Kirkland Lake Gold Ltd. TSX: KL NYSE: KL

Eröffnet von nicco im Board Rohstoffe - Edelmetalle, Softs, Energie, Öl

About Us
Kirkland Lake Gold Ltd. is a senior gold producer operating in Canada and Australia that produced 1,369,652 ounces in 2020, with target production for 2021 of 1,300,000 1,400,000 ounces. Our production profile is anchored by three high-quality operations including, the Macassa Mine and Detour Lake Mine, both located in Northern Ontario, Canada and the Fosterville Mine located in the State of Victoria, Australia. All three mines combine free cash flow generating operations, substantial in-mine growth potential and attractive regional exploration upside to drive continued growth well into the future.

Supported by a strong balance sheet, our goal is to increase shareholder value by growing low-cost production at our existing assets, returning capital to shareholders and pursuing new growth opportunities.
....

klgold.com/about-us/

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#58: 14.10.2021 10:43 FlorianPascale
Ichimoku-Signale im Tageschart: 5 x Long

Kurs über der Wolke
Kurs über Kijun
Chikou über seiner Kerze und über der Wolke
Tenkan über Kijun
Senkou 1 über Senkou 2
Meine Äusserungen sind keinesfalls als Handelsempfehlung zu verstehen, sondern stellen nur meine ganz persönliche Meinung dar.
#57: 06.10.2021 23:51 nicco
Vom Verfasser oder vom Besitzer der Diskussion gelöscht.
#56: 06.10.2021 23:41 robbyredford
October 6, 2021 6:07 AM EDT
(Updated - October 6, 2021 6:08 AM EDT)

RBC Capital analyst Josh Wolfson upgraded Agnico-Eagle Mines Ltd. (NYSE: AEM)
#55: 01.10.2021 22:02 robbyredford
Agnico Eagle Mines Merger Announcement: 1+1 = 3
Oct. 01, 2021 3:36 PM ETAgnico Eagle Mines Limited (AEM)KL
Summary

Agnico Eagle Mines and Kirkland Lake have announced plans to combine in a merger of equals, making the company arguably the most attractive gold producer in the sector.
Not only would the combined entity have the largest reserve base in Tier-1 jurisdictions, but it would have industry-leading margins, and an impressive growth profile.
Notably, there would be significant operational synergies in the Kirkland Lake camp, and Kirkland Lake Gold would benefit from Agnico's multiple decades of underground mining expertise.
Assuming the deal goes through, Agnico Eagle 2.0 will become a must-own name in the gold sector, and I would expect the combined entity to command a premium valuation relative to peers.

Fosterville Gold Mine

tracielouise/E+ via Getty Images

After a relatively quiet few months from an M&A standpoint, a massive transaction was announced this week with Agnico Eagle Mines (AEM) and Kirkland Lake Gold (KL). The plan is to combine in a merger of equals to create the highest-quality senior gold producer, close to 54 million ounces of reserves based on FY2022 estimates, more than 95% of its production from Tier-1 jurisdictions, and industry-leading costs below $925/oz. While some have expressed their dislike for the deal, I see the transaction as a clear case of 1+1 = 3, with this deal filling in any weaknesses in each company's portfolio, and creating a Tier-1 jurisdiction juggernaut. Assuming the deal goes through, Agnico Eagle 2.0 will become a must-own name in the gold sector. I would expect the combined entity to command a premium valuation relative to peers.

Throughout the article, I will refer to the potential combined entity as Agnico 2.0 (short for Agnico Eagle 2.0)

Detour Lake Mine

Detour Lake Mine

Kirkland Lake Gold

Agnico Eagle and Kirkland Lake Gold have announced plans to join forces, creating a new senior gold producer with 12 operating mines, annual production of ~3.4 million ounces of gold, and growth to ~4.0 million ounces of gold in 2025. This is expected to be achieved through increased output at Hope Bay, Detour Lake, Macassa, Kittila, and Meliadine. Notably, it does not include upside from the Agnico Eagle's massive development pipeline, which includes Upper Beaver, Santa Gertrudis, and Hammond Reef, which are capable of producing a combined ~600,000 ounces per annum by later this decade, if approved. Let's take a closer look at the deal below:

