Kirkland Lake Gold Ltd (TSX: KL) is a Canada-based gold mining, development and exploration company holding diversified portfolio of assets, located in the stable mining jurisdictions of Canada and Australia. The Company’s primary gold mines are, the Macassa Mine located in northeastern Ontario, Detour Lake mines in Northern Ontario and the Fosterville Gold Mine located in Victoria, Australia. 

Key Highlights

• Strong production growth in Q2 2021: In Q2 2021, the firm declared output of 379,195 ounces, up 15% from Q2 2020 and 25% from the prior quarter. Production significantly surpassed estimates of 330,000 – 360,000 ounces. The beneficial impact of continuing grade outperformance and adjustments to mine sequencing at Fosterville was primarily responsible for the increase in output. Furthermore, the business is on pace to meet its FY2021 forecast of 1,300–1,400 ounces.
• Increase in free cash flows: Free cash flow stood at USD 131.2 million in Q2 2021, a 39% increase from USD 94 million in Q2 2020 and more than triple the USD 42.7 million of free cash flow in Q1 2021. Strong growth in net cash provided by operating activities, higher production and increase in average realization price of the metal helped the company to clock this free cash flow.

• Industry Beating Margins: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q2 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this.

• Zero debt balance sheet: The Company's business model is so strong that they generate enough cash from its operating activities and hardly require any debt; this is commendable. As a result, Debt/Equity Ratio of the Company stands at 0.00%. This picture reflects significant financial strength which provides flexibility to support its growth plans.
  

Financial overview of Q2 2021 (In thousands on USD)

Source: Company

• In Q2 2021 the company reported a jump in revenue to USD 662.7 million, an increase of USD 81.2 million or 14% compared to USD 580.9 million in the previous corresponding period, primarily due to higher realized metal prices and increased sales volumes.
• Earnings from operations increased to USD 337.6 million in Q2 2021 compared to USD 306.1 million in pcp. The increase was primarily due to higher realized metal prices partially offset by higher exploration expenses incurred in the reported period.
• The company reported net earnings in Q2 2021 stood at USD 244.1 million compared to USD 150.2 million in the previous corresponding period. Increase in revenue, reflecting both a higher realized gold price and increased sales volumes, was the primary driver of net earnings growth.
  

Risks associated with investment

The company’s financial performance is mostly dependent on the price of gold, which directly affects the company’s profitability, margins and cash flows. The price of gold is subject to volatility, affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply etc. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

We are bullish on the gold prices and believe that despite a little pullback, gold, as an asset class would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. With a robust financial position, the company expects to generate further free flows as it has re-affirmed production guidance of 1,300-1,400 ounces for FY2021. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 48.21 on August 26, 2021. We have considered Wesdome Gold Mines Ltd, Barrick Gold Corp, Agnico Eagle Mines Ltd etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 26, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.