Kirkland Lake Gold Ltd. (“Kirkland Lake Gold” or
the “
Company”) (TSX:KL) (NYSE:KL) (ASX:KLA) today
announced the Company’s financial and operating results for the
third quarter (“Q3 2020”) and first nine months of 2020 (“YTD
2020”). The Q3 2020 results include strong year-over-year growth in
production, revenue, net earnings and cash flow. The Company’s full
consolidated financial statements and management discussion &
analysis are available on SEDAR at www.sedar.com and on the
Company’s website at www.kl.gold. All dollar amounts are in U.S.
dollars, unless otherwise noted.
Q3 2020 Highlights
- Net earnings of $202.0
million. Adjusted net earnings(1) of $249.3 million or $0.91 per
share: Net earnings totalled $202.0 million or $0.73 per
share. Adjusted net earnings(1) totalled $249.3 million or $0.91
per share, an increase of 49% from Q3 2019 and 14% from Q2
2020.
- Record free cash
flow(1): Net cash provided by operating activities
totalled $431.1 million with record free cash flow1 of $275.7
million, a 52% increase from Q3 2019 and 22%2 higher than the
previous quarter.
- Increased balance sheet
strength: Cash at September 30, 2020 totalled $848.5
million, a $311.1 million or 58% increase from $537.4 million at
June 30, 2020.
- Progress with key growth
projects: Total growth capital expenditures1 totalled
$28.1 million, including $11.5 million related to Macassa ($8.3
million to #4 shaft project); #4 Shaft project ended the quarter
approximately one month ahead of schedule and on track for
completion in late 2022.
- Continued exploration
success: The ramp up of exploration drilling continued
during Q3 2020, with total expenditures of $27.4 million; At
September 30, 2020, there were five surface and eight underground
drills at Fosterville, one surface and eight underground drills at
Macassa and five surface drills at Detour Lake; Considerable
exploration success achieved, including:
|
º |
Detour Lake: Results in Saddle Zone support the Company’s view that
a much larger deposit exists around the Main Pit and West Pit
locations than is currently included in Mineral Reserves; |
|
º |
Fosterville: Infill drilling in the Swan Zone intersected higher
than expected grades; Drilling confirmed substantial scale and
growth potential of mineralized systems at Cygnet, Robbin’s Hill
and Harrier; |
|
º |
Macassa:
New results included exceptional grades being intersected near
contact of South Mine Complex (“SMC”) and high-grade mineralized
zones vertically stacked along Amalgamated Break. |
- Over half billion dollars
in share repurchases in 2020: During Q3 2020, $107.4
million (C$143.0 million) was used to repurchase 2,139,300 common
shares; As at November 4, 2020, 14,029,500 shares had been
repurchased year to date for $526.6 million (C$709.5 million).
- Continued dividend
growth: Quarterly dividend increased 50%, to US$0.1875 per
share, effective Q4 2020; Increase follows doubling of dividend in
Q1 2020 to US$0.125 per share from US$0.06 per share (dividend more
than tripled during 2020); $34.5 million used in Q3 2020 to pay
quarterly dividend on July 13, 2020 to shareholders of record June
30, 2020.
- Solid operating
results:
|
º |
Production of 339,584 ounces, a 37% increase from
248,400 ounces in Q3 2019 and 3% higher than 329,770 ounces the
previous quarter; |
|
º |
Production costs of $136.0 million versus $73.7
million in Q3 2019 and $141.4 million in Q2 2020; |
|
º |
Operating cash costs per ounce sold(1) averaged
$406 compared to $287 in Q3 2019 and $374 in Q2 2020; $245
in Q3 2020 and $241 in Q2 2020 excluding Detour Lake; |
|
º |
All-in sustaining costs (“AISC”) per ounce sold(1) averaged
$886 ($622 excluding Detour Lake) versus $562 in Q3 2019
and $751 ($526 excluding Detour Lake) in Q2 2020. |
- Detour Lake – The right
deal at the right time: Detour Lake continued to make a
substantial contribution to the Company’s results in Q3 2020, with
production of 140,067 ounces, revenue of $262.5 million and free
cash flow(1) totalling $64.0 million; From January 31, 2020 to
September 30, 2020, Detour Lake produced 363,614 ounces with
revenue of $674.9 million and free cash flow1 totalling $231.0(3)
million, representing 41% of the Company’s total free cash
flow(1),(3) for YTD 2020; The acquisition on January 31, 2020 added
14.8 million ounces to the Company’s Mineral Reserve base with
potential for significant growth over the next few years with
continued exploration success.
- Solid return from strategic
investment: During Q3 2020, $107.7 million (C$143.2
million) was received from the sale of the Company’s 32.6 million
shares of Osisko Mining Inc. (“Osisko”), resulting in a realized
gain of $60.6 million recognized through other comprehensive income
(not included in net earnings).
- Strategic alliance with
Newmont Canada FN Holdings ULC (“Newmont”): $75 million
(not included in net earnings) was received through a strategic
alliance agreement with Newmont with respect to exploration and
development opportunities around the Holt Complex and Newmont’s
properties in Timmins; Through agreement, Newmont acquired an
option on mining and mineral rights related to the Holt Mine
property.
- Environmental
rehabilitation program launched: Reflecting the Company’s
commitment to responsible mining, a three-year rehabilitation
program was launched in the Northern Territory during Q3 2020 to
address environmental issues caused by prior owners of the assets;
Program involves managing the Howley Streak waste dumps,
rehabilitation of dams and treatment of site water inventory; $32.6
million of rehabilitation costs included in Q3 2020 net
earnings.
YTD 2020 Financial and Operating
Highlights
- Net earnings of $555.1
million ($2.06 per basic share), an increase of $164.2
million or 42% from $390.9 million ($1.86 per basic share) for YTD
2019; Adjusted net earnings(1) of $647.8 million ($2.40 per
share), $256.7 million or 66% higher than $391.1 million
($1.86 per share) for the same period in 2019.
- Net cash provided by
operating activities of $894.9 million, a 33% increase
from YTD 2019; Excluding $60.5 million of restructuring costs and
$132.6 million tax instalment payment in Australia related to 2019
tax year, net cash provided by operating activities totalled
$1,088.0 million.
- Free cash flow(1) totalled
$500.6 million, 52% higher than YTD 2019; Excluding
restructuring costs and the $132.6 million tax payment, free cash
flow totaled $693.7 million.
- Production of
1,000,218 ounces, a 44% increase from 694,873
ounces for YTD 2019.
- Operating cash cost per
ounce sold(1) of $407 ($271 excluding Detour Lake) versus
$296 for YTD 2019.
- AISC per ounce
sold(1) of $804 ($590 excluding Detour
Lake) versus $584 in YTD 2019.
|
(1) |
See “Non-IFRS
Measures” in this press release and on pages 34 – 40 of the
MD&A for the three and nine months ended September 30,
2020. |
|
(2) |
Excludes impact of $132.6 million tax instalment payment in
Australia related to 2019 tax year in Q2 2020. |
|
(3) |
Excludes $60.5 million of transaction and restructuring costs
mainly related to Detour Gold acquisition. |
Tony Makuch, President and Chief Executive
Officer of Kirkland Lake Gold, commented: “During Q3 2020, we
continued to achieve solid operating results and ended the quarter
well positioned to achieve our consolidated 2020 guidance. We also
continued to generate industry-leading earnings and cash flows.
With increasing financial strength, we have made further progress
with our key strategic priorities. First and foremost, we are
investing in our three cornerstone assets, Detour Lake, Macassa and
Fosterville, all of which are high-quality operations which have
substantial growth potential. We are on track to invest around $130
million in exploration this year and, based on work to date, we
have reported very encouraging drill results at all three assets.
We are also making excellent progress with key growth projects. For
example, our #4 shaft project at Macassa is advancing very well
with the project currently ahead of schedule and on track for
completion late in 2022. Following completion of the shaft, we will
begin transitioning Macassa into a much improved mine, with
production targeted to ramp up to 400,000 ounces per year at much
lower unit costs.
“Another key component of our strategy is
returning capital to shareholders. In February, we announced our
goal to repurchase 20.0 million shares over a 12 to 24-month period
and have already reached 14.0 million shares so far in 2020 for
well over half a billion dollars. We have also increased our
quarterly dividend twice this year, doubling it in Q1 2020 and
recently announcing a 50% increase, to US$0.1875 per share,
beginning in Q4 2020. At the new level, we will be providing over
$200 million annually to shareholders through our dividend policy.
Taking share repurchases and dividend payments together, so far in
2020 we have returned $643 million of capital to shareholders,
representing $2.35 per share and $468 per ounce based the mid-point
of our 2020 production guidance. As our financial strength
continues to grow, rewarding shareholders for their investment in
our company will remain a top priority for management and the
Board.
“Finally, the third component of our strategy is
investing in companies and projects where we see potential to add
significant value by bringing our balance sheet and our commitment
to drilling. The acquisition of Detour Gold Corporation on January
31, 2020 is a clear example of this part of our strategy in action,
as was the acquisition of Newmarket Gold, to obtain Fosterville, in
November 2016. We are extremely pleased with the contribution
already being made by Detour Lake Mine, which generated $231.0
million of free cash flow(1) in the first eight months since the
transaction, representing over 40% of our total free cash flow1 for
YTD 2020. Even more important, the exploration results we are
achieving early in our $50 million drilling program are very
encouraging and support our view that Detour Lake, like Fosterville
and even Macassa with the new shaft, has the potential to be
transformed into something much more valuable than the mine we
acquired.”