Beginning with reserves, Agnico 2.0 is expected to become a powerhouse, with total reserves of ~45 million ounces as of December 2020 levels and over 48 million ounces of gold with the inclusion of Agnico's recent Hope Bay acquisition (~3.55 million ounces at 6.5 grams per ton gold). This reserve base should increase materially in Q2 2022, with Detour Lake likely to add more than 5 million ounces of reserves based on its recent resource update. This would push Agnico 2.0's total reserve base to ~53 million ounces of gold, giving it the third-largest reserve base in the sector, just behind Barrick at ~70 million ounces, and Newmont, which sits just shy of ~100 million ounces. However, the differentiator for Agnico is the jurisdictional profile. As the chart below shows, Agnico 2.0 will be an outlier in its peer group, with ~95% of production from Tier-1 jurisdictions, and also a multi-million-ounce producer, compared to Barrick (GOLD) at ~50%, and Newmont (NEM) near ~60%, respectively.

Gold Reserves By Jurisdiction

Gold Reserves By Jurisdiction

Company Filings, Author's Chart

From a jurisdiction standpoint, it's important to note that Agnico does not degrade Kirkland Lake's superior Tier-1 jurisdiction profile, with more than 92% of its production coming from Tier-1 jurisdictions (Canada, Finland). In fact, Finland is ranked #2 and ahead of most Canadian provinces for investment attractiveness. So, Kirkland Lake will benefit from a #2 ranked jurisdiction among over 70 total mining jurisdictions vs. a previous rank of #16/70 based on the Fraser Institute's recent survey. This is great news because if Kirkland Lake were merging with any other producer in the sector, investors would have to make a difficult decision, given that their investment thesis of a high-margin, solely Tier-1 jurisdiction gold producer would be in jeopardy.

Agnico Eagle Potential Future Production

Agnico Eagle Potential Future Production

Company Filings, Author's Chart

Meanwhile, from a diversification standpoint, Kirkland Lake Gold gets a massive boost, with the company previously having a difficult time justifying a premium multiple since its Detour Lake Mine acquisition. This is because while Detour Lake is arguably Canada's most impressive mine (next to Canadian Malartic), it would have made up nearly 55% of the company's annual production as of 2024. This is a very high figure relative to companies like Agnico, which receive the highest multiples sector-wide, given that no single asset makes up more than 25% of company-wide gold production.

The benefit to this is that if there's ever an issue at a single mine, it is not magnified across the portfolio. Looking ahead, as the above production profile shows, Agnico 2.0 will own Canada's two largest gold mines (Canadian Malartic and Detour Lake), as well as several ~300,000-ounce mines, including LaRonde, Meadowbank, Meliadine, Macassa, and Fosterville. I would expect this to help Kirkland Lake achieve its true valuation potential, and I would argue that the combined entity should fetch a higher valuation than Agnico Eagle 1.0, given that each company brings different strengths to the table and compliments each other.

In Kirkland Lake Gold's case, the company was the clear industry leader on costs and jurisdictional profile, with all-in sustaining costs below $820/oz. and 100% of production coming from safe jurisdictions (Australia and Canada). However, Detour Lake was so large that it did not allow Kirkland Lake to be as diversified as the larger million-ounce producers, especially if the mine ramps up to its goal of 800,000 ounces per annum. The other negative for Kirkland Lake was that it did not have a development pipeline, with several projects in the wings that could be moved forward to help deliver high double-digit organic growth. This made it difficult for the stock to command a premium valuation like Agnico Eagle.

