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
second quarter (“Q2 2020”) and first six months of 2020 (“YTD
2020”). The Q2 2020 results include strong growth in production,
revenue, earnings and cash flow despite disruptions caused by the
Company’s COVD-19 response. 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.
Key Developments Impacting Q2
2020:
- Detour Gold acquisition: Completed acquisition
of Detour Gold on January 31, 2020, adding a third cornerstone
asset; First full quarter of results from Detour Lake in Q2 2020
(two months of results in Q1 2020)
- COVID-19 response: Implemented extensive
health and safety protocols to protect workers from COVID-19 virus;
Transitioned Detour Lake and Macassa mines to reduced operations,
suspended operations at Holt Complex, suspended all non-essential
work company-wide; Company commenced recall of workers at Detour
Lake and Macassa in early May with workforces reaching pre-COVID
levels by end of Q2 2020
- Company re-issues full-year 2020 guidance:
Full-year 2020 guidance was re-issued on June 30, 2020 recognizing
progress achieved in ramping up business activities after impact of
COVID-19 measures; Previous full-year 2020 guidance was withdrawn
on April 1, 2020 based on uncertainties related to COVID-19 virus
and Company’s extensive response to the pandemic
- Non-core assets: On February 19, 2020, the
Company designated its assets in the Northern Territory and the
Holt Complex as non-core. In March, the Company discontinued test
mining and processing and all exploration work in the Northern
Territory with no plans to resume operations; Also in March, the
Company placed the Holloway Mine, part of the Holt Complex, on care
and maintenance; Effective April 2, 2020, the Company suspended
operations at the remainder of the Holt Complex as part of its
COVID-19 response and while it conducted a strategic review of the
assets, these operations remained suspended throughout Q2 2020; On
July 16, 2020 the Company announced that the suspension of
operations at Holt Complex will be extended until further notice,
with over 220 workers being reassigned to new roles in the
Company’s Canadian operations or being offered new roles and
declining to pursue other opportunities; Workers not reassigned to
receive severance packages.
Highlights of Q2 2020
Performance
- Adjusted net earnings of $0.79 per
share: Net earnings in Q2 2020 totalled $150.2
million ($0.54 per share); Adjusted net earnings1 in Q2 2020
totalled $219.3 million ($0.79 per share), double Q2 2019 level of
$109.8 million ($0.52 per share) and 22% higher than $179.2 million
($0.70 per share) the previous quarter
- Revenue more than doubles: Revenue totalled
$581.0 million, 107% increase from $281.3 million in Q2 2019 and 5%
higher than $554.7 million the previous quarter (revenue from
Detour Lake of $233.0 million in Q2 2020, $179.4 million in Q1
2020, nil in Q2 2019); Gold sales totalled 341,390 ounces, 61%
increase from 212,091 ounces in Q2 2019 and similar to 344,586
ounces in Q1 2020; Average realized gold price of $1,716 per ounce
versus $1,320 per ounce in Q2 2019 and $1,586 per ounce in Q1
2020
- EBITDA1,2 increases 67%: EBITDA totalled
$309.7 million, 67% increase from $185.8 million in Q2 2019 and
compared to $391.5 million the previous quarter
- Strong cash flow generation: Net cash provided
by operating activities of $222.2 million and free cash flow of
$94.1 million; Excluding impact of $132.6 million tax payment made
in Australia in Q2 2020 as final tax instalment for 2019 tax year,
net cash provided by operating activities totalled $354.8 million,
with free cash flow totalling $226.7 million; Detour Lake generated
$89.0 million of free cash flow in Q2 2020 (excluding transaction
and restructuring costs related to acquisition)
- Significant financial strength: Cash at June
30, 2020 totalled $537.4 million with no debt
- 1,345,600 million shares repurchased (11,059,100 shares
repurchased YTD): 1,345,600 shares repurchased in Q2 2020
for $49.9 million, with total YTD 2020 repurchases of 11,059,100
shares for $379.8 million
- Quarterly dividend doubled: Q1 2020 dividend
doubled to US$0.125 per share, paid on April 13, 2020 to
shareholders of record on March 31, 2020 (Q2 2020 dividend of
US$0.125 per share paid on July 13, 2020 to shareholders of record
on June 30, 2020)
- Progress with key growth projects despite
COVID-19: Growth capital expenditures, excluding
capitalized exploration expenditures, totalled $9.4 million, of
which $7.7 million related to Macassa #4 Shaft project; Macassa #4
Shaft advanced 617 feet during Q2 2020 despite suspension of work
for approximately one month due to COVID-19, with shaft reaching
depth of 2,577 feet as at June 30, 2020
- Significant exploration success: Total
exploration expenditures totalled $25.0 million, including $2.4
million of expensed expenditures and $22.6 million of capitalized
expenditures; Significant exploration success achieved in Q2 2020
despite disruptions caused by COVID-19, including identification of
new corridor of high-grade mineralization at Macassa near #4 Shaft
location and intersection of mineralization with attractive grades
at multiple locations at Detour Lake outside of existing Mineral
Resources
- Solid operating results:
- Production of 329,770 ounces, 54% increase
from 214,593 ounces in Q2 2019 and similar to 330,864 ounces the
previous quarter (131,992 ounces from Detour Lake in Q2 2020,
91,555 ounces in Q1 2020)
- Production costs totalled $141.4 million
($55.6 million excluding Detour Lake) versus $66.2 million in Q2
2019 and $161.6 million ($73.8 million excluding Detour Lake) the
previous quarter
- Operating cash costs per ounce1 averaged $374
($241 excluding Detour Lake) compared to $312 in Q2 2019 and $440
in Q1 2020 ($319 excluding Detour Lake)
- All-in sustaining costs (“AISC”) per ounce
sold1 averaged $751 ($526 excluding Detour Lake) versus
$638 in Q2 2019 and $776 ($619 excluding Detour Lake) in Q1
2020.
Highlights of YTD 2020 Results Include:
- Solid growth in net earnings: Net earnings
totalled $353.1 million ($1.32 per share), 65% increase from $214.3
million ($1.02 per share) for first six months of 2019 (“YTD
2019”)
- Adjusted net earnings1 increase 78%: Adjusted
net income totalled $398.5 million ($1.49 per share), 78% higher
than $223.6 million ($1.06 per share) for YTD 2019
- Strong cash flow generation: Net cash provided
by operating activities of $463.7 million with free cash flow1
totalling $224.9 million; Excluding impact of $60.5 million of
non-recurring transaction and restructuring costs mainly related to
the Detour Gold acquisition in Q1 2020 and a $132.6 million tax
payment made in Australia as final tax instalment for the 2019 tax
year, net cash provided by operating activities totalled $656.9
million with free cash flow1 of $418.1 million, which compared to
net cash provided by operating activities of $355.5 million and
free cash flow1 of $148.9 million in YTD 2019 (Detour Lake
contributed $167.0 million of YTD 2020 free cash
flow1 excluding transaction and restructuring costs related to
the Detour Gold acquisition)
- Revenue close to double YTD 2019 level:
Revenue for YTD 2020 totalled $1,135.7 million, 94% growth from
$586.2 million for YTD 2019 (gold sales increased 54% to 685,976
ounces from 445,020 ounces for the same period in 2019)
- EBITDA1,2 increases 81%:
EBITDA1,2 totalled $701.2 million, 81% increase from $387.4 million
for YTD 2019
- Strong YTD 2020 operating results
- Production totalled 660,634 ounces, 48%
increase from 446,472 ounces for YTD 2019 (Detour Lake produced
223,547 ounces from January 31, 2020, date of acquisition, to June
30, 2020)
- Production costs totalled $303.0 million
($129.4 million excluding Detour Lake) versus $136.2 million for
YTD 2019
- Operating cash cost per ounce sold1 averaged
$407 ($283 excluding Detour Lake) compared to $301 for the
same period in 2019
- AISC per ounce sold1 averaged $763
($575 excluding Detour Lake) versus $597 for YTD 2019.
