, or just give a sense on -- this is a plan view of the Kirkland Lake camp. And the scale is really from -- let's say you might see from the #3 shaft there what's called the [Amacougamee] Fault. If you go back over to where it says Sylvan, that's about 4 or 5 miles. It's almost 5 miles. You see where the salt mine complex is a whole new discovery that was discovered by Kirkland Lake Gold, the original Kirkland Lake Gold back in 2004 -- 2006, I'm sorry, the original people who were doing my job back then. And they come up with a new discovery after a number of years of mining and mining almost 25 million ounces on the main break and that's really part of the exciting -- both the exploration side and the development and mining side -- mining opportunity within Kirkland Lake Gold. This is just a longitudinal section showing you somewhat spatially the previous mining that was done in the other mines in the region, whether it was from the Wright-Hargreaves all the way over to the Macassa #3 shaft. You can see where the South mine complex is. And we are developing it from the #3 shaft currently. We have drill intercepts from the #3 shaft over to the eastern extent of the South mine complex, that's almost a mile. And then from the South mine complex to the east on some of these drill intercepts is another mile. So we -- besides the fact that you already have a very large resource and reserve at Macassa, you can get a sense that we have a significant amount of resources that -- or drill intercepts that we haven't converted to resources yet. Fosterville, again, Fosterville really is a special deposit down in Australia and Bendigo. This mine has -- again, we're trying to demonstrate the performance quarter-over-quarter coming into 2016. It did set a record production in Q3 -- Q2 of last year and then beat it in Q4. Really with Fosterville, there has been a big transformation Fosterville where, historically, up to 2014, even into 2015, grades were 4.5 to 5 grams. What happened, there was a step change in the geology and a change in the mineral tenor. Grades went up to almost 7 grams in terms of reserve grade 2016. And we have seen another step change coming into 2017 now where the grades have increased up to 9 grams in the reserve. This is just a longitudinal section showing you Fosterville and some of the main areas and the resource. And maybe a couple of things to point out -- mining the Lower Phoenix, this is where the majority of the mining is taking place. And you get some sense of some of the drill results that we've had recently. And I will point out that some things like 1,400 grams over almost 5 meters. That is some significant drilling. That is infield drilling that was being done. Part of what we are really trying to do this year and really in terms of both extending -- continuing to do the same as we did in 2016, grow the reserve, replace reserves and actually grow the reserve again, and grow the resource going into 2017. But we've got exploration platform underground. We will be extending this and trying to connect a ramp here that goes along Harrier system into the Lower Phoenix, the Phoenix ramp. We are looking at doing some deep, deep extension drilling to get a sense on what the structure is doing at depth. Similarly, we are exploring along now we call it the Harrier trend, and we are also looking at [Dailey's Hill] and we are exploring what we call the Upper Phoenix North in terms of another mining horizon. We have over 850,000 ton a year annual capacity in the mill at Fosterville. It's a bio-leaching plant with recoveries in excess of 90%. We've been mining about 700,000 tons a year. So, part of opening up these other horizons is a way to look at -- not only get a better handle and open up and increase the reserve and resource at Fosterville, but to actually open up more heading so we can increase the production rate to 850,000 tons a year and produce more gold. This is -- this slide is just trying to give a sense on some of the exploration upside and where we see -- within the existing structures, what we might find. But you know the thing, that section is really a section through the Fosterville Fault here. And you are just looking at basically Fosterville Mine and then this year would be just the Harrier -- or sorry, Dailey's Hill. And you get -- all these red dots are previous open pit that we mine the oxide portion of these deposits as they have exposure to surface. And the really thing that has happened here is -- and by the opportunity is, as you got deeper, it transitioned to a more refractory deposit and with the Biox plants' proven technology in terms of ore extraction. And now, from an exploration point of view, we think there's a lot of exploration upside to find another Fosterville or two at Fosterville within the mining lease. And you look at the sense on the overall exploration lease here is substantial. And then Taylor, this is a new mine that came out the last year, which in its first year of commercial production produced 40,000 ounces. I'm trying to give a sense of what Taylor has accomplished in 2016. It is still not a large-scale reserve. The resource is growing. We've had some significant exploration success at Taylor. We've been exploring now quite a ways. So you can -- with multiple discoveries again, a new mine, still very shallow within the Abitibi, and not very deep -- a lot of potential for extensions and new discoveries both at depth. But you can see, on a couple of kilometers, we've been able to come up with some ore grade intercepts. It's still early stages at Taylor, but we are planning to produce about 60,000 ounces of gold from Taylor in 2017. And then, on the exploration side, we show where we are at Macassa in Kirkland Lake. We also did Holloway in Hislop, and effectively we have a significant land package along the Porcupine-Destor Fault from the Quebec border trace and all closer back towards the eastern extension of the Timmins camp. So just to quickly summarize so that maybe we can have a question or two is -- and saying where Kirkland Lake Gold is and what we are really focused on doing in terms of driving shareholder value is, one, we want to give achievable and solid production, so 500,000 ounces to 525,000 ounces, achievable. We've kind of demonstrated already coming out of 2016 that we can meet or beat those numbers. Number two, do it at cost in 2017, an all-in sustaining cost below $1,000 an ounce, cash cost below $675 an ounce. Long-term, we would like to be between -- be all-in sustaining costs below $950 an ounce and cash costs below $650. We want to responsibly invest into these mines and build up to resource and reserve. That's number one. Number two is focus on reserve and resource growth in the Company, extend mind life and get that valuation into the story, again, by being a low-cost operator and generating free cash flow. We are already well-financed and just with cash flow this year, we can eliminate the convertible debenture, convertible debt, so, by the end of this year, be totally debt-free, and continuing to generate free cash flow going into 2018 and beyond. We do pay a dividend. And from an exploration point of view, besides the fact that we can continue to grow resources and reserves just from extension drilling on our deposits, you can get a sense that there is significant opportunity for new discoveries in the Company, both at Fosterville and in Kirkland Lake and Macassa. Anyway -- ============================== Questions and Answers ------------------------------ Unidentified Participant [1] ------------------------------ All right. We do have time for a question, if you have any in the audience. All right. Maybe one for you, Tony. You have been fairly acquisitive. What would you say is the biggest challenge in terms of integrating the assets that you've bought in a fairly short timeline? ------------------------------ Tony Makuch, Kirkland Lake Gold Ltd. - President, CEO [2] ------------------------------ What's the challenge? Sometimes the challenge is you want to get too much done in too short a period of time. Really, there's a lot of things that are going very well. We've got a lot of good people, whether they are in Australia are Canada. They are underground mines. So the challenges are really just getting everybody sort of realizing how well things are running. ------------------------------ Unidentified Participant [3] ------------------------------ Great. Thank you so much. ------------------------------ Definitions ------------------------------ PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the Transcript has been published in near real-time by an experienced professional transcriber. 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