Kirkland: Profitable Outlook Despite "Detour"

10/06/2020 5:00 am EST

Focus: COMMODITIES

Douglas Gerlach

President, ICLUBcentral, Inc.

Kirkland Lake Gold Ltd. (KL) is a gold mining company located in Canada and currently operating three mines — one in Victoria, Australia, and two in Ontario, Canada, notes Doug Gerlach, editor of SmallCap Informer.

In January 2020, the company completed its acquisition of Detour Lake in Ontario, Canada, one of world’s largest open-pit gold deposits with growth potential.

Kirkland’s stock price declined 17% on the day that the deal was announced in November 2019, but the acquisition has since proven to be profitable despite the higher costs of the Detour Lake operation compared to Kirkland Lake Gold's other operations.

The company estimates that Detour Lake has more than 14 million ounces in proven and probable reserves which should drive future growth for many years to come.

Earlier in 2020, the company halted test mining and processing as part of its COVID-19 response. In the second quarter ended June 30, 2020, Kirkland Lake Gold resumed operations at Detour Lake and Macassa with COVID-19 protocols in place, while the Holt Complex operations remained suspended.

For the full-year 2020, Kirkland Lake Gold expects AISC/ounce sold to be $790 to $810. We project revenues to grow at 12.0% a year through 2024, with EPS gaining a bit more through margin expansion and growing 14.0% annually. This is roughly in line with analysts’ expectations for the next two fiscal years.

In fiscal 2019, Kirkland Lake saw pre-tax profits reach a decade-high 57.8%, considerably better than most of its peers. The company had cash on hand as of June 30, 2020, of $537.4 million with no debt, again superior to many (if not most) gold mining companies.

ROE is also on an uptrend, and once again superior to its peer group. The company’s dividend has been regularly increased since it was initiated in 2017.

Kirkland Lake's stock currently trades just slightly above its adjusted average P/E of 14.7. If the P/E reaches 20.1, the average high P/E of the last four years, the stock could reach $113.

On the downside, if the P/E falls to 9.2 and EPS stall at the trailing 12-month level of $2.94, a low price of $27 is indicated. From the current price, this represents a 3.2-to-1 upside/downside ratio, and a potential 19.3% annual total return.

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