REVIEW OF FINANCIAL AND OPERATING
PERFORMANCE
Table 1. Financial and Operating Highlights
(in thousands of dollars, except per share amounts) |
Three Months EndedSeptember 30, 2020 |
|
Three Months EndedSeptember 30, 2019 |
|
Three Months EndedJune 30, 2020 |
|
Nine Months EndedSeptember 30, 2020 |
|
Nine Months EndedSeptember 30, 2019 |
|
Revenue |
$632,843 |
|
$381,430 |
|
$580,975 |
|
$1,768,556 |
|
$967,609 |
|
Production costs |
136,023 |
|
73,664 |
|
141,415 |
|
439,030 |
|
209,865 |
|
Earnings before income
taxes |
295,316 |
|
254,119 |
|
225,282 |
|
815,123 |
|
566,140 |
|
Net earnings |
$202,022 |
|
$176,604 |
|
$150,232 |
|
$555,132 |
|
$390,945 |
|
Basic earnings per
share |
$0.73 |
|
$0.84 |
|
$0.54 |
|
$2.06 |
|
$1.86 |
|
Diluted earnings per
share |
$0.73 |
|
$0.83 |
|
$0.54 |
|
$2.05 |
|
$1.85 |
|
Cash flow from operating
activities |
$431,119 |
|
$316,753 |
|
$222,234 |
|
$894,859 |
|
$672,290 |
|
Cash investment on mine development and PPE |
$155,428 |
|
$135,449 |
|
$128,155 |
|
$394,220 |
|
$342,104 |
|
|
Three Months EndedSeptember 30, 2020 |
|
Three Months EndedSeptember 30, 2019 |
|
Three Months EndedJune 30, 2020 |
|
Nine Months EndedSeptember 30, 2020 |
|
Nine Months EndedSeptember 30, 2019 |
|
Tonnes milled |
6,144,753 |
|
419,787 |
|
5,863,282 |
|
16,126,140 |
|
1,208,106 |
|
Average Grade (g/t Au) |
1.8 |
|
18.8 |
|
1.8 |
|
2.0 |
|
18.3 |
|
Recovery (%) |
95.3% |
|
97.9% |
|
95.8% |
|
95.6% |
|
98.0% |
|
Gold produced (oz) |
339,584 |
|
248,400 |
|
329,770 |
|
1,000,218 |
|
694,873 |
|
Gold Sold (oz) |
331,959 |
|
256,276 |
|
341,390 |
|
1,017,935 |
|
701,296 |
|
Average realized price ($/oz
sold)(1) |
$1,907 |
|
$1,482 |
|
$1,716 |
|
$1,734 |
|
$1,375 |
|
Operating cash costs per ounce
($/oz sold)(1) |
$406 |
|
$287 |
|
$374 |
|
$407 |
|
$296 |
|
AISC ($/oz sold)(1) |
$886 |
|
$562 |
|
$751 |
|
$804 |
|
$584 |
|
Adjusted net earnings(1) |
$249,251 |
|
$167,532 |
|
$219,345 |
|
$647,765 |
|
$391,109 |
|
Adjusted net earnings per
share(1) |
$0.91 |
|
$0.80 |
|
$0.79 |
|
$2.40 |
|
$1.86 |
|
Free
cash flow(1) |
$275,691 |
|
$181,304 |
|
$94,079 |
|
$500,639 |
|
$330,186 |
|
|
(1) |
Non-IFRS - the
definition and reconciliation of these Non-IFRS measures are
included on pages 34-40 of the MD&A for the three and nine
months ended September 30, 2020. |
Table 2. Review of Financial Performance
(in thousands except per share amounts) |
Three Months EndedSeptember 30, 2020 |
|
Three Months EndedSeptember 30, 2019 |
|
Three Months EndedJune 30, 2020 |
|
Nine Months EndedSeptember 30, 2020 |
|
Nine Months EndedSeptember 30, 2019 |
|
|
|
|
|
|
|
Revenue |
$632,843 |
|
$381,430 |
|
$580,975 |
|
$1,768,556 |
|
$967,609 |
|
Production costs |
(136,023) |
|
(73,664) |
|
(141,415) |
|
(439,030) |
|
(209,865) |
|
Royalty expense |
(21,481) |
|
(10,430) |
|
(19,258) |
|
(61,988) |
|
(25,430) |
|
Depletion and depreciation |
(86,707) |
|
(41,692) |
|
(82,586) |
|
(262,132) |
|
(116,056) |
|
Earnings from mine operations |
388,632 |
|
255,644 |
|
337,716 |
|
1,005,406 |
|
616,258 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
General and
administrative(1) |
(20,409) |
|
(10,559) |
|
(20,137) |
|
(53,108) |
|
(34,789) |
|
Transaction costs |
707 |
|
— |
|
— |
|
(33,131) |
|
— |
|
Exploration |
(2,498) |
|
(5,897) |
|
(2,384) |
|
(10,813) |
|
(24,133) |
|
Care and maintenance |
(14,256) |
|
(541) |
|
(6,570) |
|
(23,716) |
|
(952) |
|
Rehabilitation costs |
(32,626) |
|
— |
|
(2,448 |
|
(35,074) |
|
— |
|
Earnings from operations |
319,550 |
|
238,647 |
|
306,177 |
|
849,564 |
|
556,384 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance and other items |
|
|
|
|
|
|
|
|
|
|
Other income (loss), net |
(23,453) |
|
13,850 |
|
(80,164) |
|
(31,412) |
|
6,349 |
|
Finance income |
1,524 |
|
2,198 |
|
1,119 |
|
5,239 |
|
4,993 |
|
Finance
costs |
(2,305) |
|
(576) |
|
(1,850) |
|
(8,268) |
|
(1,586) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income
taxes |
295,316 |
|
254,119 |
|
225,282 |
|
815,123 |
|
566,140 |
|
Current income tax
expense |
(66,097) |
|
(50,946) |
|
(59,020) |
|
(195,247) |
|
(127,158) |
|
Deferred income tax expense |
(27,197) |
|
(26,569) |
|
(16,030) |
|
(64,744) |
|
(48,037) |
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
$202,022 |
|
$176,604 |
|
$150,232 |
|
$555,132 |
|
$390,945 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$0.73 |
|
$0.84 |
|
$0.54 |
|
$2.06 |
|
$1.86 |
|
Diluted
earnings per share |
$0.73 |
|
$0.83 |
|
$0.54 |
|
$2.05 |
|
$1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (in
000's) |
|
|
|
|
|
|
|
|
|
|
Basic |
275,280 |
|
210,189 |
|
277,066 |
|
269,941 |
|
210,155 |
|
Diluted |
275,471 |
|
211,593 |
|
277,265 |
|
270,146 |
|
211,730 |
|
|
(1) |
General and
administrative expense for Q3 2020 (Q3 2019 and Q2 2020) include
general and administrative expenses of $11.2 million ($7.9 million
and $12.5 million) and share based payment expense of $9.2 million
($2.7 million and $7.7 million). |
Revenue
Revenue in Q3 2020 totalled $632.8 million, an
increase of $251.4 million, or 66% from $381.4 million in Q3 2019.
Detour Lake contributed $262.5 million to the Company's revenue in
Q3 2020, the impact of which was only partially offset by the loss
of revenue from Holt Complex due the suspension of operations
effective April 2, 2020. Holt Complex contributed $39.7 million of
revenue in Q3 2019. Of the growth in revenue versus Q3 2019, $141
million related to a $425 per ounce or 29% increase in the average
realized price, to $1,907 per ounce from $1,482 per ounce in Q3
2019, while $112 million of the increase was due to a 30% increase
in sales volumes (331,959 ounces in Q3 2020 versus 256,276 ounces
in Q3 2019). The increase in gold sales reflected sales from Detour
Lake in Q3 2020 of 137,632 ounces, which more than offset the
impact of the suspension of operations at Holt Complex effective
April 2, 2020, with Holt Complex having contributed 26,790 ounces
of sales in Q3 2019, as well as lower sales at Fosterville and
Macassa compared to the same period in 2019. Gold sales at
Fosterville totalled 154,739 ounces versus 166,903 ounces in Q3
2019, while sales at Macassa totalled 39,588 ounces compared to
62,583 ounces a year earlier.
Revenue in Q3 2020 was $51.8 million or 9%
higher than $581.0 million the previous quarter. The increase
reflected a $63 million favourable impact from an 11% increase in
the average realized gold price(1), from $1,716 per ounce in Q2
2020, which more than offset a $16.0 million reduction in revenue
resulting from lower gold sales (331,959 ounce versus 341,390
ounces the previous quarter). Gold sales at Detour Lake were
largely unchanged from 136,182 in Q2 2020, with sales at
Fosterville and Macassa for the previous quarter were 157,251
ounces and 44,328 ounces, respectively. There were no gold sales
from Holt Complex in Q3 2020 versus sales of 3,629 ounces the
previous quarter.
