Underground gold mines are often complicated operations with high operating costs and, as these half-year results demonstrate,
The company lost money for a second consecutive quarter due to problems encountered during its ambitious expansion plan. It had been trying to increase production to 200,000 ounces in the year to April 2013, but now reckons it will only manage to sell between 90,000 and 110,000 ounces. Kirkland ran into electrical and technical problems while expanding the service cage - which allows it to hoist ore and waste from the underground mine shafts - delaying the remainder of the tasks needed to increase production. Operating costs in the second quarter totalled $1,253 an ounce, down slightly from $1,276 an ounce in the preceding quarter, but up significantly from $793 an ounce a year ago.
Kirkland has also spent heavily on exploration lately to replace ore reserves, culminating in the C$60m (£37m) buyout of seven joint-venture properties nearby. It funded the purchase by issuing C$68.5m of convertible debentures, leaving $71.1m of unrestricted cash in the treasury as of 12 December.
Broker Investec forecasts EPS of 20¢ for fiscal 2013 (58¢ in 2012).
|KIRKLAND LAKE GOLD (KGI)|
|ORD PRICE:||378p||MARKET VALUE:||£265m|
|TOUCH:||370-385p||12-MONTH HIGH:||1,188p||LOW: 378p|
|DIVIDEND YIELD:||NIL||PE RATIO:||51|
|NET ASSET VALUE:||343¢||NET DEBT:||20%|
|Half-year to 31 Oct||Turnover (C$m)||Pre-tax profit (C$m)||Earnings per share (C¢)||Dividend per share (C¢)|
Kirkland is barely keeping up with last year's level of production and now has no chance of doubling output this fiscal year. Its shares have consequently lost nearly 60 per cent in the year to date - but that hardly makes them cheap on 30 times forward earnings. Still, the promise of resurgent production in 2014 is sufficient temptation to place the shares on a 'hold' rather than a 'sell'. Hold.
Last IC view: Good value, 1,128p, 13 Dec 2011