Kirkland Lake Gold Ltd. (TSX: KL) is a Canada-based company which operates in gold mining, development and exploration and has a diversified portfolio of exploration projects.

Key Highlights:

• Increase in Dividend Payment amidst turbulent times: The company paid a higher dividend to its shareholders of USD 150.3 million in 9MFY21, significantly higher than USD 81.7 million in pcp. This is impressive as most of the companies are lowering its dividend payment in order to retain its liquidity.
  

• Debt-free balance sheet: The company operates in the development and exploration of minerals, which is capital intensive in nature. Meanwhile, the company has prudent capital management and has financed its projects from its equity base and cash flows, which is encouraging. Notably, the company is a virtually debt-free entity which is a key positive and indicates greater financial flexibility.

• Strong production from Detour Lake project: The group reported higher production of 501,844 ounces in 9MFY21 versus 363,614 ounces in pcp (eight months). The performance was supported by a 19% improvement in the average grade and a 17% increase in tonnes processed. Notably, KL acquired Detour Lake during January 2020, and since then, Detour has contributed strongly to the overall production.
  

Risks: Volatility in the Gold prices would dampen the company’s overall realization prices and would impact the company’s margins and cash flows. 

 Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• KL announced its quarterly results, wherein the group posted revenue of USD 666.9 million, higher than USD 632.8 million in the previous corresponding period (pcp). The growth was aided by higher gold sales of 372,100 oz, as compared to 331,959 oz in pcp.
• The company witnessed higher production costs and increase in depletion and depreciation costs. Earnings from operations stood at USD 370.9 million, lower than USD 388.6 million in pcp.
• The quarter was marked by a lower General and administrative costs, and a slide in Care and maintenance costs coupled with significantly lower rehabilitation costs. This was partially offset by higher exploration costs of USD 7.9 million, as compared to USD 2.4 million in pcp. Earnings from operations stood higher at USD 339.8 million, as compared to USD 319.5 million in pcp.
• Net earnings stood higher at USD 254.9 million, as compared to USD 202.0 million in pcp.
  

 Valuation Methodolgy(Illustrative) : Price to CF

Analysis by Kalkine Group

Stock Recommendation:

The company reported higher EBITDA margin and operating margin of 69.8% and 51%, respectively, in Q3FY21, as compared to the industry median of 41.4% and 27%, respectively. Moreover, the company’s net margin stood at 38.2%, which is significantly higher than the industry median of 12.9%, respectively. This indicates higher operational efficiency. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Alamos Gold Inc, Yamana Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of KL at closing price of CAD 50.24 on January 24, 2022.

One-Year Technical Price Chart (as on January 24, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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