Revenue in YTD 2020 totalled $1,768.6 million,
an increase of $801.0 million or 83% from $967.6 million in YTD
2019. Of the growth in revenue, $435 million related to a 45%
increase in gold sales, to 1,017,935 ounces, while $366 million
resulted from a 359 or 26% increase in the averaged realized gold
price(1), to $1,734 per ounce from $1,375 per ounce for YTD 2019.
The increase in sales mainly reflected the contribution from Detour
Lake since the mine’s acquisition on January 31, 2020, with sales
totalling 384,270 ounces for the eight months ended September 30,
2020 resulting in revenue of 674,903 million. In addition, sales at
Fosterville increased 8%, to 465,742 ounces, reflecting the
favourable impact of higher tonnes processed on production levels.
These factors more than offset lower sales from the Holt Complex
due to operations being suspended effective April 2, 2020 (33,242
ounces of sale for YTD 2020 versus 83,966 ounces for YTD 2019), as
well as a reduction in sales at Macassa, to 134,681 ounces from
184,898 for YTD 2019, reflecting lower production levels, largely
due to reduced operations during Q2 2020, as well as the ongoing
impact of health and safety protocols, including those related to
COVID-19, and lower workforce and equipment availability in Q3 2020
resulting from excess heat in the mine during the summer
months.
Net Earnings and Adjusted Net
Earnings(1)
Net Earnings and Earnings Per Share
Net earnings in Q3 2020 totalled $202.0 million
($0.73 per share) compared to $176.6 million ($0.84 per share) in
Q3 2019 and $150.2 million ($0.54 per share) the previous quarter.
A 66% increase in revenue, reflecting both a higher realized gold
price and increased sales volumes, was the primary driver of net
earnings growth compared to Q3 2019, with lower expensed
exploration and evaluation costs also contributing to the
year-over-year increase. The reduction in exploration expenditures
reflected the ongoing ramp up of drilling following disruptions to
the Company’s exploration programs in Q2 2020 due to the Company’s
COVID-19 response, including the suspension of all non-essential
work, as well as a greater proportion of exploration and evaluation
expenditures being capitalized as opposed to expensed.
Partially offsetting these favourable factors
contributing to earnings growth were the impact of higher
production costs and depletion and depreciation expense, both of
which mainly reflected the inclusion of Detour Lake in the
Company’s results effective January 31, 2020. Other factors
reducing net earnings compared to Q3 2019 were the impact of
foreign exchange losses in Q3 2020, included in Other loss, due to
a strengthening of the Canadian and Australian dollars against the
US dollar, which compared to foreign exchange gains in Q3 2019;
higher royalty expense, mainly reflecting a new 2.75% royalty
introduced by the Victorian Government on revenue from Fosterville
effective January 1, 2020; higher care and maintenance expense,
including $8.1 million of restructuring and severance costs mainly
related to the continued suspension of operations at Holt Complex;
and increased corporate G&A costs reflecting the Company’s
continued growth. In addition, Q3 2020 net earnings were reduced by
a $32.6 million increase in environmental remediation provisions,
included in rehabilitation costs, related to the Company’s Northern
Territory assets. During Q3 2020, the Company commenced work on a
three-year water rehabilitation program in the Northern Territory
intended to address legacy environmental issues caused by prior
owners of the assets, with a focus on water issues involving the
Cosmo Pit and Howley Streak.
The reduction in net earnings per share in Q3
2020 compared to Q3 2019 reflected a higher level of average shares
outstanding in Q3 2020 versus Q3 2019 (275.3 million shares in Q3
2020 versus 210.2 million shares in Q3 2019) due to the issuance of
shares in Q1 2020 related to the acquisition of Detour Gold,
partially offset by the impact of share repurchases through the
Company’s NCIB since the end of Q3 2019.
Q3 2020 net earnings of $202.0 million ($0.73
per share) increased 34% from $150.2 million ($0.54 per share) the
previous quarter. The increase from Q2 2020 resulted from a 9%
increase revenue, as the impact of a higher average gold price more
than offset a reduction in gold sales, significantly lower foreign
exchanges losses in Q3 2020 versus the previous quarter ($23.6
million in Q3 2020 versus $72.8 million in Q2 2020) as well as a
lower average tax rate (31.6% in Q3 2020 versus 33.3% in Q2 2020),
slightly lower production costs and the impact of $13.4 million of
COVID-19 related costs on Q2 2020 net earnings. Partially
offsetting these factors was the $32.6 million increase in
environmental remediation provisions in Q3 2020, increased care and
maintenance expense, reflecting higher restructuring and severance
costs in Q3 2020, and higher royalty expense.
Net earnings for YTD 2020 totalled $555.1
million ($2.06 per basic share), an increase of $164.2 million or
42% from $390.9 million ($1.86 per basic share) for YTD 2019. The
increase in net earnings compared to YTD 2019 mainly reflected 83%
increase in revenue due to both increased sales volumes and a
higher realized gold price, as well as lower expensed exploration
and evaluation costs. These factors were partially offset by higher
production costs, depletion and depreciation expense and royalty
costs, the impact of foreign exchange losses for YTD 2020 versus
foreign exchange gains in YTD 2019, the $32.6 million increase in
environmental remediation provisions in Q3 2020, transactions costs
in YTD 2020 mainly related to the Detour Gold acquisition, costs
related to the Company’s COVID-19 response, higher care and
maintenance expense, including restructuring and severance costs
related to the suspension of operations at Holt Complex and in the
Northern Territory, increased Corporate G&A expense and a
higher effective rate (31.9% for YTD 2020 versus 30.9% for the same
period in 2019).
In addition, there was an unfavourable impact on
net earnings per share year over year by an increase in average
shares outstanding, to 269.9 million in YTD 2020 from 210.2 million
for the same period in 2019, reflecting the issuance of 77,217,129
shares as consideration for the acquisition of Detour Gold on
January 31, 2020, partially offset by the impact of share
repurchases through the Company’s NCIB.
Adjusted Net Earnings(1)
Adjusted net earnings(1) totalled $249.3 million
($0.91 per share) in Q3 2020, an increase of 49% from $167.5
million ($0.80 per share) in Q3 2019 and $219.3 ($0.79 per share)
in Q2 2020. As with net earnings, the key driver of growth in
adjusted net earnings compared to both prior periods was higher
revenue, with revenue in Q3 2020 increasing 66% from Q3 2019 and 9%
from the previous quarter. The difference between net earnings and
adjusted net earnings(1) in Q3 2020 mainly related to the exclusion
from adjusted net earnings(1) of the $32.6 million pre-tax ($22.8
million after tax) increase in environmental remediation
provisions; $23.6 million ($18.0 million after tax) of foreign
exchange losses, as well as the $8.1 million ($5.6 million after
tax) of restructuring and severance costs mainly at the Holt
Complex, included in care and maintenance expense. The difference
between net earnings and adjusted net earnings(1) in Q3 2019 mainly
reflected the exclusion from adjusted net earnings(1) of foreign
exchange gains of $13.7 million ($9.1 million after tax), while the
difference between net earnings and adjusted net earnings(1) in Q2
2020 related to the exclusion from adjusted net earnings(1) of the
$72.8 million ($56.3 million after tax) of foreign exchange losses,
$13.4 million ($9.2 million after tax) of costs related to the
Company’s COVID-19 response, and $5.3 million ($3.7 million after
tax) of restructuring costs, mainly resulting from the suspension
of business activities in the Northern Territory.
Adjusted net earnings(1) for YTD 2020 totalled
$647.8 million ($2.40 per share), an increase of $256.7 million or
66% from $391.1 ($1.86 per share) for the same period in 2019, with
an 83% increase in revenue, reflecting both an increase in the
average realized gold price and higher sales volumes, mainly
accounting for the growth in adjusted net earnings. The difference
between net earnings and adjusted net earnings(1) for YTD 2020
related to the exclusion from adjusted net earnings(1) of the $33.8
million ($24.9 million after tax) of transaction costs, the $32.6
million ($22.8 million after tax) of environmental remediation
provisions in Q3 2020, $23.5 million ($21.9 million after tax) of
foreign exchange losses, $14.2 million ($9.8 million after tax) of
COVID-19 related costs and $17.2 million ($11.9 million after tax)
of restructuring and severance costs related to the Holt Complex
and Northern Territory assets. The difference between net earnings
and adjusted net earnings for YTD 2019 mainly related to the
exclusion from adjusted net earnings(1) of foreign exchange gains
of $7.1 million ($3.2 million after tax) and $2.3 million ($1.6
million after tax) related to purchase price allocation adjustments
on inventory.
Cash and Cash Flows
The Company’s cash balance totalled $848.5
million at September 30, 2020 compared to cash of $537.4 million at
June 30, 2020. Contributing to the change in cash was net cash
provided by operating activities of $431.1 million, which compared
to net cash provided by operating activities of $316.8 million in
Q3 2019 and $222.2 million the previous quarter. The increase from
both prior periods largely reflected strong cash generation by the
Company’s operations. Also contributing to the change in net cash
from operating activities compared to the previous quarter was a
$132.6 million tax payment made in Australia in Q2 2020
representing the final instalment payment related to the 2019 tax
year. Net cash from investing activities in Q3 2020 totalled $25.1
million, as additions to mining interests and plant and equipment
totalling $175.4 million were more than offset the receipt of
$107.7 million (C$143.2 million) of proceeds from the sale of the
Company’s 32.6 million shares of Osisko and $75.0 million received
from Newmont through a strategic alliance agreement. The Company
earned a significant return on its investment in Osisko, with the
sale of the Osisko shares resulting in a realized gain of $60.6
million, which was recognized through other comprehensive income
during the quarter, consistent with the historical unrealized
mark-to-market adjustments relating to the investment. Contributing
to the $145.7 million of net cash used for financing activities in
Q3 2020 was 107.4 million (C$143.0 million) of cash used to
repurchase 2,139,300 common shares through the Company’s NCIB and
$34.5 million used for the quarterly dividend payment of US$0.125
per share paid on July 13, 2020 to shareholders of record as of the
close of business on June 30, 2020.