In Agnico Eagle's case, the company had diversification down to a tee (9 mines) and was also the industry leader from a jurisdictional standpoint. In addition, Agnico had one of the most attractive organic growth profiles, in a period (2022-2024) where Kirkland Lake would struggle to grow production meaningfully. This is because the increased output from Detour Lake and Macassa was being partially offset by a right-sizing of Fosterville. Notably, Agnico Eagle also benefits from one of the highest reserve grades in the sector (~2.6 grams per ton gold) vs. Kirkland Lake Gold's reserve grade of ~1.0 grams per ton gold. Finally, Agnico Eagle brings a massive development pipeline to the table, with Upper Beaver, Santa Gertrudis, Hope Bay (in production), which is excluded from guidance, and Hammond Reef. Importantly, three out of four of these projects are also in Tier-1 jurisdictions.

Agnico Eagle Production

Agnico Eagle Production

Agnico Eagle Mines

As we can see, Kirkland Lake helps Agnico pull down its costs, Agnico helps Kirkland add organic growth through the development pipeline, Agnico helps Kirkland boost its reserve grade, and Agnico helps Kirkland with diversification. The end result? A massive gold producer that checks every single box for investors looking for safety, growth, a healthy dividend yield (2.8% vs. 1.8% Kirkland Lake), and one of the highest reserves per 1,000 share figures in the sector. It's worth noting that with a massive boost expected at Detour Lake, Kirkland Lake Gold should head closer to the #1 spot next to Newmont in the below chart.

Agnico Eagle Metrics

Agnico Eagle Metrics

Agnico Eagle Presentation

So, why merge at all? What is the benefit?

As stated above, the benefits are clear by combining two exceptional businesses that complement each other. Both companies have noted that they expect to deliver ~$800 million in synergies over five years and $2 billion in synergies over 10 years, and both companies will also benefit from the consolidation of an established mining camp and complementary skill sets, with the cross-pollination of best practices. This should help speed up technological improvements across the asset base, making all of Agnico 2.0's mines leaner and meaner. However, there are also meaningful synergies from an operational standpoint that cannot be understated. Let's dig into the major one below:

Agnico Kirkland Mines

Agnico Kirkland Mines

Agnico Eagle

As the chart above shows, Agnico 2.0 will now have five mills within a ~225-kilometer radius of each other (Holt, Macassa, LaRonde, Goldex, and Canadian Malartic), and a total of six mills in Ontario/Quebec. The one thing that some investors complaining about the deal may be missing is that this potentially adds a 13th operation to Agnico 2.0's arsenal in the medium-term and increases the value of two assets immediately. As it stands, Kirkland Lake Gold is getting next to zero recognition in its valuation for its ~3,000-ton per day Holt Mill and tailings facility, given that it's currently in care & maintenance. Unfortunately, Franco-Nevada (FNV) has massive royalties on mines surrounding the processing facility, driving up Kirkland Lake's costs at this operation. This is based on a sliding scale royalty of 2.0% to 10% at the Holt mine, a 1% NSR at the Taylor mine, a 3% NSR at the Holloway Mine, and a 4% NSR on the Hislop Mine. Unfortunately, this makes it more difficult to justify exploration at these properties, given that these are very high net smelter return royalties by industry standards.

Holt Royalties

Holt Royalties

Franco Nevada Gold

Meanwhile, Agnico Eagle is getting little benefit for its high-grade Upper Beaver Project, which is home to ~1.4 million ounces of gold at 5.4 grams per ton gold, and another ~1.8 million ounces of resources at ~4.0+ grams per ton gold. Conveniently, Upper Beaver sits barely 60 kilometers from Holt, which has 3,000 tons per day of capacity sitting idle, a tailings facility, and only minor refurbishments/permits required to potentially process ore from Upper Beaver. By adding a flotation circuit and receiving permits for deposition into the Holt tailings facility, Agnico Eagle could recover copper and begin producing more than 150,000 ounces of gold per annum from Upper Beaver and potentially north of 200,000 ounces per annum. This is based on assumptions of filling the Holt mill with ~5.0 gram per ton material at a ~90% plus recovery rate. In the 2012 Upper Beaver PEA, copper recovery was estimated at 90%, with gold recovery closer to 95%, so the recovery assumption is likely conservative.