(1) See “Non-IFRS Measures” later in
this press release and starting on page 34 of the MD&A for the
three and six months ended June 30, 2020. (2) Refers to
Earnings before Interest, Taxes, Depreciation, and
Amortization.
Tony Makuch, President and Chief Executive
Officer of Kirkland Lake Gold, commented: “We achieved solid
results in Q2 2020 despite significant disruptions related to
COVID-19. Compared to last year’s second quarter, production
increased 54%, our adjusted net earnings doubled and we generated
strong free cash flow. Once again, Fosterville was a key
driver of our results, increasing production by 10% year over year
and generating AISC of $273 per ounce. With year-to-date production
of 314,970 ounces, Fosterville entered the second half of the year
well positioned to achieve its full-year 2020 guidance of 590,000 –
610,000 ounces. Detour Lake is already making a significant
contribution to our performance and to value creation. The mine
generated $89.0 million of free cash flow in Q2 2020, and $167.0
million from January 31, 2020 to June 30, 2020. We are expecting
even better results from Detour Lake in the second half of the
year, with the workforce back to pre-COVID levels and mining rates
ramping up, which should lead to improved grades. Detour Lake’s
performance has already exceeded our expectations and with the
current gold price environment, the timing of the Detour Gold
transaction could not have been better. At Macassa, there was a
significant impact in YTD 2020 from the move to reduced operations
and our COVID-19 protocols. Having said that, as with Detour Lake,
workforce levels at Macassa are now back to normal levels and we
are positioned for stronger results in the second half of 2020,
from both higher tonnes processed and improved average
grades.
“Turning to exploration, despite extensive
disruptions caused by COVID-19, we are having a successful year in
terms of exploration results. In April, we announced encouraging
drill results at Macassa, including the identification of a new,
large corridor of high-grade mineralization along the Main/’04
Break close to the location of our #4 Shaft. The corridor is at
depth on the Kirkland Mineral property, where there is very little
previous drilling, and is open both along strike and vertically. In
June, we announced that initial drill results at Detour Lake had
intersected mineralization with attractive grades outside of
existing Mineral Resources at three locations, west of the Main
Pit, at the 58 North zone and at the North pit location. The
potential to significantly grow Mineral Reserves at Detour Lake was
an important factor in our decision to acquire Detour Gold and the
June drill results are extremely encouraging in supporting our view
that there are many more ounces to be found at Detour Lake. At
Fosterville, we are making good progress ramping up our drilling
program, with exploration work targeting the Lower Phoenix, Cygnet,
Robbin’s Hill and Harrier systems. We expect to announce results to
the market in the near future.”
REVIEW OF FINANCIAL AND OPERATING
PERFORMANCE
Table 1. Financial and Operating
Highlights
(in thousands of dollars, except per share amounts) |
Three MonthsEnded June 30, 2020 |
Three MonthsEnded June 30, 2019 |
Three MonthsEnded March 31, 2020 |
Six Months Ended June 30, 2020 |
Six Months Ended June 30, 2019 |
Revenue |
$580,975 |
$281,267 |
$554,738 |
$1,135,713 |
$586,179 |
Production
costs |
141,415 |
66,161 |
161,592 |
303,007 |
136,201 |
Earnings
before income taxes |
225,282 |
152,432 |
294,525 |
519,807 |
312,021 |
Net
earnings |
$150,232 |
$104,195 |
$202,878 |
$353,110 |
$214,341 |
Basic
earnings per share |
$0.54 |
$0.50 |
$0.79 |
$1.32 |
$1.02 |
Diluted
earnings per share |
$0.54 |
$0.49 |
$0.77 |
$1.32 |
$1.01 |
Cash flow
from operating activities |
$222,234 |
$179,735 |
$241,506 |
$463,740 |
$355,537 |
Cash investment on mine development and PPE |
$128,155 |
$125,341 |
$110,637 |
$238,792 |
$206,655 |
|
Three Months Ended June 30, 2020 |
Three Months Ended June 30, 2019 |
Three Months Ended March 31, 2020 |
Six Months Ended June 30, 2020 |
Six Months Ended June 30, 2019 |
Tonnes
milled |
5,863,282 |
369,359 |
4,118,105 |
9,981,386 |
788,319 |
Average
Grade (g/t Au) |
1.8 |
18.4 |
2.6 |
2.1 |
18.0 |
Recovery
(%) |
95.8 % |
98.1 % |
95.9 % |
95.8 % |
98.0 % |
Gold
produced (oz) |
329,770 |
214,593 |
330,864 |
660,634 |
446,472 |
Gold Sold
(oz) |
341,390 |
212,091 |
344,586 |
685,976 |
445,020 |
Average
realized price ($/oz sold)(1) |
$1,716 |
$1,320 |
$1,586 |
$1,651 |
$1,313 |
Operating
cash costs per ounce ($/oz sold)(1) |
$374 |
$312 |
$440 |
$407 |
$301 |
AISC ($/oz
sold)(1) |
$751 |
$638 |
$776 |
$763 |
$597 |
Adjusted net
earnings(1) |
$219,345 |
$109,814 |
$179,169 |
$398,514 |
$223,578 |
Adjusted net
earnings per share(1) |
$0.79 |
$0.52 |
$0.70 |
$1.49 |
$1.06 |
Free cash flow(1) |
$94,079 |
$54,394 |
$130,869 |
$224,948 |
$148,882 |
(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 six months ended June 30, 2020.