The Company’s cash balance of $848.5 million at
September 30, 2020 compared to cash of $707.2 million at December
31, 2019. For YTD 2020, net cash provided from operating activities
totalled $894.9 million. Excluding the impact of $60.5 million of
transaction and restructuring costs in Q1 2020, mainly related to
the Detour Gold acquisition, as well as the $132.6 million tax
instalment payment in Australia related to the 2019 tax year, net
cash provided by operating activities totalled $1,088.0 million,
which compared to $672.3 million in YTD 2019. The $42.6 million of
cash used for investing activities mainly related to capital
expenditures in the first nine months of 2020, largely offset by
$173.9 million of cash acquired as part of the Detour Gold
acquisition, as well as the $109.1 million (C$145.2 million) of
proceeds from the sale of Osisko shares and $75.0 million received
from Newmont related to the new strategic alliance agreement
between the two companies. Cash used from financing activities for
YTD 2020 totalled $710.3 million, with the largest component being
$487.2 million of cash used to repurchase 13,198,400 shares through
the Company’s NCIB (total shares repurchased to November 4, 2020 of
14,029,500 shares for $526.6 million). Also contributing to cash
used for financing activities for YTD 2020 were $81.7 million for
dividend payments, $98.6 million to repay Detour Gold’s outstanding
debt during Q1 2020, $30.3 million to close out Detour Gold’s hedge
positions relating to forward gold sales as well as hedges on
currencies and diesel fuel and $11.1 million for the payment of
lease obligations.
Free Cash Flow(1)
Free cash flow(1) in Q3 2020 totalled $275.7
million, which compared to free cash flow(1) of $181.3 million in
Q3 2019 and $94.1 million the previous quarter. Free cash flow(1)
in Q2 2020 was impacted by the $132.6 million tax payment made in
Australia as the final instalment for the 2019 tax year. Excluding
the impact of this payment, the Company generated free cash flow(1)
of $226.7 million during the previous quarter. On a year-to-date
basis, free cash flow(1) in YTD 2020 totalled $500.6 million, or
$693.7 million excluding the $132.6 million tax instalment payment
in Q2 2020 as well as the $60.5 million of transaction and
restructuring costs in Q1 2020. Of the Company’s free cash flow(1)
for YTD 2020, $231.0 million was provided by Detour Lake from
January 31, 2020 to September 30, 2020 (excludes transaction and
restructuring costs related to the Detour Gold acquisition),
accounting for approximately 33% of the $693.7 million of total
free cash flow for YTD 2020, excluding the $132.6 million tax
instalment payment and transaction and restructuring costs.
|
(1) |
The Review of
Financial and Operating Performance section includes a number of
Non-IFRS measures. The definition and reconciliation of these
Non-IFRS measures are included on pages 34-40 of the MD&A for
the three and nine months ended September 30, 2020. |
REVIEW OF OPERATING MINES
Macassa Mine
Production at Macassa in Q3 2020 totaled 38,028
ounces compared to production of 62,945 ounces in Q3 2019 and
41,865 ounces the previous quarter. Production in Q3 2020 resulted
from processing 78,526 tonnes at an average grade of 15.4 g/t and
average recoveries of 97.8%, which compared to 85,834 tonnes
processed in Q3 2019 at an average grade of 23.3 g/t and average
recoveries of 97.8% and 77,624 tonnes at an average grade of 17.2
g/t and average recoveries of 97.6% in Q2 2020. The change in
production from Q3 2019 largely reflected both lower than expected
average grades and tonnes processed in Q3 2020. Production at
Macassa was impacted by reduced workforce productivity and
equipment availability largely related to excessive heat in the
mine caused by record temperatures in Kirkland Lake, as well as
ongoing health and safety protocols as part of the Company’s
COVID-19 response. These factors contributed to disruptions to
operating development performance and lower than planned mining
rates. Mining during the quarter focused on the most accessible
areas, which were largely the lower-grade stopes planned for the
quarter.
Production costs in Q3 2020 totalled $26.0
million versus $26.6 million in Q3 2019 and $24.4 million the
previous quarter (excluding $3.3 million related to the Company’s
COVID-19 response). Operating cash costs per ounce sold(1) averaged
$648 in Q3 2020 versus $425 in Q3 2019 and $547 in Q2 2020. The
increase in operating cash costs per ounce sold(1) compared to both
prior periods largely reflected a lower average grade and reduced
gold sales in Q3 2020 (39,588 ounces versus sales of 62,583 ounces
in Q3 2019 and 44,328 ounces the previous quarter). AISC per ounce
sold(1) averaged $1,081 in Q3 2020 compared to $689 in Q3 2019 and
$841 in Q2 2020. As with operating cash costs per ounce sold(1),
the increase in AISC per ounce sold(1) from both prior periods was
largely driven by the impact of a lower average grade on sales
volumes. In dollar terms, AISC(1) in Q3 2020 declined compared to
Q3 2019 ($42.8 million versus $43.1 million a year earlier), while
an increase in AISC(1) from the previous quarter was mainly due to
higher sustaining capital expenditures(1). Sustaining capital
expenditures(1) totalled $14.1 million ($357 per ounce sold) in Q3
2020 versus $13.2 million ($211 per ounce sold) in Q3 2019 and
$10.5 million ($236 per ounce sold) the previous quarter. The $5.3
million increase in sustaining capital expenditures(1) compared to
Q2 2020 was largely due to lower than planned sustaining capital
expenditures(1) the previous quarter when the mine was on reduced
operations as part of the Company’s COVID-19 response.
Production at Macassa in YTD 2020 totalled
130,754 ounces, which resulted from processing 238,406 tonnes at an
average grade of 17.5 g/t and at average recoveries of 97.7%. YTD
2020 production compared to production of 184,918 ounces for YTD
2019, which resulted from processing 236,505 tonnes at an average
grade of 24.8 g/t and at average recoveries of 98.0%. YTD 2020
production was below expected levels largely due to the impact of
reduced operations during Q2 2020 and ongoing health and safety
protocols, as well as the impact on workforce productivity and
equipment availability caused by excess heat in the mine during Q3
2020. These factors contributed to both lower than planned mining
rates and average grades on a year-to-date basis.
Production costs for YTD 2020 totalled $$76.8
(excluding $3.3 million related to the Company’s COVID-19 response)
versus $73.6 million for YTD 2019. Operating cash costs per ounce
sold(1) averaged $573 compared to $397 for the same period in 2019
with the increase largely reflecting lower sales volumes due to the
impact of COVID-19 and a reduction in the average grade. AISC per
ounce sold(1) averaged $915 for YTD 2020 versus $687 a year
earlier. The change from YTD 2019 resulted from the impact of a
lower average grade on sales volumes and higher cash operating
cost(1). Sustaining capital(1) expenditures totalled $39.0 million
($290 per ounce sold) in YTD 2020 versus $45.3 million ($245 per
ounce sold) in YTD 2019 with the reduction largely related to
reduced operations during Q2 2020.
Growth projects: Growth capital(1) expenditures
at Macassa for YTD 2020 totalled $33.2 million ($11.5 million in Q3
2020). Of total growth expenditures for YTD 2020, $27.1 million
related to the #4 shaft project. During Q3 2020, the shaft advanced
740 feet and had reached a depth of 3,366 feet as of September 30,
2020. On May 6, 2020, the Company announced that, based on progress
to date and the results of a review of the #4 shaft project earlier
in the year, the project scope and schedule for the #4 Shaft was
revised. The project is now expected to be completed in one phase,
to a depth of 6,400 feet, with project completion targeted for late
2022, over one year sooner than the initial project schedule. The
capital cost for the project is under review and is expected to be
less than the existing estimate of $320 million.
Detour Lake Mine
Production at Detour Lake in Q3 2020 totaled
140,067 ounces, which involved processing 5,898,694 tonnes at an
average grade of 0.81 g/t at average recoveries of 90.7%.
Production in Q3 2020 compared to production in Q2 2020 of 131,992
ounces which resulted from processing 5,655,992 tonnes at an
average grade of 0.79 g/t and average recoveries of 91.7%. The
increase in production quarter over quarter largely resulted from
higher processing volumes reflecting an increase in mining rates
during Q3 2020, as well as higher average grades, with a greater
proportion of mill feed in Q3 2020 coming from mine production
versus low-grade stockpiles. In Q2 2020, the mine processed more
stockpiled material during reduced operations as part of the
Company’s COVID-19 response.