Before moving on from Upper Beaver, it's worth noting that recent results from Upper Beaver have been incredible, with a new intercept hitting 14.8 meters of 21.2 grams per ton gold and 0.67% copper, with these grades mirroring the reserve grade at the Macassa Mine. Obviously, the reserve grade at Upper Beaver will not double based on these figures (11.0+ grams per ton gold) based on a couple of solid drill holes. Still, the recent higher-grade results are quite encouraging and could lift the reserve grade slightly. Additional intercepts drilled by Agnico recently included 4.5 meters of 10.2 grams per ton gold, 33.2 meters of 27.7 grams per ton gold plus 0.63% copper, and 4.8 meters of 13.8 grams per ton gold and 0.97% copper from the Porphyry Zone.

Kirkland Lake Gold Camp

Kirkland Lake Gold Camp

Queenston Mining

As shown in the above map, Kirkland Lake Gold previously held a small land position at Macassa and has been focused on mine production from the South Mine Complex and 04' Break/Main Break over the past two decades. A merger between the two companies would add another ~7.0 million ounces of resources in the vicinity of the Macassa Mill (~2,000 tons per day) and less than 70 kilometers from the idle Holt Mill. This is based on Anoki McBean, Alamgamated Kirkland, and Upper Canada, with these three deposits having resources of 670,000 ounces at ~5.7 grams per ton gold, 700,000 ounces at ~4.8 grams per ton gold, and ~2.4 million ounces at ~3.0 grams per ton gold, respectively.

Combined with ~3.2 million ounces of reserves/resources at Upper Beaver, this is a massive boost to the resource base in close proximity to two mills. This is a huge benefit to Agnico 2.0 since it should translate to fast-tracking production and capex savings. This is because capex will not need to be spent on constructing a new mill for Upper Beaver ore if it can be trucked to Holt. Meanwhile, capex will be saved on a tailings facility, and permitting should be relatively straightforward, given that it will be for mine development and tailings deposition vs. a stand-alone project. So, the combination of both companies delivers a massive upgrade to two assets that are being valued at next to nothing in each company's portfolio currently. This is a clear example of 1+1 = 3.

Alamgamated Kirkland Property

Amalgamated Kirkland Property

Queenston Mining Technical Report

In addition to a boost in the production profile, the other major benefit is exploration. Notably, the addition of the AK Project (Amalgamated Kirkland) not only adds high-grade material right next door to Macassa that was previously orphaned but also potentially a down-plunge extension of the South Mine Complex onto Agnico's land. With Macassa being the highest-grade gold mine globally and some of these bonanza-grade deposits only getting better at depth, this opens up massive exploration potential. Notably, it also gives Kirkland Lake Gold (under Agnico 2.0) access to ~670,000 ounces of high-grade material to process that couldn't have been accessed without some type of agreement between the two parties.

Finally, both teams can now share geological data in the area, with the aim of making a new major discovery in this massive camp. As the below image shows, Agnico Eagle clearly held the bulk of this camp's landholdings along the Larder Lake Break, and this could become a major new mining area for the company down the road, given that it's already home to over 6 million ounces of resources (ex-Macassa) within relatively close proximity to two mills (one idle). If the camp were to grow large enough, Agnico 2.0 could even look at increasing the size of the Macassa Mill to ~2,500 to ~3,000 tons per day, focusing on high-grade material in the region in an aim to boost Macassa's production profile to more than 450,000 ounces per annum. Given the amount of displeasure voiced towards the deal from some commenters on this site, I imagine they have not looked at the synergies here and how beneficial this is mutually to consolidate the Kirkland Lake Gold Camp. Blue shaded land is shown as owned by Queenston Mining, but this is currently land held by Agnico Eagle.

Kirkland Lake Gold Camp

Kirkland Lake Gold Camp

Queenston Mining

As noted earlier, some have expressed their displeasure with the deal, and what I find most surprising is how quickly investors have forgotten just how much value Kirkland Lake Gold's CEO Tony Makuch has generated for shareholders. Since 2016, the leader and the brilliant team he's assembled has increased its market cap from less than $2 billion to more than $10 billion at its peak, helped by two of the most transformational acquisitions the sector has seen this century. The first, Fosterville, helped shareholders enjoy a more than ~700% return in a stagnant period for the Gold Miners Index (GDX). The second was also prescient, scooping up a high-cost mine less than a year before the gold price would go on to hit a new all-time high and proving out his concept that Detour Lake could be a much larger and lower-cost asset with him at the helm.

