Mr. Anthony Makuch reports
KIRKLAND LAKE GOLD REPORTS SOLID EARNINGS AND CASH FLOW IN FIRST QUARTER 2018, ANNOUNCES DIVIDEND INCREASE
Kirkland Lake Gold Ltd. has provided its financial and operating results for the first quarter of 2018. The company's full financial statements and management discussion and analysis are available on SEDAR and on the company's website. The company also announced today an increase to its quarterly dividend to three Canadian cents per share from two Canadian cents per share, with the increase to commence with the second quarter 2018 dividend, payable in July, 2018. All dollar amounts in this news release are expressed in U.S. dollars, unless otherwise noted.
Key highlights of the Q1 2018 results include:
Net earnings increase year over year to $53.8-million (25 cents per share) compared with $13.1-million (six cents per share) in Q1 2017 and $41.0-million (20 cents per share) in Q4 2017. Adjusted net earnings totalled $52.6-million (25 cents per share) versus $17.5-million (nine cents per share) in Q1 2017 and $71.2-million (34 cents per share) in Q4 2017;Record quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) of $105.9-million versus $66.9-million in Q1 2017 and $103.9-million in Q4 2017;Solid cash flow from operating activities totalling $89.6-million versus $67.9-million in Q1 2017 and a quarterly record of $103.4-million in Q4 2017;Strong year-over-year growth in free cash flowto $50.2-million compared with $38.5-million and $64.5-million, respectively, in Q1 2017 and Q4 2017;Cash increased $43.7-million or 19 per cent to $275.3-million at March 31, 2018, from $231.6-million at the end of 2017;Low unit costs with operating cash cost/ounce sold averaging $447 (based on production costs of $66.1-million), in line with 2018 guidance and compared with $564 in Q1 2017 and $412 in Q4 2017. All-in sustaining cost (AISC)/ounce sold averaged $833 versus $873 in Q1 2017 and $816 in Q4 2017.AISC/ounce to improve as quarterly sales volumes increase;Production increased to 147,644 ounces from 130,425 ounces in Q1 2017 and compared with record quarterly production of 165,579 ounces in Q4 2017;Strong growth in mineral reserves and mineral resources with consolidated mineral reserves at Dec. 31, 2017, increasing 36 per cent from the previous year. Mineral reserves at Fosterville increased 247 per cent from the Dec. 31, 2016, estimate (65-per-cent increase from June 30, 2017, midyear estimate), while measured and indicated mineral resources and inferred mineral resources at Macassa increased 58 per cent and 48 per cent, respectively;Macassa No. 4 shaft project announced in January, 2018, as part of company's plan to double production at Macassa to over 400,000 ounces per year over the next five to seven years, with phase 1 targeted for completion in early 2022 and phase 2 expected to be completed by the end of 2023;Quarterly dividend increased on May 2, 2018, to three Canadian cents/share effective the second quarter 2018 quarterly dividend payment, payable in July, 2018 (Q1 2018 quarterly dividend of two Canadian cents/share paid on April 13, 2018).
Tony Makuch, president and chief executive officer of Kirkland Lake Gold, commented: "We had a strong quarter in Q1 2018 and continued to be a top performer in our industry in terms of profitability and free cash flow. Our Q1 2018 results surpassed target levels for the quarter in most key areas and, as a result, we entered the second quarter tracking very well against our consolidated 2018 guidance. Looking ahead, we expect higher levels of production as the year progresses, which will contribute to further improvements in unit costs. Our capital expenditures will increase from Q1 2018 levels over the balance of the year as we ramp up the Macassa shaft project and key growth projects at Fosterville. At Macassa, work on the shaft project in Q1 2018 was focused on permitting and engineering, with surface construction commencing in the second quarter. At Fosterville, a number of permits were received in April, which will lead to an acceleration of work going forward.