Production costs at Detour Lake Mine in Q3 2020
totalled $87.4 million. Operating cash costs per ounce sold(1)
averaged $634 in Q3 2020, which compared to $573 the previous
quarter with the increase largely reflecting significantly higher
tonnes mined, which totaled 6,783,000 tonnes versus tonnes milled
for the quarter of 5,898,694 tonnes, the impact of reduced deferred
stripping and increased maintenance and procurement costs as the
mine ramped up following reduced operations in Q2 2020. AISC per
ounce sold(1) averaged $1,259 versus $1,090 the previous quarter
reflecting higher operating costs and increased sustaining capital
expenditures(1). During Q3 2020, sustaining capital expenditures(1)
at Detour Lake totalled $80.7 million or $586 per ounce, which
compared to sustaining capital expenditures(1) of $65.8 million or
$483 per ounce sold the previous quarter, with the increase in Q3
2020 mainly reflecting the ramp up of capital projects and
equipment procurement, which had been impacted by reduced
operations related to the Company’s COVID-19 response in Q2
2020.Production at Detour Lake for the eight months ended September
30, 2020 totaled 363,614 ounces, which resulted from processing
15,262,708 tonnes at an average grade of 0.81 g/t with average
recoveries of 91.1%. Production costs for the eight months ended
September 30th totalled $253.2 million, excluding $7.7 million of
COVID-19 related costs. Operating cash costs per ounce sold(1)
averaged $630 per ounce sold, while AISC per ounce sold(1) averaged
$1,156. The mine’s sustaining capital expenditures(1) totalled
$188.8 million ($491 per ounce sold).
Growth projects: Growth capital(1) expenditures
at Detour Lake for both Q3 2020 and YTD 2020, excluding capitalized
exploration, totalled $11.8 million. Growth capital expenditures
mainly related to the procurement of mobile equipment and stripping
in support of future production growth. Growth capital expenditures
are expected to increase in Q4 2020 as the mine continues to invest
in mobile equipment and advance a number of projects initiated
since the Company’s acquisition of Detour Gold.
Holt Mine Complex
On February 19, 2020, the Company designated the
Holt Complex as a non-core asset with plans to review options for
maximizing value. In mid-March, the Company placed the Holloway
Mine on care and maintenance, with no plans for a future resumption
of operations. Effective April 2, 2020, the Company suspended
operations at the Taylor Mine and Holt Mine and Mill as part of the
Company’s response to the COVID-19 pandemic while the Company
continued the strategic review of the Holt Complex assets involving
the consideration of all options for the maximizing of value.
On July 16, 2020, the Company announced that the
suspension of operations at the Holt Complex was being extended
until further notice. Care and maintenance expense in Q3 2020 for
Holt Complex totalled $10.9 million, including $8.0 million of
restructuring and severance costs (YTD 2020 care and maintenance
expense of $13.8 million). No production was recorded from the Holt
Complex during Q3 2020, with only 807 ounces being recorded the
previous quarter. During Q3 2019, a total of 27,128 ounces was
produced from processing 214,542 tonnes at an average grade of 4.2
g/t and average recoveries of 94.2%. Production costs in Q3 2019
totalled $27.8 million, while operating cash costs per ounce
sold(1) averaged $1,037 and AISC per ounce sold(1) averaged $1,543.
Sustaining capital(1) expenditures during Q3 2019 were $11.2
million ($419 per ounce sold).
For YTD 2020, Holt Complex produced 29,391
ounces, almost all of which was in Q1 2020, which compared to
production of 82,483 ounces for YTD 2019. Production costs for YTD
2020 totalled $33.6 million (excluding $2.4 million of
COVD-19-related costs) versus $79.7 million for YTD 2019. Operating
cash costs per ounce sold(1) averaged $1,000 in YTD 2020 versus
$948 per ounce for YTD 2019, while AISC per ounce sold(1) averaged
$1,407 compared to $1,365 for the first nine months of 2019.
Sustaining capital expenditures(1) for YTD 2020 totalled $9.1
million ($274 per ounce sold) versus $29.0 million ($345 per ounce
sold) for YTD 2019.
Fosterville Mine
The Fosterville Mine produced 161,489 ounces in
Q3 2020 based on processing 167,533 tonnes at an average grade of
30.3 g/t and average mill recoveries of 99.0%. Q3 2020 production
increased from 158,327 ounces in Q3 2019, when the mine processed
119,412 tonnes at an average grade of 41.8 g/t and average
recoveries of 98.6%. Q3 2020 production compared to production of
155,106 ounces the previous quarter when the mine processed 123,473
tonnes at an average grade of 39.5 g/t and at average recoveries of
99.0%. The increase in production from both prior periods reflected
higher tonnes processed, which more than offset the impact of a
reduction in the average grade. Higher tonnes processed resulted
from increased mining rates for the quarter in both Lower Phoenix
and Harrier as the mine benefited from recent investments in
improved ventilation and paste fill. The reduction in the average
grade reflected a lower proportion of total mined tonnes coming
from the Swan Zone versus other, lower-grade, areas of the
mine.Production costs were $22.0 million (excluding $0.7 million of
COVID-19 related costs) in Q3 2020 versus 19,243 million in Q3 2019
and $20.3 million the previous quarter. Operating cash costs per
ounce sold(1) averaged 142, compared to operating cash costs per
ounce sold(1) of $115 in Q3 2019 and $129 the previous quarter. The
change compared to both prior periods mainly reflected a lower
average grade in Q3 2020, as well as the impact of increased mining
rates. AISC per ounce sold(1) averaged $349 versus $289 in Q3 2019
and $273 in Q2 2020. The change from Q3 2019 largely reflected the
impact of a new 2.75% royalty introduced by the Victorian
Government effective January 1, 2020. The new royalty contributed
$8.0 million or $52 per ounce sold to AISC per ounce sold(1) in Q3
2020 ($6.9 million or $44 per ounce sold in Q2 2020). Excluding the
impact of the new royalty, AISC per ounce sold in Q3 2020 averaged
$297 per ounce, similar to the Q3 2019 level as higher operating
cash costs were largely offset by lower levels of sustaining
capital expenditures(1), reflecting reduced costs for mobile
equipment procurement and ground support related to capital
development versus the same period in 2019. Compared to the
previous quarter, higher AISC per ounce sold(1) resulted from the
increase in operating costs per ounce as well as higher royalty
expense. In addition, sustaining capital expenditures were
significantly higher in Q3 2020 versus the prior quarter, mainly
reflecting disruptions to capital development and other projects in
Q2 2020 as part of the Company’s COVID-19 response. Sustaining
capital expenditures(1) in Q3 2020 totalled $18.1 million ($117 per
ounce sold) versus $23.8 million ($143 per ounce sold) in Q3 2019,
and $10.8 million ($69 per ounce sold) in Q2 2020.
Production at Fosterville for YTD 2020 totaled
476,459 ounces, an 11% increase from 427,472 ounces for YTD 2019.
YTD 2020 production resulted from processing 409,708 tonnes at an
average grade of 36.6 g/t and average recoveries of 99.0%. The
increase from YTD 2019 was mainly due to a 10% increase in tonnes
processed, reflecting mine sequencing opportunities and the use of
paste fill in the stoping cycle.
Production costs were $61.2 million (excluding
$0.7 million of COVID related costs) for YTD 2020 versus $56.6
million for the same period in 2019. Operating cash costs per ounce
sold(1) and AISC per ounce sold(1) for YTD 2020 of $132 and $311,
respectively, were similar to the prior year levels of $126 and
$306, respectively. Contributing to AISC per ounce sold(1) for YTD
2020 were increased royalty payments of $22.0 million or $47 per
ounce sold resulting from the new 2.75% royalty introduced by the
Victorian Government effective January 1, 2020. Excluding the
impact of the new royalty, AISC per ounce sold(1) for YTD 2020
improved 14% from the YTD 2019 level, mainly due to lower
sustaining capital expenditures(1) during YTD 2020. Sustaining
capital expenditures(1) for YTD 2020 totalled $45.0 million ($97
per ounce sold) versus $65.7 million ($152 per ounce sold) for YTD
2019, with the reduction in YTD 2020 largely due to disruptions
resulting from the Company’s COVID-19 protocols, including the
suspension of project work and reduced capital development during
Q2 2020.
Growth projects: Growth capital(1) expenditures
at Fosterville for YTD 2020, excluding capitalized exploration
totalled $14.6 million ($5.0 million in Q3 2020). Work during the
first nine months of the year focused mainly on construction of a
new transformer station, new gold room/refinery and Aster Plant
(tailings effluent remediation plant), as well as completion of a
ventilation system during Q2 2020.