Table 2. Review of Financial Performance
(in thousands except per share amounts) |
Three Months Ended June 30, 2020 |
Three Months Ended June 30, 2019 |
Three Months Ended March 31, 2020 |
Six Months Ended June 30, 2020 |
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
Revenue |
$580,975 |
$281,267 |
$554,738 |
$1,135,713 |
$586,179 |
Production costs |
(141,415) |
(66,161) |
(161,592) |
(303,007) |
(136,201) |
Royalty expense |
(19,258) |
(6,716) |
(21,249) |
(40,507) |
(15,000) |
Depletion and
depreciation |
(82,586) |
(33,064) |
(92,839) |
(175,425) |
(74,364) |
Earnings from mine operations |
337,716 |
175,326 |
279,058 |
616,774 |
360,614 |
|
|
|
|
|
|
Expenses |
|
|
|
|
|
General and
administrative(1) |
(20,137) |
(12,131) |
(12,562) |
(32,699) |
(24,230) |
Transaction costs |
0 |
— |
(33,838) |
(33,838) |
— |
Exploration |
(2,384) |
(6,214) |
(5,931) |
(8,315) |
(18,236) |
Care and maintenance |
(9,018) |
(215) |
(2,890) |
(11,908) |
(411) |
Earnings from operations |
306,177 |
156,766 |
223,837 |
530,014 |
317,737 |
|
|
|
|
|
|
Finance and other items |
|
|
|
|
|
Other income (loss), net |
(80,164) |
(5,384) |
72,205 |
(7,959) |
(7,501) |
Finance income |
1,119 |
1,357 |
2,596 |
3,715 |
2,795 |
Finance costs |
(1,850) |
(307) |
(4,113) |
(5,963) |
(1,010) |
|
|
|
|
|
|
Earnings before income
taxes |
225,282 |
152,432 |
294,525 |
519,807 |
312,021 |
Current income tax
expense |
(59,020) |
(35,291) |
(70,130) |
(129,150) |
(76,212) |
Deferred income tax
expense |
(16,030) |
(12,946) |
(21,517) |
(37,547) |
(21,468) |
|
|
|
|
|
|
Net earnings |
$150,232 |
$104,195 |
$202,878 |
$353,110 |
$214,341 |
|
|
|
|
|
|
Basic earnings per share |
$0.54 |
$0.50 |
$0.79 |
$1.32 |
$1.02 |
Diluted earnings per
share |
$0.54 |
$0.49 |
$0.77 |
$1.32 |
$1.01 |
|
|
|
|
|
|
Weighted average number of
common shares outstanding (in 000's) |
|
|
|
|
|
Basic |
277,066 |
210,088 |
257,418 |
267,242 |
210,138 |
Diluted |
277,265 |
211,664 |
258,360 |
267,453 |
211,795 |
(1) General and administrative expense for Q2 2020 (Q2
2019 and Q1 2020) include general and administrative expenses of
$12.5 million ($9.8 million and $15.0 million) and share based
payment expense (recovery) of $7.7 million ($2.4 million and
$(2.5) million).
Revenue
Revenue in Q2 2020 totalled $581.0 million, an
increase of $299.7 million, or 107% from Q2 2019, with Detour Lake
contributing $233.0 million of the increase. The addition of
revenue from Detour Lake more than offset the impact of suspending
operations at Holt Complex effective April 2, 2020, which resulted
in revenue at Holt Complex of only $4.6 million in Q2 2020 versus
$31.0 million for the same period in 2019. Of the growth in revenue
versus Q2 2019, $171 million related to a 61% increase in sales
volumes (341,390 ounces in Q2 2020 versus 212,091 ounces in Q2
2019), while $135 million reflected a $396 per ounce increase in
the average realized gold price1 ($1,716 per ounce in Q2 2020
versus $1,320 per ounce in Q2 2019). Revenue in Q2 2020 was $26.3
million or 5% higher than $554.7 million the previous quarter. The
increase reflected a $44 million favourable impact from an 8%
increase in the average realized gold price1, from $1,586 per ounce
in Q1 2020, which more than offset a $5.0 million reduction in
revenue resulting from slightly lower gold sales (341,390 ounces
versus 344,586 ounces the previous quarter). The reduction in gold
sales from Q1 2020 largely reflected the suspension of operations
at Holt Complex effective April 2, 2020, the impact of reduced
operations at Macassa on gold production and sales for the quarter,
as well as the sale in Q1 2020 of 20,855 ounces of gold that was
held in inventory at the closing of the Detour Gold acquisition on
January 31, 2020. These factors were partially offset by an
additional month of results at Detour in Q2 2020 versus the
previous quarter. Revenue at Detour Lake of $233.0 million in Q2
2020 increased from $179.4 million in Q1 2020, while revenue at
Holt Complex of $4.6 million in Q2 2020 compared to $47.4 million
the previous quarter.
For YTD 2020, revenue totalled $1,135.7 million,
an increase of $549.5 million or 94% from $586.2 million in YTD
2019. The increase in revenue from YTD 2019 reflected a 54%
increase in gold sales, to 685,976 ounces, which had a $316 million
favourable impact on revenue compared to YTD 2019. The average
realized gold price1 in YTD 2020 was $1,651 per ounce, a $338 or
26% increase from $1,313 per ounce in YTD 2019. The increase in the
average realized gold price1 contributed $232 million of the
revenue growth in YTD 2020 versus YTD 2019. Revenue at Detour Lake
for the five months ended June 30, 2020 accounted for $412.4
million or 36% of the Company’s total revenue for YTD 2020. Revenue
from Holt Complex in YTD 2020 totalled $52.0 million versus $74.9
million in YTD 2019, reflecting the suspension of operations
effective April 2, 2020.
Net Earnings and Adjusted Net
Earnings1
Net Earnings and Earnings Per Share
Net earnings in Q2 2020 totalled $150.2 million
($0.54 per share) compared to $104.2 million ($0.50 per share) in
Q2 2019. The increase in net earnings and net earnings per share
mainly reflected strong revenue growth compared to the same period
in 2019. The 107% increase in revenue, to $581.0 million, was
driven by both higher gold sales, largely reflecting the
contribution from Detour Lake Mine in Q2 2020, as well as an
improvement in the average realized gold price1. Also contributing
to higher net earnings and earnings per share compared to Q2 2019
were lower expensed exploration and evaluation costs, which largely
reflected 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.
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. In addition, there
was a significant unfavourable impact from non-cash, foreign
exchange losses in Q2 2020 versus Q2 2019. During Q2 2020, both the
Canadian and Australian dollars strengthened against the US dollar
(see the External Performance Drivers section in the MD&A for
the three and six months ended June 30, 2020 for more information),
which resulted in non-cash, foreign exchange losses of $72.8
million (pre-tax) for the quarter. The non-cash, foreign exchanges
losses accounted for an $0.18 per share reduction in Q2 2020 net
earnings per share compared to Q2 2019 from other loss. Net
earnings and net earnings per share in Q2 2020 were also reduced by
a $12.6 million pre-tax increase in royalty expense, which resulted
mainly from a $6.9 million impact from the new 2.75% royalty
imposed by the Victorian Government on revenues from Fosterville
effective January 1, 2020 and $4.5 million of royalty expense at
Detour Lake Mine. Higher corporate G&A costs, reflecting the
Company’s continued growth, and increased care and maintenance
expense related to the suspension of operation in the Northern
Territory and at Holt Complex, also reduced net earnings and net
earnings per share compared to Q2 2019.
In addition to the level of expenditures in Q2
2020 versus Q2 2019, higher average shares outstanding also had an
unfavourable impact on the change in earnings per share, with
average shares outstanding in Q2 2020 increasing 32%, to 277.1
million, from 210.1 million in Q2 2019. The increase in average
shares outstanding related to the 77,217,129 shares issued as
consideration for the acquisition of Detour Gold on January 31,
2020.
Net earnings in Q2 2020 of $150.2 million ($0.54
per share) compared to $202.9 million ($0.79 per share) the
previous quarter. Non-cash, foreign exchange gains and losses had a
significant impact on the change in net earnings and net earnings
per share compared to Q1 2020, accounting for the $0.38 per share
reduction in net earnings per share from other income (loss)
quarter over quarter. This unfavourable impact resulted from the
Company’s $72.8 million of non-cash, foreign exchange losses in Q2
2020, which compared to non-cash, foreign exchange gains in Q1 2020
of $72.9 million, reflecting a significant weakening of the
Canadian and Australian dollars against the US dollar during the
first three months of the year. Other factors reducing net earnings
and net earnings per share compared to Q1 2020 were higher
corporate G&A costs, increased care and maintenance expense,
due to higher costs in Northern Territory and the suspension of
operations at Holt Complex in Q2 2020, as well as an increase in
the effective tax rate (33.3% in Q2 2020 versus 31.1% the previous
quarter) with the increase reflecting the tax benefit of non-cash,
foreign exchange loss recorded at lower effective tax rate in
Canada.
