Despite operating in a tough environment some gold mining stocks have actually managed to shine. Take Kirkland Lake Gold Inc. (TSX: KGI), for example. Its stock price has powered 64% higher so far in 2015 to its current price of $5.47, handily surpassing the TSX Gold Mining index’s 10.7% gain.
Much Kirkland Lake’s share price performance of late can likely be attributed to one man: Eric Sprott. On January 26, 2015, Kirkland Lake Gold announced the appointment of the founder of Sprott Asset Management as the company’s next Chairman. At the time of the release. Mr. Sprott held 11.3% of Kirkland Lake Gold’s issued and outstanding common stock, valued at more than $40 million based on the company’s stock price as of April 9, 2015.
The announcement came just days after Mr. Sprott said he would be relinquishing his portfolio managing duties at Sprott Asset Management and a little more than a year after he announced that he was stepping back from day-to-day management activities in the company. He remains Chairman of the firm that he founded.
Eric Sprott, the one-time billionaire who has likely seen his net worth shrink with the sharp fall in the precious metals market, could have assumed a similar position at almost any other gold mining company. So the fact that he chose Kirkland Lake Gold is a real validation of the company’s future prospects.
Kirkland Lake Gold owns the Macassa Mine and Mill and four contiguous formerly producing gold mining properties in northern Ontario. Macassa has one the highest reserve grades of any gold mine in the world at 17.1 grams per tonne (g/t).
Although the company’s all-in cash cost per ounce produced fell 18% in 2014 compared to the previous fiscal year it still stood at US$1,986 at year’s end, well above the current gold price of US$1200. Year to date (YTD) 2015, however, its all-in cash cost per ounce slid to US$1,153, which allowed the company to generate net income of $4.2 million for the third-quarter and $11.9 million YTD.
Kirkland Lake Gold also recently increased its production guidance for fiscal 2015 from 140,000- 155,000 ounces to 153,000-157,000.
Falling gold prices has resulted in the company operating at a loss for the past two years. In November 2013, Kirkland Lake Gold adopted a new strategy in which it would mine closer to historic reserve grades in order to become profitable and cash flow positive. The downside to this method is that it reduces the overall economics of a mining project. The company, then, must continue to spend money on exploration in hopes of replacing that high-grade resource. To that end, Kirkland Lake Gold owns five former producing gold mines with historic production of approximately 22 million ounces (at an average head grade of 15.1 g/t) in which it can conducted further drilling.
The company currently has about 80 million shares outstanding with $76.6 million in cash. Kirkland Lake Gold was also the top component company performer for the most recent month in the Ubika Gold 20 index, which has a history of outperforming both the TSX Mining and Gold Mining index as well as the gold price itself.
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