Northern Territory
On February 19, 2020, the Company announced that
the Northern Territory assets had been designated as non-core with
the Company planning to consider strategic options for maximizing
the value of these assets. In March 2020, the Company announced the
suspension of test mining and processing in the Northern Territory
and also the suspension of exploration activities. The decision
reflected results of the test production to date, as well as other
priorities within the Company. Care and maintenance expense for the
Company’s Northern Territory assets totalled $3.3 million in Q3
2020 and $10.0 million for YTD 2020, including $2.8 million of
restructuring and severance costs recorded in Q2 2020). $0.7
million exploration expenditures were recorded in Q3 2020 ($18.0
million for YTD 2020). Consistent with the Company’s commitment to
effective environmental management, a three-year, $60 – $65 million
water rehabilitation program was launched in the Northern Territory
during Q3 2020, which resulted in a $32.6 million increase in the
environmental remediation provisions being recorded during the
quarter. The program, which is intended to address environmental
issues caused by prior owners of the assets, involves managing the
Howley Streak waste dumps, rehabilitation of dams and treatment of
site water inventory. The objective of the program involves
restoring approximately 360ha to grazing land quality, removing
waste rock dumps and filling existing open pits.
|
(1) |
The Review of
Operating Mines section includes a number of Non-IFRS measures. The
definition and reconciliation of these Non-IFRS measures are
included on pages 34-40 of the MD&A for the three and nine
months ended September 30, 2020. |
PERFORMANCE AGAINST
GUIDANCE
On April 1, 2020, the Company withdrew its 2020
guidance, which had originally been released on December 18, 2019
and was updated on February 19, 2020 to reflect the acquisition of
Detour Gold. The Company’s 2020 guidance was withdrawn due to
uncertainties related to the COVID-19 pandemic. On May 6, 2020, the
Company also withdrew its three-year production guidance while it
assessed the long-term effects of COVID-19 and while it works to
incorporate Detour Lake into the Company’s long-term business
plans.
On June 30, 2020, the Company re-issued guidance
for 2020 recognizing the progress achieved in ramping up business
activities that had been impacted by the Company’s COVID-19
response. Included among the re-issued guidance was production of
1,350,000 – 1,400,000 ounces, approximately 90% of the withdrawn
2020 production guidance, as well as improved unit costs, lower
expected sustaining capital expenditures(1) and higher target
growth capital expenditures(1) resulting from new growth projects
at Detour Lake Mine. Changes from previous guidance were largely
driven by the removal of production, unit cost and expenditure
guidance for the Holt Complex as of April 2, 2020, the date that
operations were suspended at the Complex. The Holt Complex’s
results to April 2, 2020 are included in the Company’s re-issued
2020 guidance. The re-issued 2020 consolidated guidance was
maintained with no changes as of November 4, 2020.
Full-Year 2020 Guidance
($ millions unless otherwise stated) |
Macassa |
Detour Lake |
Holt Complex |
Fosterville |
Consolidated |
Gold production (kozs) |
210 – 220 |
520 – 540 |
29 |
590 – 610 |
1,350 - 1,400 |
Operating cash costs/ounce sold
($/oz)(1)(2) |
$490 - $510 |
$610 - $630 |
$955 |
$130 - $150 |
$410 - $430 |
AISC/ounce sold ($/oz)(1)(2) |
|
|
|
|
$790 - $810 |
Operating cash costs
($M)(1)(2) |
|
|
|
|
$560 - $580 |
Royalty costs ($M) |
|
|
|
|
$80 - $85 |
Sustaining capital ($M)(1) |
|
|
|
|
$390 - $400 |
Growth capital ($M)(1)(3) |
|
|
|
|
$95 - $105 |
Exploration ($M)(4)(5) |
|
|
|
|
$130 - $150 |
Corporate G&A ($M)(6) |
|
|
|
|
$50 - $55 |
|
(1) |
See “Non-IFRS Measures” set out starting on page 34 of the MD&A
for the three and nine months ended September 30, 2020 for further
details. The most comparable IFRS Measure for operating cash costs,
operating cash costs per ounce sold and AISC per ounce sold is
production costs, as presented in the Consolidated Statements of
Operations and Comprehensive Income, and total additions and
construction in progress for sustaining and growth capital.
Operating cash costs, operating cash cost per ounce sold and AISC
per ounce sold reflect an average US$ to C$ exchange rate of 1.35
and a US$ to A$ exchange rate of 1.47. |
|
(2) |
COVID-19
related costs of $14.2 million for YTD 2020 are excluded from
operating cash costs, AISC and capital expenditures in re-issued
2020 guidance. Capital expenditures exclude capitalized
depreciation. |
|
(3) |
Exploration expenditures include capital expenditures related to
infill drilling for Mineral Resource conversion, capital
expenditures for extension drilling outside of existing Mineral
Resources and expensed exploration. Also includes capital
expenditures for the development of exploration drifts. |
|
(4) |
Re-issued
exploration expenditure guidance includes $18.0 million related the
Northern Territory assets (no production, costs or expenditures
related to the Northern Territory were included in the previous
2020 guidance). |
|
(5) |
Includes
general and administrative costs and severance payments. Excludes
share-based payment expense. |
YTD 2020 Results
($ millions unless otherwise stated) |
Macassa |
Detour Lake |
Holt Complex |
Fosterville |
Consolidated |
Gold production (ozs) |
130,754 |
363,614 |
29,391 |
476,459 |
1,000,218 |
Operating cash costs/ounce sold
($/oz)(1)(2) |
$573 |
$630 |
$1,000 |
$132 |
$407 |
AISC/ounce sold ($/oz)(1)(2) |
|
|
|
|
$804 |
Operating cash costs
($M)(1)(2) |
|
|
|
|
$414.1 |
Royalty costs ($M) |
|
|
|
|
$62.0 |
Sustaining capital ($M)(1) |
|
|
|
|
$286.5 |
Growth capital ($M)(1)(3) |
|
|
|
|
$59.4 |
Exploration ($M)(4)(5) |
|
|
|
|
$87.0 |
Corporate G&A ($M)(6) |
|
|
|
|
$38.7 |
|
(1) |
See “Non-IFRS Measures” set out starting on page 34 of the
MD&A for the three and nine months ended September 30, 2020 for
further details. The most comparable IFRS Measure for operating
cash costs, operating cash costs per ounce sold and AISC per ounce
sold is production costs, as presented in the Consolidated
Statements of Operations and Comprehensive Income, and total
additions and construction in progress for sustaining and growth
capital. Operating cash costs, operating cash cost per ounce sold
and AISC per ounce sold reflect an average US$ to C$ exchange rate
of 1.35 and a US$ to A$ exchange rate of 1.48. |
|
(2) |
COVID-19 related costs of $14.2 million for YTD 2020 are
excluded from operating cash costs, AISC and capital expenditures
in re-issued 2020 guidance. |
|
(3) |
Capital expenditures exclude capitalized depreciation. |
|
(4) |
Exploration expenditures include capital expenditures related
to infill drilling for Mineral Resource conversion, capital
expenditures for extension drilling outside of existing Mineral
Resources and expensed exploration. Also includes capital
expenditures for the development of exploration drifts. |
|
(5) |
Exploration expenditures includes $18.0 million related the
Northern Territory assets (no production, costs or expenditures
related to the Northern Territory were included in the previous
2020 guidance). |
|
(6) |
Includes
general and administrative costs and severance payments. Excludes
share-based payment expense. |
Gold production for YTD 2020 totalled 1,000,218
ounces, representing 73% of the mid-range of the Company’s
re-issued 2020 production guidance. Entering the final quarter of
the year, the Company was well positioned to achieve the re-issued
full-year consolidated 2020 guidance of 1,350,000 - 1,400,000
ounces. At Fosterville, YTD 2020 production of 476,459 ounces
increased 11% from the same period in 2019 and, together with
anticipated results for the final quarter of the year, has
positioned the mine to beat the re-issued guidance for the year of
590,000 – 610,000 ounces. Production at Detour Lake Mine for the
eight months from January 31, 2020 to September 30, 2020 totaled
363,614 ounces, with the mine continuing to target full-year 2020
production of 520,000 – 540,000 ounces. At Macassa, production for
YTD 2020 totaled 130,754 ounces, which compared to 184,918 ounces
for YTD 2019 and re-issued guidance of 210,000 – 220,000 ounces.
Based on results to the end of Q3 2020, Macassa is not expected to
achieve the guidance range of 210,000 – 220,000 ounces.
Production costs for YTD 2020
totalled $439.0 million. Operating cash costs(1) for the first nine
months of the year totalled $414.1 million, in line with target
levels.
Operating cash costs per ounce
sold(1) for YTD 2020 averaged $407, better than the
re-issued full-year 2020 guidance of $410 - $430. Entering the
final quarter of 2020, both Fosterville and Detour Lake were
tracking well against re-issued full-year guidance. Fosterville’s
operating cash costs per ounce sold(1) for YTD 2020 averaged $132,
which compared favourably to full-year guidance of $130 – $150. At
Detour Lake, operating cash costs per ounce sold(1) averaged $630
in YTD 2020, in line with guidance of $610 – $630. Macassa’s
operating cash costs per ounce sold(1) averaged $573 versus
guidance of $490 – $510. While operating cash costs per ounce
sold(1) at Macassa are expected to improve in Q4 2020, the mine is
not expected to achieve the re-issued guidance range.
AISC per ounce sold(1) for YTD
2020 averaged $804, in line with full-year 2020 guidance of $790 -
$810.
Royalty costs for YTD 2020
totalled $62.0 million, in line with the Company’s re-issued
guidance of $80 – $85 million.
Sustaining capital
expenditures(1) for YTD 2020 totalled $286.5 million,
excluding capitalized depreciation, which compared to full-year
2020 guidance of $390 – $400 million. The level of sustaining
capital expenditures(1) increased in Q3 2020 as capital project
work increased following disruptions caused by the Company’s
COVID-19 response in Q2 2020, which included the suspension of a
number of projects and reduced work in areas such as capital
development. Sustaining capital expenditures(1) in 2020 are now
expected to be in line with the re-issued full-year guidance
range.