Partially offsetting these factors were the
favourable impact of a 5% increase in revenue, resulting from an 8%
improvement in the average realized gold price(1) quarter over
quarter, $33.8 million of transaction costs in Q1 2020 related to
the Detour Gold acquisition and lower production costs and
depletion and depreciation expense, mainly reflecting the
suspension of operations at the Holt Complex effective April 2,
2020.
The comparison of net earnings per share in Q2
2020 versus Q1 2020 was also affected by higher average shares
outstanding in the second quarter (277.1 million versus 257.4
million the previous quarter), with the increase reflecting the
addition to shares outstanding of the 77,217,129 shares issued as
consideration for the acquisition of Detour Gold for the full
quarter in Q2 2020 versus for only two months in Q1 2020.
Net earnings for YTD 2020 totalled $353.1
million ($1.32 per basic share), an increase of $138.8 million or
65% from $214.3 million ($1.02 per basic share) for YTD 2019. The
increase as compared to YTD 2019 mainly reflected a 94% increase in
revenue, resulting from strong growth in gold sales and a higher
average realized gold price1, as well as lower expensed exploration
and evaluation costs due to disruptions to the Company’s
exploration programs in YTD 2020 caused by COVID-19. These factors
were partially offset by higher production costs and increased
expenses for depreciation and depletion, mainly reflecting the
addition of Detour Lake Mine on January 31, 2020, the impact of
$33.8 million of transaction costs related to the Detour Gold
acquisition in YTD 2020, higher royalty expense, resulting
from the Victorian Government’s new 2.75% royalty on revenue at
Fosterville and royalties paid by Detour Lake, as well as increased
corporate G&A and higher care and maintenance expense. The
increase in care and maintenance expense reflected the
discontinuation of test production and exploration work in the
Northern Territory in March 2020 and the suspension of operations
at the Holt Complex effective April 2, 2020.
In addition, net earnings per share was reduced
year over year by an increase in average shares outstanding, to
267.2 million from 210.1 million, due to the issuance of 77,217,129
shares as consideration for the acquisition of Detour Gold on
January 31, 2020.
Adjusted Net Earnings1
Adjusted net earnings1 in Q2 2020 totalled
$219.3 million ($0.79 per share), double the adjusted net earnings1
of $109.8 million ($0.52 per share) for the same period in 2019 and
a 22% increase from $179.2 million ($0.70 per share) the previous
quarter. The difference between net earnings and adjusted net
earnings1 in Q2 2020 related to the exclusion from adjusted net
earnings1 of $72.8 million ($56.3 million after tax) of non-cash,
foreign exchange losses, due to a strengthening of the Canadian and
Australian dollars against the US dollar during the quarter, as
well as $13.4 million ($9.2 million after tax) of costs related to
the Company’s COVID-19 response, mainly related to labour costs
during periods of reduced or suspended operations, as well as $5.3
million ($3.7 million after tax) of restructuring costs, mainly
resulting from the suspension of business activities in the
Northern Territory and at Holt Complex. The difference between
adjusted net earnings1 and net earnings in Q2 2019 related to the
exclusion from adjusted net earnings of foreign exchange losses as
well as the impact of a mark-to-market loss on fair valuing the
Company’s warrant investments and severance costs. The difference
between net earnings and adjusted net earnings1 in Q1 2020 related
mainly to the exclusion from adjusted net earnings1 of $72.9
million ($52.5 million after tax) of foreign exchange gains,
partially offset by the exclusion of $33.8 million ($24.9 million
after tax) of transaction fees related to the Detour Gold
acquisition.
For YTD 2020, adjusted net earnings1 totalled
$398.5 million ($1.49 per share), an increase of $174.9 million or
78% from $223.6 ($1.06 per share) for the same period in 2019. The
difference between net earnings and adjusted net earnings1 for YTD
2020 reflected the exclusion from adjusted net earnings1 of the
$33.8 million ($24.9 million after tax) of transaction fees related
to the Detour Gold acquisition, as well as costs related to the
Company’s COVID-19 response, restructuring costs and severance
expense. The difference between net earnings and adjusted net
earnings1 for YTD 2019 largely related to the exclusion from
adjusted net earnings of non-cash foreign exchange losses of $6.6
million ($5.9 million after tax) as well as the impact of a
mark-to-market losses on fairing valuing the Company’s warrant
investments, purchase price allocation adjustments on inventory and
severance costs.
Cash and Cash Flows
The Company’s cash balance totalled $537.4
million at June 30, 2020 compared to cash of $530.9 million at
March 31, 2020. Contributing to the change in cash was net cash
provided by operating activities of $222.2 million. Net cash
provided by operating activities included operating cash flow
before interest received and income taxes of $393.9 million, which
was reduced by total income taxes paid of $172.8 million, of
which $132.6 million related to the final tax instalment paid in
Australia for the 2019 tax year (interest received totalled $1.1
million). Net cash used by investing activities in Q2 2020 totalled
$128.3 million, which mainly related to capital expenditures during
the quarter. Contributing to the $90.0 million of net cash used for
financing activities in Q2 2020 was $49.9 million used to
repurchase 1,345,600 shares through the Company’s NCIB, which was
renewed for an additional year on May 28, 2020, and $34.7 million
of dividend payments related to the Q1 2020 payment on April 13,
2020. The Q1 2020 dividend was the first dividend payment following
the Company’s decision to double the quarterly dividend to $0.125
per share from $0.06 per share previously.
The Company’s cash balance of $537.4 million at
June 30, 2020 compared to cash of $707.2 million at December 31,
2019. The change in cash during the quarter largely resulted from
the use of $564.6 million of cash for financing activities and the
use of $67.6 million for investing activities, which more than
offset strong cash generated from operating activities during the
first six months of 2020. Net cash provided from operating
activities totalled $463.7 million. Excluding the impact of $60.5
million of non-recurring 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
$656.8 million, which compared to $355.5 million in YTD 2019. The
$67.6 million of cash used for investing activities mainly related
to capital expenditures in the first half of 2020, partially offset
by $173.9 million of cash acquired as part of the Detour Gold
acquisition. Of the $564.6 million of cash used for financing
activities, $379.8 million was used to repurchase 11,059,100 shares
through the Company’s NCIB, with an additional $47.2 million being
used for the fourth quarter 2019 and Q1 2020 dividend payments. In
addition, net cash used for financing activities in YTD 2020 also
included $98.6 million to repay Detour Gold’s outstanding debt
during Q1 2020 and $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.
Free cash flow1
Free cash flow1 in Q2 2020 totalled $94.1
million, which compared to free cash flow1 of $54.4 million in Q2
2019 and $130.9 million the previous quarter (Q1 2020 free cash
flow1 totalled $191.4 million excluding $60.5 million of
non-recurring transaction and restructuring costs). Free cash flow1
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
1of $226.7 million during Q2 2020. On a year-to-date basis, free
cash flow1 in YTD 2020 totalled $224.9 million, or $418.1 million
excluding the $132.6 million tax instalment payment in Q2 2020 as
well as the $60.5 million of non-recurring transaction costs in Q1
2020. Of the Company’s free cash flow1 for YTD 2020, $167.0 million
was provided by Detour Lake Mine from January 31, 2020 to June 30,
2020 (excludes transaction and restructuring costs related to the
Detour Gold acquisition), accounting for approximately 40% of the
$418.1 million of free cash flow for YTD 2020 excluding the $132.6
million tax instalment payment and non-recurring transaction and
restructuring costs.