"Turning to exploration, we continue to make significant progress with very encouraging results recently being announced that support our commitment to aggressive organic growth. At Fosterville, we intersected visible-gold-bearing mineralization at Robbin's Hill, located approximately 3.8 [kilometres] km from the Fosterville mine. The mineralization has similarities to the high-grade, visible-gold-hosted quartz veins encountered in the Eagle and Swan zones of the Lower Phoenix system at Fosterville. In the Northern Territory, we identified a second potential source of production with gold mineralization being intersected below historic open pits on the property of our processing plant at Union Reefs. In Canada, underground drilling at Macassa continues to return high-grade intersections both within and outside current mineral resource blocks, highlighting the significant potential for further growth in both reserves and resources.At Taylor, recent drilling has provided additional confirmation that our existing gold deposits are part of a large mineralized system. Last week, we announced a 150-metre extension of the new gold zone we discovered late last year below the West Porphyry deposit. We also announced continued success intersecting high-grade mineralization along the Porcupine Destor fault, with our furthest intersection now being 2.9 km east of the mine. We regard both Taylor and the Northern Territory as dark horses within our portfolio, as they do not attract a lot of attention, but have both consistently generated encouraging drill results and demonstrated potential for growth."
Review of financial and operating performance
The following discussion provides key summarized consolidated financial and operating information for the three months ended March 31, 2018, and 2017. Results for the three months ended March 31, 2017, include production and costs related to the Northern Territory operations in Australia, which were placed on care and maintenance effective June 30, 2017. Also, results for Q1 2017 have been restated to exclude discontinued operations, related to the sale of the Stawell mine.
FINANCIAL HIGHLIGHTS(in thousands of dollars, except per share amounts)Three months ended Three months ended March 31, 2018 March 31, 2017Revenue $ 198,237 $168,528Production costs 66,097 80,609Earnings before income taxes 77,274 28,153Loss from discontinued operations - (2,235)Net earnings$53,807 $ 13,133Basic earnings per share from continuing operations $0.25 $ 0.08Diluted earnings per share from continuing operations $0.25 $ 0.07Total basic earnings per share$0.25 $ 0.06Total diluted earnings per share$0.25 $ 0.06Cash flow provided by operating activities of continuing operations $89,637 $ 67,874Cash investment in mine development and PPE $39,428 $ 29,326 OPERATING HIGHLIGHTSThree months ended Three months endedMarch 31, 2018 March 31, 2017Tonnes milled417,356520,888Grade (g/t Au)11.58.2Recovery (%)96.3%95.2%Gold produced (oz) 147,644130,425Gold Sold (oz) 147,763137,841Averaged realized price ($/oz sold)1,3331,225Operating cash costs per ounce ($/oz sold) 447564AISC ($/oz sold) 833873Adjusted net earnings from continuing operations $52,561$17,474Adjusted net earning per share from continuing operations$0.25$0.09
Production, sales and revenue
The company produced 147,644 ounces in Q1 2018, an increase of 13 per cent from 130,425 ounces in Q1 2017. Excluding production from mines currently on care and maintenance, including Northern Territory and the Holloway mine, total consolidated production for Q1 2018 grew by 22 per cent to 147,611 ounces from 121,066 ounces in Q1 2017. Both Fosterville and Macassa achieved solid production growth compared with the same period in 2017 due to higher average grades. Fosterville produced 63,843 ounces in Q1 2018, a 39-per-cent increase from 46,083 ounces in Q1 2017. The average grade at Fosterville in Q1 2018 was 16.8 grams per tonne versus 11.1 g/t in Q1 2017, consistent with the trend at Fosterville toward improving grades at depth. Macassa achieved record quarterly production in Q1 2018 of 54,038 ounces, an 11-per-cent increase from 48,723 ounces in Q1 2017. The increase from Q1 2017 was primarily related to an improvement in the average grade, to 19.9 g/t from 17.1 g/t in Q1 2017, reflecting the mining of higher-grade stopes as well as the impact of favourable grade performance late in Q1 2018. Higher levels of mill throughput resulted in increases of 9 per cent and 19 per cent, respectively, in production at Holt and Taylor, to 16,675 ounces and 13,055 ounces, respectively, in Q1 2018 versus 15,318 ounces and 10,942 ounces, respectively in Q1 2017.