Detour Lake Life Of Mine Plan

Detour Lake Life Of Mine Plan

Kirkland Lake Gold

With a track record like this, I have complete faith in his decision-making, and I believe that the deal is a genius move, given that it will help Kirkland Lake to finally receive the premium multiple it deserves under Agnico 2.0. In fact, I would argue that this deal could push much more investment dollars towards Agnico 2.0, given that the new company checks all the boxes, with one of the highest reserve grades, production profiles, growth profiles, margins, and reserves per share among million-ounce producers. This should translate to a premium valuation with an earnings multiple above 20 and a P/NAV multiple of ~1.50, translating to a conservative fair value well above $70.00 per share. It's important to note that Agnico brings the bulk of this NAV to the table, which is why the ~0.80 ratio makes sense, given that it has a 30% higher NAV, even if it does have slightly higher costs. Notably, there is a material upside to the combined entity's NPV (5%) if new discoveries can help fill the mill at Canadian Malartic or if we see the gaps filled during 2026-2030 at Detour Lake (shown above).

Agnico Eagle Returns

Agnico Eagle Returns

Agnico Eagle Mines
Agnico Eagle Metrics

Agnico Eagle Metrics

Agnico Eagle Mines

Finally, while some Kirkland Lake shareholders may not be convinced Agnico Eagle is a quality company, a simple look at the stock's returns would help to dispel any doubts. As shown above, Agnico Eagle Mines has enjoyed nearly 13% compound annual returns since 1998, beating the S&P 500 (SPY), the gold price, and the PHLX Gold/Silver Sector Index. These returns are nearly as good as Franco-Nevada's since its IPO (~14%), which is incredible, given that Franco-Nevada is one of the best performers sector-wide. This exceptional performance has been achieved by shrewd investments over the past few decades. Highlights included scooping up Goldex in 1993; (which still has a mine life looking out to 2030); acquiring Kittila in 2005; (which continues to grow output), and picking up Cumberland Resources in 2007 for less than ~$600 million, a mine (Meadowbank) that currently produces nearly 400,000 ounces of gold per annum.

Canadian Malartic

Canadian Malartic

Agnico Eagle Mines

In a sector that's known for poorly-timed deals and value destruction, we have begun to see a trend towards deals that make a lot of sense, beginning with Barrick's (GOLD) merger with Randgold nearly three years ago this week. The current proposed deal with Agnico and Kirkland has continued this trend, but the difference is that it potentially vaults Agnico 2.0 into the top spot for production growth, margins, reserve grade, and jurisdictional profile among the 3.0+ million-ounce producers. This makes Agnico 2.0 the most attractive bet in the sector, and I believe the current pullback offers a very low-risk buying opportunity, with more than 45% upside to conservative fair value, a dividend yield of ~2.80%, and a project pipeline that could catapult Agnico to near ~4.5 million-ounce producer status by 2026. Given the clear synergies and combination of two exceptional teams into one high-margin mining champion, I plan to vote in favor of the deal, given that I see a much quicker and clearer path to a re-rating for Kirkland Lake Gold and Agnico under the combined entity.
#54: 28.09.2021 14:20 nicco
Vom Verfasser oder vom Besitzer der Diskussion gelöscht.
#53: 28.09.2021 13:53 robbyredford
@robbyredford (#50)
@nicco (#51)

fundamental erschließt sich mir dieses vorgehen des kl-managements (noch) nicht.

die detour-übernahme war dagegen ein brillianter schachzug, gleichwohl sich die vorteile hieraus erst zukünftig im kurs darstellen würden. kl hat jetzt knapp 2 jahre daran gearbeitet, diese vorteile "sichtbar" zu machen.

aber was bringt dieser merger of equals jetzt zu diesem zeitpunkt?
und zu diesen bedingungen?

immerhin müssen ja wohl noch 66% der kl-aktionäre zustimmen. ob das passiert?
#52: 28.09.2021 13:36 nicco
Vom Verfasser oder vom Besitzer der Diskussion gelöscht.
#51: 28.09.2021 12:52 nicco
Vom Verfasser oder vom Besitzer der Diskussion gelöscht.
#50: 28.09.2021 12:45 robbyredford
na also...
aber ob das gut ist für den kl-kurs?