(1) The
definition and reconciliation of these Non-IFRS measures are
included on pages 34-40 of the MD&A for the three and six
months ending June 30, 2020.
Review of Operating Mines
Macassa Mine
Production at Macassa in Q2 2020 totalled 41,865
ounces compared to production of 49,196 ounces in Q2 2019.
Production in Q2 2020 resulted from processing 77,624 tonnes at an
average grade of 17.2 g/t and average recoveries of 97.6%, which
compared to 72,681 tonnes processed in Q2 2019 at an average grade
of 21.5 g/t and average recoveries of 97.9%. The change in
production from Q2 2019 largely reflected a lower average grade and
the impact of reduced operations due to COVID-19, which resulted in
lower than planned tonnes processed in Q2 2020. Production in Q2
2020 compared to production of 50,861 ounces the previous quarter
when the mine processed 82,256 tonnes at an average grade of 19.7
g/t and average recoveries of 97.7%. The reduction in tonnes
processed compared to Q1 2020 largely reflected a greater impact
from the transition to reduced operations due to COVID-19 in Q2
2020 compared to the previous quarter.
Production costs in Q2 2020 totalled $24.4
million (excluding $3.3 million related to the Company’s COVID-19
response) versus $24.6 million in Q2 2019 and $26.4 million the
previous quarter. Operating cash costs per ounce sold1 averaged
$547 in Q2 2020 versus $446 in Q2 2019 and $536 in Q1 2020. The
increase in operating cash costs per ounce sold1 compared to both
prior periods largely reflected lower sales volumes in Q2 2020
(44,328 ounces versus sales of 55,010 ounces in Q2 2019 and 50,765
ounces the previous quarter) largely reflecting the impact of
reduced operations due to COVID-19 during Q2 2020. AISC per
ounce sold1 averaged $841 in Q2 2020 compared to $788 in Q1 2019
and $850 in Q1 2020, with lower sales mainly accounting for the
increase from Q2 2019. Sustaining capital(1) expenditures totalled
$10.5 million ($236 per ounce sold) in Q2 2020 versus $16.6 million
($302 per ounce sold) in Q2 2019 and $14.4 million ($297 per ounce
sold) the previous quarter. The reduction in sustaining capital1
expenditures compared to both prior periods largely reflected
disruptions to projects caused by COVD-19 as well as lower levels
of capital development and a deferral of equipment purchases.
Production at Macassa in YTD 2020 totalled
92,726 ounces, which resulted from processing 159,880 tonnes at an
average grade of 18.5 g/t and at average recoveries of 97.6%. YTD
2020 production compared to production of 121,972 ounces for YTD
2019, which resulted from processing 150,671 tonnes at an average
grade of 25.7 g/t and at average recoveries of 98.1%. YTD 2020
production was below expected levels largely reflecting lower than
planned tonnes processed as a result of the transition to reduced
operations due to COVID-19, as well as lower than expected grades.
Both tonnes processed and average grades are expected to increase
in the second half of 2020. Production costs for YTD 2020 totalled
$50.9 million (excluding $3.3 million related to the Company’s
COVID-19 response) versus $47.0 million for YTD 2019. Operating
cash costs per ounce sold1 averaged $541 compared to $384 for the
same period in 2019 with the increase largely reflecting lower
sales volumes due to the impact of COVID-19. AISC per ounce sold1
averaged $846 for YTD 2020 versus $686 a year earlier. The change
from YTD 2019 resulted from lower sales volumes and higher
operating costs. Sustaining capital1 expenditures totalled $24.9
million ($262 per ounce sold) in YTD 2020 versus $32.1 million
($263 per ounce sold) in YTD 2019 with disruptions to projects
caused by COVID-19, deferred equipment procurement and reduced
capital development largely accounting for the reduction.
Growth projects: Growth capital1 expenditures at
Macassa for YTD 2020 totalled $21.7 million ($5.9 million in Q2
2020). Of total growth expenditures for YTD 2020, $18.8 million
related to the #4 shaft project. Sinking of the #4 shaft was
suspended for approximately one month, with this work resuming near
the end of April. During Q2 2020, the shaft advanced 617 feet and
had reached a depth of 2,577 feet as of June 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.
COVID-19 Update: The Macassa Mine began
operating with a reduced workforce in March due to concerns over
the COVID-19 virus. Based on high levels of absenteeism caused in
part by the introduction of travel restrictions between Ontario and
Quebec, the mine was placed on reduced operations effective April
2, 2020 until April 30, 2020. Essential work that continued during
this period related mainly to production, though at reduced levels,
as well as water and environmental management. All non-essential
activities were suspended, including exploration drilling, sinking
work on the #4 Shaft project, work on a new surface ramp and mill
upgrades. Sinking of the #4 Shaft resumed near the end of April.
During the period of reduced operations, Macassa operated with
approximately 65% of its normal workforce. In early May, the
Company began a gradual ramp up of operations at Macassa, with
mine’s workforce returning to pre-COVID levels by late June. The
Company’s extensive COVID-19 health and safety protocols remain in
effect and are expected to be followed at Macassa for the
foreseeable future.
Detour Lake Mine
Production at Detour Lake in Q2 2020 totalled
131,992 ounces, which involved processing 5,655,992 tonnes at an
average grade of 0.79 g/t at average recoveries of 91.7%.
Production in Q2 2020 compared to production for the two months
from January 31, 2020, the date the acquisition of Detour Gold was
completed, to March 31, 2020 of 91,555 ounces, which resulted from
processing 3,708,022 tonnes at an average grade of 0.84 g/t and at
average recoveries of 90.9%. Tonnes processed in Q2 2020 averaged
62,154 tonnes per day, largely unchanged from the average in
February and March. The lower average grade in Q2 2020 compared to
the two months ended March 31, 2020, was mainly due to feeding
lower grade stockpiled material to the mill during reduced
operations. Production at Detour Lake for the five months ended
June 30, 2020 totalled 223,547 ounces, which resulted from
processing 9,364,014 tonnes at an average grade of 0.81 g/t and at
average recoveries of 91.4%.
Production costs at Detour Lake Mine in Q2 2020
totalled $78.1 million, excluding $7.7 million of COVID-19 related
costs. Operating cash costs per ounce sold1 averaged $573 in Q2
2020, better than the Company’s re-issued guidance range of $610 –
$630 reflecting lower mining rates deferred during the period of
reduced operations due to COVID-19, as well as the impact of lower
fuel prices. AISC per ounce sold1 averaged $1,090, in line with
expected levels. Sustaining capital1 expenditures at Detour Lake in
Q2 2020 totalled $65.8 million or $483 per ounce sold. All capital
expenditures at Detour Lake Mine were reported as sustaining
capital1 expenditures during Q2 2020.
Production at Detour Lake for the five months
ended June 30, 2020 totalled 223,547 ounces, which resulted from
processing 9,364,014 tonnes at an average grade of 0.81 g/t and at
average recoveries of 91.4%. Production costs for the five months
ended June 30th totalled $165.9 million, excluding the $7.7 million
of non-recurring COVID-19 related costs. Operating cash costs per
ounce sold1 averaged $628 per ounce sold, while AISC per ounce
sold1 averaged $1,098. The mine’s sustaining capital1 expenditures
totalled $108.2 million ($439 per ounce sold).