Q1 2018 production compared with record quarterly production of 166,579 ounces in Q4 2017. The main contributor to the change in production from Q4 2017 was the impact of a greater proportion of high-grade stopes mined at Fosterville during Q4 2017, consistent with the mine plan. Production at Fosterville in Q4 2017 totalled 79,157 ounces, with grades averaging 21.5 g/t for the quarter. Production at Macassa in Q1 2018 was 5 per cent higher than 51,608 ounces in Q4 2017, as a 43-per-cent increase in the average grade (19.9 g/t in Q1 2018 versus 13.9 g/t in Q4 2017) more than offset a reduction in tonnes processed. Both Holt and Taylor achieved record levels of production in Q4 2017 (19,263 ounces at Holt and 16,541 ounces at Taylor), with the change in Q1 2018 mainly resulting from lower average grades at both mines in Q1 2018 consistent with their respective mine plans.
Gold sales Q1 2018 totalled 147,763 ounces, a 7-per-cent increase from 137,841 ounces in Q1 2017. The realized gold price in Q1 2018 averaged $1,333 per ounce, an increase of 10 per cent from $1,225 per ounce in Q1 2017. Through a combination of increased sales and a higher average gold price, revenue in Q1 2018 totalled $198.2-million, 18 per cent higher than revenue of $168.5-million in Q1 2017. Excluding the impact of mines currently on care and maintenance, primarily the $12.6-million of revenue from the Northern Territory in Q1 2017, revenue grew 27 per cent year over year. Revenue in Q1 2018 compared with total revenue of $212.4-million in Q4 2017, with record quarterly gold sales of 165,715 ounces during the prior quarter more than offsetting a 5-per-cent increase in the average gold price in Q1 2018 in accounting for the change in revenue quarter over quarter.
Earnings from mine operations
Earnings from mine operations in Q1 2018 totalled $98.2-million, more than double the Q1 2017 total of $47.8-million. The increase from the same period in 2017 reflected strong revenue growth, as well as lower production costs, largely due to the inclusion of production costs for the Northern Territory operations in Q1 2017 prior to the mine being placed on care and maintenance effective June 30, 2017. Also contributing to the year-over-year improvement in earnings from mine operations was a $7.5-million or 21-per-cent reduction in depletion and depreciation costs, as the impact of higher gold production was more than offset by a significant increase in the level of depletable mineral reserves and mineral resources at the company's operations following the release of the company's Dec. 31, 2017, mineral reserve and mineral resource estimates on Feb. 20, 2018. Royalty expense in Q1 2018 totalled $6.0-million versus $4.7-million in Q1 2017, with the increase mainly reflecting higher sales volumes.
Earnings from mine operations in Q1 2018 increased 6 per cent from $92.3-million in Q4 2017. The quarter-over-quarter increase was due to a $17.7-million or 39-per-cent reduction in depletion and depreciation costs, reflecting higher levels of depletable mineral reserves and mineral resources in Q1 2018, as well as lower levels of production costs and royalty expense. These factors more than offset the impact of higher revenue in Q4 2017 based on record quarterly gold sales during the prior quarter.
Performance against 2018 guidance
In 2017, Kirkland Lake Gold achieved all of the company's consolidated production and unit cost guidance. On Jan. 17, 2018, the company announced its guidance for full year 2018, which includes increased production levels compared with 2017, improved unit costs, and higher levels of capital and exploration expenditures. Following completion of Q1 2018, the company's full-year 2018 guidance remained unchanged. The increase in capital and exploration expenditures is being undertaken in support of achieving the company's longer-term objective of growing annual gold production over the next five to seven years to approximately a million ounces.
GUIDANCE (as at Feb. 21, 2018)MacassaTaylorHolt Fosterville ConsolidatedGold production (000s oz)215-225 60-70 65-75 260-300 +620Op. cash costs ($/oz)475-500 625-650 625-650 270-290$425-$450 AISC/ounce sold ($/oz)$750-$800 Operating cash costs ($M) $260-$270 Royalty costs ($M)$22-$27 Sustaining capital ($M) $150-$170 Growth capital ($M) $85-$95 Exploration ($M)$75-$90 Corporate G&A ($M)$20-$22
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