Growth capital
expenditures(1) totalled $59.4 million for YTD
2020 (excluding capitalized exploration), which compared to
re-issued full-year 2020 guidance of $95 – $105 million. Of total
growth capital expenditures(1) for YTD 2020, Macassa accounted for
$33.2 million, with $27.1 million relating to the #4 Shaft project.
Growth capital expenditures(1) at Fosterville totalled $14.6
million, mainly related to construction of a new transformer
station, new gold room/refinery and Aster Plant, as well as
completion of a ventilation system during Q2 2020. The remaining
$11.8 million of growth capital expenditures(1) for YTD 2020 were
at Detour Lake and related largely to the procurement of mobile
equipment. Growth capital expenditures(1) are expected to increase
during the final quarter of 2020, reflecting increased capital
expenditures at Detour Lake, and are expected to end the year in
line with the re-issued 2020 guidance range.
Exploration and evaluation
expenditures for YTD 2020 totalled $87.0 million (including
capitalized exploration), which compared to re-issued full-year
2020 guidance of $130 - $150 million. The Company’s exploration
programs during YTD 2020 were suspended near the end of March as
part of its COVID-19 response. The resumption of work on
exploration programs commenced in April with the ramp up of
drilling activities extending through the end of the third quarter
of 2020. Extensive drilling is being completed during Q4 2020, with
total exploration expenditures for the full-year expected to be in
line with the low end of the re-issued full-year guidance
range.
Corporate G&A expense for
YTD 2020 totalled $38.7 million, in line with re-issued full-year
2020 guidance of $50 – $55 million.
|
(1) |
The Performance Against Guidance section includes a number of
Non-IFRS measures. The definition and reconciliation of these
Non-IFRS measures are included on pages 34-40 of the MD&A for
the three and nine months ended September 30, 2020. |
Q3 2020 Financial Results and Conference
Call Details
A conference call to discuss the Q3 2020 results
will be held by senior management today, Thursday, November 5,
2020, at 2:00 pm ET. Call-in information is provided below. The
call will also be webcast and accessible on the Company’s website
at www.kl.gold.
Date: |
THURSDAY, NOVEMBER 5, 2020 |
Conference ID: |
2455249 |
Time: |
2:00 pm ET |
Toll-free number: |
(833) 968-2183 |
International callers: |
+1 2363892444 |
Webcast URL: |
https://event.on24.com/wcc/r/2625946/6061671128AADCFAB0DB0EBBA0177472 |
Qualified Persons
The technical contents related to Kirkland Lake
Gold Ltd. mines and properties, have been reviewed and approved by
Natasha Vaz, P.Eng., Senior Vice President, Technical Services and
Innovation and Eric Kallio, P.Geo, Senior Vice President,
Exploration. Ms. Vaz and Mr. Kallio are “qualified persons” as
defined in National Instrument 43-101 and have reviewed and
approved disclosure of the technical information and data in this
press release.
About Kirkland Lake Gold Ltd.
Kirkland Lake Gold Ltd. is a growing gold
producer operating in Canada and Australia that produced 974,615
ounces in 2019. The production profile of the Company is anchored
by three high-quality operations, including the Macassa Mine and
Detour Lake Mine, both located in Northern Ontario, and the
Fosterville Mine located in the state of Victoria, Australia.
Kirkland Lake Gold's solid base of quality assets is complemented
by district scale exploration potential, supported by a strong
financial position with extensive management expertise.
For further information on Kirkland Lake Gold
and to receive news releases by email, visit the website at
www.kl.gold.
Non-IFRS Measures
The Company has included certain non-IFRS
measures in this document, as discussed below. The Company believes
that these measures, in addition to conventional measures prepared
in accordance with IFRS, provide investors an improved ability to
evaluate the underlying performance of the Company. The non-IFRS
measures are intended to provide additional information and should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. These measures do not
have any standardized meaning prescribed under IFRS, and therefore
may not be comparable to other issuers.
Free Cash Flow and Adjusted Free Cash Flow
In the gold mining industry, free cash flow is a
common performance measure with no standardized meaning. The
Company calculates free cash flow by deducting cash capital
spending (capital expenditures for the period, net of expenditures
paid through finance leases) from net cash provided by operating
activities.
The Company discloses free cash flow as it
believes the measure provides valuable assistance to investors and
analysts in evaluating the Company’s ability to generate cash flow
after capital investments and build the cash resources of the
Company. The Company also discloses and calculates adjusted free
cash flow by excluding items from free cash flow. The most directly
comparable measure prepared in accordance with IFRS is net cash
provided by operating activities less net cash used in investing
activities.
Operating Cash Costs and Operating Cash Costs
per Ounce Sold
Operating cash costs and operating cash cost per
tonne and per ounce sold are non-IFRS measures. In the gold mining
industry, these metrics are common performance measures but do not
have any standardized meaning under IFRS. Operating cash costs
include mine site operating costs such as mining, processing and
administration, but exclude royalty expenses, depreciation and
depletion and share based payment expenses and reclamation costs.
Operating cash cost per ounce sold is based on ounces sold and is
calculated by dividing operating cash costs by volume of gold
ounces sold.
The Company discloses operating cash costs and
operating cash cost per tonne and per ounce as it believes the
measures provide valuable assistance to investors and analysts in
evaluating the Company’s operational performance and ability to
generate cash flow. The most directly comparable measure prepared
in accordance with IFRS is total production expenses. Operating
cash costs and operating cash cost per ounce of gold should not be
considered in isolation or as a substitute for measures prepared in
accordance with IFRS.
Sustaining and Growth Capital
Sustaining capital and growth capital are
Non-IFRS measures. Sustaining capital is defined as capital
required to maintain current operations at existing levels. Growth
capital is defined as capital expenditures for major growth
projects or enhancement capital for significant infrastructure
improvements at existing operations. Both measurements are used by
management to assess the effectiveness of investment programs.
AISC and AISC per Ounce Sold
AISC and AISC per ounce are Non-IFRS measures.
These measures are intended to assist readers in evaluating the
total costs of producing gold from current operations. While there
is no standardized meaning across the industry for this measure,
the Company’s definition conforms to the definition of AISC as set
out by the World Gold Council in its guidance note dated June 27,
2013.
The Company defines AISC as the sum of operating
costs (as defined and calculated above), royalty expenses,
sustaining capital, corporate expenses and reclamation cost
accretion related to current operations. Corporate expenses include
general and administrative expenses, net of transaction related
costs, severance expenses for management changes and interest
income. AISC excludes growth capital expenditures, growth
exploration expenditures, reclamation cost accretion not related to
current operations, interest expense, debt repayment and taxes.
Average Realized Price per Ounce Sold
In the gold mining industry, average realized
price per ounce sold is a common performance measure that does not
have any standardized meaning. The most directly comparable measure
prepared in accordance with IFRS is revenue from gold sales.
Average realized price per ounce sold should not be considered in
isolation or as a substitute for measures prepared in accordance
with IFRS. The measure is intended to assist readers in evaluating
the total revenues realized in a period from current
operations.
Adjusted Net Earnings and Adjusted Net Earnings
per Share
Adjusted net earnings and adjusted net earnings
per share are used by management and investors to measure the
underlying operating performance of the Company.
Adjusted net earnings is defined as net earnings
adjusted to exclude the after-tax impact of specific items that are
significant, but not reflective of the underlying operations of the
Company, including foreign exchange gains and losses, transaction
costs and executive severance payments, purchase price adjustments
reflected in inventory and other items. Adjusted net earnings per
share is calculated using the weighted average number of shares
outstanding for adjusted net earnings per share.
Earnings before Interest, Taxes, Depreciation,
and Amortization (“EBITDA”)
EBITDA represents net earnings before interest,
taxes, depreciation and amortization. EBITDA is an indicator of the
Company’s ability to generate liquidity by producing operating cash
flow to fund working capital needs, service debt obligations, and
fund capital expenditures.
Working Capital
Working capital is a Non-IFRS measure. In the
gold mining industry, working capital is a common measure of
liquidity, but does not have any standardized meaning.
The most directly comparable measure prepared in
accordance with IFRS is current assets and current liabilities.
Working capital is calculated by deducting current liabilities from
current assets. Working capital should not be considered in
isolation or as a substitute from measures prepared in accordance
with IFRS. The measure is intended to assist readers in evaluating
the Company’s liquidity.
Risks and Uncertainties
The exploration, development and mining of
mineral deposits involves significant risks, which even a
combination of careful evaluation, experience and knowledge may not
eliminate. Kirkland Lake Gold is subject to several financial and
operational risks that could have a significant impact on its cash
flows and profitability. The most significant risks and
uncertainties faced by the Company include: the price of gold; the
uncertainty of production estimates (which assume accuracy of
projected grade, recovery rates, and tonnage estimates and may be
impacted by unscheduled maintenance, labour and other operating,
engineering or technical difficulties with respect to the
development of its projects, many of which may not be within the
control of the Company), including the ability to extract
anticipated tonnes and successfully realizing estimated grades; the
threat of outbreaks of viruses or other infectious disease,
including COVID-19; changes to operating and capital cost
assumptions; the inherent risk associated with project development
and permitting processes; the uncertainty of the mineral resources
and their development into mineral reserves; the replacement of
depleted reserves; foreign exchange risks; changes in applicable
laws and regulations (including tax legislation); reclamation
obligations; regulatory; tax matters and foreign mining tax
regimes, as well as health, safety, environmental and cybersecurity
risks. For more extensive discussion on risks and uncertainties
refer to the “Risks and Uncertainties” section in the December 31,
2019 Annual Information Form and the Company’s MD&A for the
period ended December 31, 2019 filed on SEDAR.