COVID-19 Update: The Company transitioned Detour
Lake Mine to reduced operations in response to the COVID-19
pandemic effective March 23, 2020. Continuing activities at the
mine include mill processing of reduced feed from the open pit and
stockpiled ore, management of water levels during the spring
run-off and environmental management activities. During this time,
the mine operated with one shovel and eight trucks, which compares
to normalized operations of five shovels and approximately 34
trucks. All personnel not essential for the performance of
essential activities were off work until April 30, 2020.
Approximately 300 workers were on site during the period of reduced
operations, approximately 30% of the normal workforce during full
operations. In addition to company-wide health and safety
protocols, a number of additional measures applicable to a remote
camp operation have been added to Detour Lake’s efforts to protect
workers, including processes for the assessment, isolation and
ambulatory evacuation of employees showing any kind of symptoms and
increased food and camp accommodation hygiene safety. In early May,
the Company commenced a gradual ramp up of operations at Detour
Lake with the mine achieving pre-COVID workforce levels in June
2020. The Company’ extensive list of COVID-19 health and safety
protocols remain in effect and are expected to be followed for the
foreseeable future.
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. On April 1, 2020, the Company announced that
operations were being suspended at the Taylor Mine and Holt Mine
and Mill as part of the Company’s response to the COVID-19
pandemic. At the beginning of May 2020, the Company further
extended the suspension of operations at the Holt and Taylor mines
and Holt Mill reflecting ongoing developments related to the
COVID-19 virus and while the Company continued the strategic review
of the Holt Complex assets involving the consideration of all
options for the maximizing of value.
Subsequent to the end of Q2 2020, on July 16,
2020, the Company announced that the suspension of operations at
the Holt Complex was being extended until further notice. As a
result, employees at the Complex have either been re-assigned to
new roles at other locations within the Company’s Canadian
Operations, or were provided severance packages. As of July 16,
2020, more than 220 workers from Holt Complex had either assumed
new roles in the Company or had been offered new positions. Cost
related to the further suspension of operations at Holt Complex,
and the termination of workers is estimated at approximately $7.4
million, which is expected to be included in the Company’s Q3 2020
financial results. As a result of the suspension of operations
throughout Q2 2020, Holt Complex produced only 807 ounces, which
resulted from processing stockpiled material. Q2 2020 production
compared to production of 24,696 ounces in Q2 2019 and 28,584
ounces the previous quarter. Production costs in Q2 2020 totalled
$5.2 million (excluding $2.4 million of COVD-19-related costs),
while operating cash costs per ounce sold1 averaged $1,373 and AISC
per ounce sold1 averaged $1,717. Sustaining capital1 expenditures
during Q2 2020 were $0.4 million ($122 per ounce sold) versus
sustaining capital1 expenditures of $10.2 million ($434 per ounce
sold) in Q2 2019 and $8.6 million ($306 per ounce sold) the
previous quarter.YTD 2020, the Holt Complex produced 29,391 ounces,
which compared to production of 55,355 ounces for the same period
in 2019. Production costs for YTD 2020 totalled $33.6 million
(excluding $2.4 million of COVD-19-related costs) versus $51.9
million for YTD 2019. Operating cash costs per ounce sold1 averaged
$1,000 in YTD 2020, while AISC per ounce sold1 averaged $1,406.
Sustaining capital(1) expenditures for YTD 2020 totalled $9.1
million ($273 per ounce sold) compared to $17.8 million ($311 per
ounce sold) for YTD 2019.
Fosterville Mine
The Fosterville Mine produced 155,106 ounces in
Q2 2020 based on processing 123,473 tonnes at an average grade of
39.5 g/t and average mill recoveries of 99.0%. Q2 2020 production
increased 10% from 140,701 ounces in Q2 2019, when the mine
processed 111,280 tonnes at an average grade of 39.9 g/t and
average recoveries of 98.7%. The increase in production compared to
the same period in 2019 resulted from higher tonnes processed due
to a greater number of mining fronts in the Lower Phoenix System.
Q2 2020 production compared to production of 159,864 ounces the
previous quarter when the mine recorded an average quarterly grade
of 42.4 g/t at average recoveries of 98.8%. The higher average
grade in Q1 2020 reflected mine sequencing in the lower Phoenix
system.
Production costs were $20.3 million in Q2 2020
versus $16.0 million in Q2 2019 and $18.9 million the previous
quarter. Operating cash costs per ounce sold1 averaged $129,
similar to $120 in Q2 2019 and $126 the previous quarter. The
change compared to Q2 2019 reflected increased mining rates and
higher levels of operating development in Q2 2020, the impact of
which was mostly offset by higher sales volumes in Q2 2020. AISC
per ounce sold1 averaged $273 versus $318 in Q2 2019 and $313 in Q1
2020. The change from both prior periods resulted from a reduction
in sustaining capital1 expenditures, with these expenditures being
lower than planned in Q2 2020 due to reduced capital development
and the disruptions to project work caused by the impact of
COVID-19 protocols. Sustaining capital1 expenditures totalled $10.8
million ($69 per ounce sold), versus $22.9 million ($172 per ounce
sold in Q2 2019) and $16.1 million ($113 per ounce sold) in Q1
2020.
Commencing January 1, 2020, Fosterville Mine
began paying a new 2.75% royalty introduced by the Victorian
Government. The new royalty contributed $6.9 million or $44 per
ounce sold to AISC per ounce sold(1) in Q2 2020 ($7.2 million or
$47 per ounce sold in Q1 2020). Excluding the impact of the new
royalty in both Q2 and Q1 2020, AISC per ounce sold1 in Q2 2020 was
$229, 28% better than $318 in Q2 2019 and a 14% improvement from
$266 per ounce sold the previous quarter.
Production at Fosterville for YTD 2020 totalled
314,970 ounces, a 17% increase from 269,145 ounces for YTD 2019.
YTD 2020 production resulted from processing 242,174 tonnes at an
average grade of 40.9 g/t and average recoveries of 98.9%. The
increase from YTD 2019 was mainly due to a 21% improvement in the
average grade, to 40.9 g/t for YTD 2020, largely reflecting higher
levels of production and increased grades from the Swan Zone. Mill
throughput in YTD 2020 averaged 1,331 tonnes per day compared to
1,390 tonne per day for YTD 2019.
Production costs were $39.2 million for YTD 2020
versus $37.3 million for the same period in 2019. Operating cash
costs per ounce sold1 averaged $127, 4% better than $132 in YTD
2019. The improvement mainly resulted from higher sales volumes,
reflecting a 21% year-over-year improvement in the average grade,
which more than offset the impact of higher levels of operating
development in YTD 2020 compared to YTD 2019. AISC per ounce sold1
averaged $293, a 7% improvement from $316 for YTD 2019. The
improvement reflected higher sales volumes and lower sustaining
capital1 expenditures in YTD 2020. Sustaining capital1
expenditures totalled $26.9 million ($87 per ounce sold), versus
$41.9 million ($158 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 projects
and reduced capital development.
Growth projects: Growth capital1 expenditures at
Fosterville for YTD 2020, excluding capitalized exploration
totalled $9.6 million ($3.5 million in Q2 2020). Work during the
first half of the year focused on construction of a new transformer
station, completion of the mine’s new ventilation system and new
refinery and gold room, as well as advancement of the mine’s paste
fill expansion project and new Aster plant.
