Top Picks 2021: Kirkland Lake Gold (KL)

01/12/2021 5:00 am EST


Douglas Gerlach

President, ICLUBcentral, Inc.

In times of economic struggle and social upheaval, investors often become more interested in precious metals, especially gold, suggests Doug Gerlach, editor of SmallCap Informer.

Long-term, growth-oriented investors often don’t pay much attention to gold-related investments since it can be hard to understand the cyclical nature of the industry and how it relates to global economies.

With a level of turmoil that never seems to end both here in the U.S. and abroad, it’s a good time for investors to consider adding some exposure to gold. Gold miners with the ability to make a profit fairly consistently are rare to come by, but our top pick in this area is Kirkland Lake Gold Ltd. (KL).

Kirkland Lake Gold is located in Canada and currently operating three mines, one in Victoria, Australia, and two in Ontario, Canada.

Since 2010, revenues at Kirkland Lake Gold have risen an average of 32.4% a year, while EPS growth has averaged 57.9% annually. From 2016 to 2019, Kirkland Lake Gold’s production more than tripled from 313.7 Kozs to 974.6 thousand Kozs, while their all-in sustaining costs (AISC) per ounce fell from $930 to $564.

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Strong production growth and low unit costs are the formula for long-term success. For the full-year 2020, Kirkland Lake Gold expects AISC/ounce sold to be $790 - $810 and total production to be 1,350-1400 Kozs.

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 Gold 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 gold mining companies. The company’s dividend has been regularly increased since it was initiated in 2017.

Kirkland Lake Gold’s stock currently trades just below 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 $110. Including a dividend, currently yielding 1.8%, the stock could deliver an annualized 21.9% return through the next five years.

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