Kirkland Lake: A Golden Favorite

07/08/2020 5:00 am EST


Carl Delfeld

Chief Analyst, Cabot Global Stocks Explorer

I have been searching for a good gold stock. I think I have finally hit pay dirt with Canada’s Kirkland Lake Gold (KL), explains Carl Delfeld, international investing specialist and editor of Cabot Global Stocks Explorer.

Kirkland owns and operates four underground gold mines, including the Macassa, Holt, and Taylor mines located in northeastern Ontario, Canada; and the Fosterville Mine located in Victoria, Australia, as well as three milling facilities in Canada and Australia.

In a gold stock, I look for several characteristics, including a nice rising trend in a company’s production of gold plus superior profit margins and a strong balance sheet.

Kirkland ended the most recent quarter with $531 million in cash and cash equivalents and no debt. And this is after it recently doubled its dividend and used $330 million to repurchase shares.

In addition, Kirkland has exceptionally low production costs and high efficiency. Even after factoring in the added costs related to its recent buyout of Detour Gold, Kirkland has delivered an operating margin of well over $900 cash per ounce of gold at current spot prices.

Having high levels of free cash flow and working capital is especially important for mining companies in this time of COVID-19. While Kirkland Lake has already halted all exploration activity, it is still in operation.

Kirkland’s latest quarter delivered 40% profit margins, 14.7% return on assets and 22.9% return on equity.

It is always a good idea to have some gold in your portfolio. In these uncertain times, with concerns about inflation and a weaker dollar, and with gold prices in an uptrend, the case for an allocation to gold is even stronger. Kirkland Lake Gold fits the bill.

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