COVID-19 Update: Fosterville Mine continued to
operate throughout Q2 2020, with production largely achieving
target levels. The Company’s COVID-19 health and safety protocols
were implemented at Fosterville in March 2020, including remote
work, social distancing, increased cleaning and hygiene and the
suspension of all non-essential work, including work on key
projects and exploration drilling, as well as visits to site. Work
on key projects and exploration drilling resumed in April 2020,
with the ramp up of exploration work to continue through the end of
Q3 2020. The Company’ extensive list of COVID-19 health and safety
protocols remain in effect and are expected to be followed for the
foreseeable future.
Northern Territory
The Cosmo mine and Union Reefs mill were placed
on care and maintenance effective June 30, 2017. Following this
move, the Company undertook extensive exploration programs at
Cosmo, Union Reefs and, more recently, other selected targets. In
addition, the Company’s advanced exploration work at both the Cosmo
mine and Union Reefs mill, which resulted in the commencement of
test mining of mineralization in the Lantern Deposit at Cosmo and
test processing of this material at the Union Reefs mill in October
2019.
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. A small workforce remains in the
Northern Territory to complete ongoing rehabilitation
work. During Q2 2020, $6.2 million of care and
maintenance costs were recorded at the Company’s Northern Territory
assets ($9.1 million for YTD 2020) with $1.5 million of expensed
and capitalized exploration expenditures also being recorded ($17.3
million for YTD 2020).
(1) The
definition and reconciliation of these Non-IFRS measures are
included on pages 34-40 of the MD&A for the three and six
months ending June 30, 2020.
PERFORMANCE AGAINST
GUIDANCE
On April 1, 2020, the Company withdrew its 2020
guidance, which had originally been released on December 18, 2019
and was updated on February 19, 2020 to reflect the acquisition of
Detour Gold. The Company’s 2020 guidance was withdrawn due to
uncertainties related to the COVID-19 pandemic. On May 6, 2020, the
Company also withdrew its three-year production guidance while it
assessed the long-term effects of COVID-19 and while it works to
incorporate Detour Lake into the Company’s long-term business
plans.
On June 30, 2020, the Company re-issued guidance
for 2020 recognizing the progress achieved in ramping up business
activities that had been impacted by the Company’s COVID-19
response. Included among the re-issued guidance was production of
1,350,000 – 1,400,000 ounces, approximately 90% of the withdrawn
2020 production guidance, as well as improved unit costs, lower
expected sustaining capita1l expenditures and higher target growth
capital expenditures resulting from new growth projects at Detour
Lake Mine. Changes from previous guidance were largely driven by
the removal of production, unit cost and expenditure guidance for
the Holt Complex as of April 2, 2020, the date that operations were
suspended at the Complex. The Holt Complex’s results to April 2,
2020 are included in the Company’s re-issued 2020 guidance.
Re-Issued 2020 Guidance
($
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)(2) |
|
|
|
|
$390 - $400 |
Growth capital
($M)(2)(3) |
|
|
|
|
$95 - $105 |
Exploration
($M)(4)(5) |
|
|
|
|
$130 - $150 |
Corporate G&A ($M)(6) |
|
|
|
|
$50 - $55 |
(1) COVID-19 related
costs of $13.4 million for YTD 2020 are excluded from operating
cash costs, AISC and capital expenditures in re-issued 2020
guidance.(2) See “Non-IFRS Measures” set out starting on page 34 of
the MD&A for the three and six months ended June 30, 2020 for
further details. The most comparable IFRS Measure for operating
cash costs, operating cash costs per ounce sold and AISC per ounce
sold is production costs, as presented in the Consolidated
Statements of Operations and Comprehensive Income, and total
additions and construction in progress for sustaining and growth
capital. Operating cash costs, operating cash cost per ounce sold
and AISC per ounce sold reflect an average US$ to C$ exchange rate
of 1.35 and a US$ to A$ exchange rate of 1.47.(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) Re-issued exploration
expenditure guidance includes $17.3 million related the Northern
Territory assets (no production, costs or expenditures related to
the Northern Territory were included in the previous 2020
guidance).(6) Includes general and administrative costs and
severance payments. Excludes share-based payment expense.
YTD 2020 Results
($
millions unless otherwise stated) |
Macassa |
Detour Lake |
Holt Complex |
Fosterville |
Consolidated |
Gold
production (kozs) |
92,726 |
223,547 |
29,391 |
314,970 |
660,634 |
Operating cash costs/ounce sold
($/oz)(1)(2) |
$541 |
$628 |
$1,000 |
$127 |
$407 |
AISC/ounce sold ($/oz)(1)(2) |
|
|
|
|
$763 |
Operating cash costs
($M)(1)(2) |
|
|
|
|
$279.2 |
Royalty costs ($M) |
|
|
|
|
$40.5 |
Sustaining capital ($M)(2) |
|
|
|
|
$170.2 |
Growth capital ($M)(2)(3) |
|
|
|
|
$31.3 |
Exploration ($M)(4)(5) |
|
|
|
|
$59.6 |
Corporate G&A ($M) (6) |
|
|
|
|
$27.5 |
(1) COVID-19 related
costs of $13.4 million for YTD 2020 are excluded from operating
cash costs, AISC and capital expenditures in re-issued 2020
guidance.(2) See “Non-IFRS Measures” set out starting on page 34 of
the MD&A for the three and six months ended June 30, 2020 for
further details. The most comparable IFRS Measure for operating
cash costs, operating cash costs per ounce sold and AISC per ounce
sold is production costs, as presented in the Consolidated
Statements of Operations and Comprehensive Income, and total
additions and construction in progress for sustaining and growth
capital. Operating cash costs, operating cash cost per ounce sold
and AISC per ounce sold reflect an average US$ to C$ exchange rate
of 1.39 and a US$ to A$ exchange rate of 1.52.(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) Re-issued exploration
expenditure guidance includes $17.3 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 660,634
ounces, representing 48% of the mid-range of the Company’s
re-issued 2020 production guidance. Entering the second half of the
year, the Company was well positioned to achieve the re-issued
full-year 2020 guidance with production expected to increase at
Macassa and Detour Lake, both of which were transitioned to reduced
operations during the first half of the year as part of the
Company’s COVID-19 response. Both mines began recalling workers off
due to the transition to reduced operations in early May and, as at
June 30, 2020, workforce levels at both Macassa and Detour had
returned to pre-COVID levels. Production at Macassa totalled
92,726 ounces in YTD 2020, which compares to full-year guidance of
210,000 – 220,000 ounces. Production at Macassa in the second half
of the year is expected to increase reflecting higher tonnes
processed as mining rates ramp up, as well as an improvement in the
average grade from 18.5 g/t in the first half of the year.
Production at Detour Lake for YTD 2020 totalled 223,547 ounces,
representing output for the five-month period from January 31, 2020
to June 30, 2020. The Company will benefit from a full six months
of results from Detour Lake in the second half of 2020, with grades
expected to improve as mining rates increase from YTD 2020 levels.
During YTD 2020, a significant proportion of mill feed at Detour
Lake came from stockpiles, where grades are typically lower than
from mine production. Detour Lake continues to target full-year
production of 520,000 – 540,000 ounces. Production at Fosterville
for YTD 2020 totalled 314,970 ounces, with the mine on track to
meet its full-year production guidance of 590,000 – 610,000 ounces.