Cautionary Note Regarding
Forward-Looking Statements
Certain statements in this press release
constitute ‘forward looking statements’, including statements
regarding the plans, intentions, beliefs and current expectations
of the Company with respect to the future business activities and
operating performance of the Company. The words “may”, “would”,
“could”, “will”, “intend”, “plan”, “anticipate”, “believe”,
“estimate”, “expect” and similar expressions, as they relate to the
Company, are intended to identify such forward-looking statements.
Investors are cautioned that forward-looking statements are based
on the opinions, assumptions and estimates of management considered
reasonable at the date the statements are made, and are inherently
subject to a variety of risks and uncertainties and other known and
unknown factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements.
These factors include, among others, the development of the
Company’s properties and the anticipated timing thereof, expected
production from, and the further potential of the Company’s
properties, the potential to increase the levels of mineral
resources and mineral reserves and potential conversion of mineral
resources; the anticipated timing and commencement of exploration
programs on various targets within the Company’s land holdings and
the implication of such exploration programs (including but not
limited to any potential decisions to proceed to commercial
production), the anticipated overall impact of the Company’s
COVID19 response plans, including measures taken by the Company to
reduce the spread of COVID19, including but not limited to the
rapid testing implemented at Detour Lake, the ability to lower
costs and gradually increase production, the ability of the Company
to successfully achieve business objectives, the ability of the
Company to achieve its longer-term outlook and the anticipated
timing and results thereof, the performance of the Company’s equity
investments and the ability of the Company to realize on its
strategic goals with respect to such investments, the effects of
unexpected costs, liabilities or delays, the potential benefits and
synergies and expectations of other economic, business and or
competitive factors, including the ability of the Company to
realize on certain planned synergies associated with the
acquisition of Detour Gold Corporation, the Company's expectations
in connection with the projects and exploration programs being met,
the impact of general business and economic conditions, global
liquidity and credit availability on the timing of cash flows and
the values of assets and liabilities based on projected future
conditions, fluctuating gold prices, currency exchange rates (such
as the Canadian dollar versus the US dollar), mark-to-market
derivative variances, possible variations in ore grade or recovery
rates, changes in accounting policies, changes in the Company's
corporate mineral resources, changes in project parameters as plans
continue to be refined, changes in project development,
construction, production and commissioning time frames, the
possibility of project cost overruns or unanticipated costs and
expenses, higher prices for fuel, power, labour and other
consumables contributing to higher costs and general risks of the
mining industry, failure of plant, equipment or processes to
operate as anticipated, unexpected changes in mine life,
seasonality and unanticipated weather changes, costs and timing of
the development of new deposits, success of exploration activities,
permitting time lines, risks related to information technology and
cybersecurity, timing and costs associated with the design,
procurement and construction of the Company’s various capital
projects, including but not limited to potential future impacts and
effects of COVID19, including but not limited to potential future
delays and unanticipated suspension or interruption of operations,
the #4 Shaft project at the Macassa Mine, the ventilation, paste
plant, transformer and water treatment facility at the Fosterville
Mine, the ability to obtain all necessary permits associated with
the Detour Lake mine, the ability to obtain the necessary permits
in connection with all of its various capital projects, including
but not limited to the rehabilitation of the Macassa tailings
facility and the development of a new tailings facility and the
anticipated results associated therewith, the West Detour project,
processing plant expansion at the Detour Lake Mine, the ability to
obtain renewals of certain exploration licences in Australia,
native and aboriginal heritage issues, including but not limited to
ongoing negotiations and consultations with the Company’s First
Nations partners, risks relating to infrastructure, permitting and
licenses, exploration and mining licences, government regulation of
the mining industry, risks relating to foreign operations,
uncertainty in the estimation and realization of mineral resources
and mineral reserves, quality and marketability of mineral product,
environmental regulation and reclamation obligations, including but
not limited to risks associated with reclamation and closure
obligations relating to the Northern Territory projects, risks
relating to the Northern Territory wet season, risks relating to
litigation and unanticipated costs to assume the defence of such
litigation, risks relating to applicable tax and potential
reassessments thereon, risks relating to changes to tax law and
regulations and the Company's interpretation thereof, foreign
mining tax regimes and the potential impact of any changes to such
foreign tax regimes, competition, currency fluctuations, government
regulation of mining operations, environmental risks, unanticipated
reclamation expenses, title disputes or claims, and limitations on
insurance, as well as those risk factors discussed or referred to
in the AIF of the Company for the year ended December 31, 2019
filed with the securities regulatory authorities in certain
provinces of Canada and available at www.sedar.com. Should one or
more of these risks or uncertainties materialize, or should
assumptions underlying the forward-looking statements prove
incorrect, actual results may vary materially from those described
herein as intended, planned, anticipated, believed, estimated or
expected. Although the Company has attempted to identify important
risks, uncertainties and factors which could cause actual results
to differ materially, there may be others that cause results not be
as anticipated, estimated or intended. The Company does not intend,
and does not assume any obligation, to update these forward-looking
statements except as otherwise required by applicable law.
Mineral resources are not mineral reserves, and
do not have demonstrated economic viability, but do have reasonable
prospects for eventual economic extraction. Measured and indicated
resources are sufficiently well defined to allow geological and
grade continuity to be reasonably assumed and permit the
application of technical and economic parameters in assessing the
economic viability of the resource. Inferred resources are
estimated on limited information not sufficient to verify
geological and grade continuity or to allow technical and economic
parameters to be applied. Inferred resources are too speculative
geologically to have economic considerations applied to them to
enable them to be categorized as mineral reserves. There is no
certainty that Measured or Indicated mineral resources can be
upgraded to mineral reserves through continued exploration and
positive economic assessment.
Information Concerning Estimates Of
Mineral Reserves And Measured, Indicated And Inferred
Resources
This press release has been prepared in
accordance with the requirements of the securities laws in effect
in Canada, which differ from the requirements of United States
securities laws. The terms “mineral reserve”, “proven mineral
reserve” and “probable mineral reserve” are Canadian mining terms
as defined in accordance with Canadian National Instrument
43-101-Standards of Disclosure for Mineral Projects (“NI 43-101”)
and the Canadian Institute of Mining, Metallurgy and Petroleum (the
“CIM”)-CIM Definition Standards on Mineral Resources and Mineral
Reserves, adopted by the CIM Council, as amended. These definitions
differ from the definitions in SEC Industry Guide 7 under the
United States Securities Act of 1993, as amended (the “Securities
Act”).
Under SEC Industry Guide 7 standards, a “final”
or “bankable” feasibility study is required to report reserves, the
three-year historical average price is used in any reserve or cash
flow analysis to designate reserves and the primary environmental
analysis or report must be filed with the appropriate governmental
authority.
In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and
“inferred mineral resource” are defined in and required to be
disclosed by NI 43-101; however, these terms are not defined terms
under SEC Industry Guide 7 and are normally not permitted to be
used in reports and registration statements filed with the SEC.
Investors are cautioned not to assume that any part or all of
mineral deposits in these categories will ever be converted into
reserves. “Inferred mineral resources” have a great amount of
uncertainty as to their existence, and great uncertainty as to
their economic and legal feasibility. It cannot be assumed that all
or any part of an inferred mineral resource will ever be upgraded
to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or
pre-feasibility studies, except in rare cases. Investors are
cautioned not to assume that all or any part of an inferred mineral
resource exists or is economically or legally mineable. Disclosure
of “contained ounces” in a resource is permitted disclosure under
Canadian regulations; however, the SEC normally only permits
issuers to report mineralization that does not constitute
“reserves” by SEC Industry Guide 7 standards as in place tonnage
and grade without reference to unit measures.
Accordingly, information contained in this
Management’s Discussion and Analysis contain descriptions of our
mineral deposits that may not be comparable to similar information
made public by U.S. companies subject to the reporting and
disclosure requirements under the United States federal securities
laws and the rules and regulations thereunder.
This document uses the terms “Measured”,
“Indicated” and “Inferred” Resources. US investors are advised that
while such terms are recognized and required by Canadian
regulations, the U.S. Securities and Exchange Commission does not
recognize them. “Inferred Mineral Resources” have a great amount of
uncertainty as to their existence, and as to their economic and
legal feasibility. It cannot be assumed that all or any part of an
Inferred Mineral Resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of Inferred Mineral
Resources may not form the basis of pre-feasibility, feasibility or
other economic studies. U.S. investors are cautioned not to assume
that all or any part of Measured or Indicated Mineral Resources
will ever be converted into Mineral Reserves. U.S. investors are
also cautioned not to assume that all or any part of an Inferred
Mineral Resource exists, or is economically or legally
mineable.
FOR FURTHER INFORMATION PLEASE
CONTACT
Anthony Makuch, President, Chief Executive
Officer & DirectorPhone: +1 416-840-7884E-mail:
tmakuch@kl.gold
Mark Utting, Senior Vice President, Investor Relations Phone: +1
416-840-7884 E-mail: mutting@kl.gold
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