- Production costs for YTD 2020 totalled $303.0
million. Operating cash costs1 for the first half of the year
totalled $279.2 million, in line with target levels.
- Operating cash costs per ounce sold1 for YTD
2020 averaged $407, better than the re-issued full-year 2020
guidance of $410 - $430. Entering the second half of the year, both
Fosterville and Detour Lake were tracking well against re-issued
full-year guidance. Fosterville’s operating cash costs per ounce
sold1 for YTD 2020 averaged $127, which compared favourably to
full-year guidance of $130 – $150. At Detour Lake, operating cash
costs per ounce sold1 averaged $628 in YTD 2020, in line with
guidance of $610 – $630. Macassa’s operating cash costs per
ounce sold1 averaged $541 versus guidance of $490 – $510. Operating
cash costs per ounce sold1 at Macassa are expected to improve in
the second half of 2020 as averaged grades and production levels
increase.
- AISC per ounce sold1 for YTD 2020 averaged
$763, better than full-year 2020 guidance of $790 - $810, largely
reflecting lower than expected levels of sustaining capital1
expenditures during YTD 2020.
- Royalty costs for YTD 2020 totalled $40.5
million, in line with the Company’s re-issued guidance of $80 – $85
million.
- Sustaining capital1 expenditures for YTD 2020
totalled $170.2 million, excluding capitalized depreciation, which
compared to full-year 2020 guidance of $390 – $400 million. The
level of sustaining capital1 expenditures during YTD 2020 was
lower than planned due largely to disruptions caused by the
Company’s COVID-19 response, which included the suspension of a
number of projects and reduced work in areas such as capital
development. Sustaining capital1 expenditures are expected to
increase during the second half of the year.
- Growth capital1 expenditures totalled $31.3
million for YTD 2020 (excluding capitalized exploration), which
compared to re-issued full-year 2020 guidance of $95 – $105
million. The level of growth capital1 expenditures in YTD 2020
was significantly impacted by disruptions caused to COVID-19, with
work on most major projects suspended for at least one month. Of
total growth capital1 expenditures for YTD 2020, Macassa
accounted for $21.7 million, with $18.8 million relating to the #4
Shaft project. Fosterville accounted for the remaining $9.6 million
of growth capital1 expenditures in YTD 2020, with work
largely focused on construction of a new transformer station,
completion of the mine’s new ventilation system and new refinery
and gold room, as well as advancement of the mine’s paste fill
expansion project and new Aster plant.
- Exploration and evaluation expenditures for
YTD 2020 totalled $59.6 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 to
continue through the end of the third quarter of 2020. Exploration
expenditures are expected to increase in the second half of the
year.Of total exploration expenditures in YTD 2020, approximately
$42.9 million were in Australia, including $25.6 million at
Fosterville and $17.3 million in the Northern Territory, almost all
of which was incurred in Q1 2020 prior to the Company decision to
discontinue all test production and exploration work at the
Northern Territory assets. Drilling at Fosterville focused on
underground and surface drilling at the mine’s key exploration
targets, including down-plunge at the Lower Phoenix system, Cygnet,
Robbin’s Hill and Harrier. In Canada, exploration expenditures for
YTD 2020 totalled $16.7 million, with $13.7 million being incurred
at Macassa, where the Company is drilling to further extend the
SMC, as well as to explore high-potential targets along the
Main/’04 Break and the Amalgamated Break. Remaining exploration
expenditures in Canada were at Detour Lake, where the Company
achieved encouraging results with initial drilling, including
intersecting high-grade mineralization outside of existing Mineral
Resources around the Main Pit, the North Pit and at the 58 North
target.
- Corporate G&A expense for YTD 2020
totalled $27.5 million, in line with re-issued full-year 2020
guidance of $50 – $55 million.
(1) The
definition and reconciliation of these Non-IFRS measures are
included on pages 34-40 of the MD&A for the three and six
months ending June 30, 2020.
Q2 2020 Financial Results and Conference
Call Details
A conference call to discuss the Q2 2020 results
will be held by senior management today, Thursday, July 30, 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.klgold.com.
Date: |
Thursday, July 30, 2020 |
Conference ID: |
3582178 |
Time: |
2:00 pm ET |
Toll-free number: |
(833) 968-2183 |
International callers: |
(825) 312-2102 |
Webcast URL: |
https://event.on24.com/wcc/r/2395960/AA0AD9D3A6BCCE4CA36CF9A1689E3D1D |
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
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 non-recurring 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 non-recurring 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;
outbreaks of 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 Information
This press release contains statements which
constitute "forward-looking information" within the meaning of
applicable securities laws, including statements regarding the
plans, intentions, beliefs and current expectations of Kirkland
Lake Gold with respect to future business activities and operating
performance. Forward-looking information is often identified by the
words "may", "would", "could", "should", "will", "intend", "plan",
"anticipate", "believe", "estimate", "expect" or similar
expressions and include information regarding: (i) the amount of
future production over any period; (ii) assumptions relating to
revenues, operating cash flow and other revenue metrics set out in
the Company's disclosure materials; and (iii) future exploration
plans.
Investors are cautioned that forward-looking
information is not based on historical facts but instead reflect
Kirkland Lake Gold's management's expectations, estimates or
projections concerning future results or events based on the
opinions, assumptions and estimates of management considered
reasonable at the date the statements are made. Although Kirkland
Lake Gold believes that the expectations reflected in such
forward-looking information are reasonable, such information
involves risks and uncertainties, and undue reliance should not be
placed on such information, as unknown or unpredictable factors
could have material adverse effects on future results, performance
or achievements of the combined company. Among the key factors that
could cause actual results to differ materially from those
projected in the forward-looking information are the following: the
future development and growth potential of the Canadian and
Australian operations; the future exploration activities planned at
the Canadian and Australian operations and anticipated effects
thereof; liquidity risk; risks related to community relations;
risks relating to the impact of COVID-19; risks relating to equity
investments; risks relating to first nations and Aboriginal
heritage; the availability of infrastructure, energy and other
commodities; nature and climactic conditions; 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
the #4 Shaft project at the Macassa Mine and the ventilation and
paste fill plant project at the Fosterville Mine; permitting, the
ability to obtain all necessary permits associated with the Detour
Lake Mine and various expansion projects; currency exchange rates
(such as the Canadian dollar and the Australian dollar versus the
United States dollar); risks associated with dilution; labour and
employment matters; risks in the event of a potential conflict of
interest; changes in general economic, business and political
conditions, including changes in the financial markets; changes in
applicable laws; and compliance with extensive government
regulation. This forward-looking information may be affected by
risks and uncertainties in the business of Kirkland Lake Gold and
market conditions. This information is qualified in its entirety by
cautionary statements and risk factor disclosure contained in
filings made by Kirkland Lake Gold, including its annual
information form and financial statements and related MD&A for
the financial year ended December 31, 2019 and 2018 and the
Company’s interim financial statements and MD&A for the period
ended June 30, 2020 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 information prove incorrect, actual results may
vary materially from those described herein as intended, planned,
anticipated, believed, estimated or expected. Although Kirkland
Lake Gold 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 to be as anticipated,
estimated or intended. Kirkland Lake Gold does not intend, and do
not assume any obligation, to update this forward-looking
information except as otherwise required by applicable law.
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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