September 28, 2021
Agnico Eagle and Kirkland Lake Gold Announce Merger of Equals To Create Highest-Quality Senior Gold Producer

(All amounts expressed in U.S. dollars unless otherwise noted)

TORONTO, Sept. 28, 2021 (GLOBE NEWSWIRE) -- Agnico Eagle Mines Limited (TSX:AEM, NYSE:AEM) (Agnico Eagle or the Company) and Kirkland Lake Gold Ltd. (TSX:KL, NYSE:KL, ASX:KLA) (Kirkland Lake Gold) announced today that they have entered into an agreement (the Merger Agreement) to combine in a merger of equals (the Merger), with the combined company to continue under the name Agnico Eagle Mines Limited. The Merger will establish the new Agnico Eagle as the gold industrys highest-quality senior producer, with the lowest unit costs, highest margins, most favourable risk profile and industry-leading best practices in key areas of environmental, social and governance (ESG). Upon closing of the Merger, the Company is expected to have $2.3 billion of available liquidity, a mineral reserve base of 48 million ounces of gold (969 million tonnes at 1.53 grams per tonne), which has doubled over the last 10 years, and an extensive pipeline of development and exploration projects to drive sustainable, low-risk growth.

The Merger will create a best-in-class gold mining company operating in one of the worlds leading gold regions, the Abitibi-Greenstone Belt of northeastern Ontario and northwestern Quebec (the Abitibi), with superior financial and operating metrics. Consolidation within the Abitibi will also provide the new Agnico Eagle with significant value creation opportunities through synergies and other business improvement initiatives. Additionally, the Company is established uniquely as the only gold producer in Nunavut and well positioned internationally with profitable and prospective assets in Australia, Finland, and Mexico.

The combination of Agnico Eagle and Kirkland Lake Gold combines each companys strengths by bringing together two industry leaders in growing per share value in key metrics such as production, mineral reserves, cash flow and net asset value. Both companies also share a strong commitment to returning capital to shareholders, with a total of $1.6 billion being returned through dividend payments and share repurchases since the beginning of 2020 (on a pro forma basis).

Under the Merger Agreement, which the Board of Directors of both companies have unanimously approved, the new Agnico Eagle will be led by a combined board and management team of experienced mining and business leaders, bringing together the proven cultures, strengths and capabilities of both companies. The transaction is expected to close in December 2021 or in the first quarter of 2022.

Pursuant to the Merger Agreement, Kirkland Lake Gold shareholders will receive 0.7935 of an Agnico Eagle common share for each Kirkland Lake Gold common share held (the Consideration). The Consideration to Kirkland Lake Gold represents approximately a 1% premium to the 10-day volume weighted average prices on the Toronto Stock Exchange, as at close of trading Friday September 24, 2021 and implies a combined market capitalization of approximately $24 billion. Upon closing, existing Agnico Eagle and Kirkland Lake Gold shareholders will own approximately 54% and 46% of the combined company, respectively.

Sean Boyd, Agnico Eagles Chief Executive Officer stated, This merger starts a new chapter in Agnico Eagles 64-year history and creates the leading low risk global gold company with growing production, low costs and strong ESG leadership. The transaction creates a company with a strong platform of people, assets and financial resources to continue to build and operate a long term sustainable and self funding business. Kirkland Lake is an excellent cultural fit with Agnico Eagle, and we look forward to working together to further grow our business through exploration, mine development and optimization of our high-quality asset base. Over time, we believe that the gold industry will continue to evolve and consolidate and with this transaction we are well positioned to take advantage of high-quality opportunities and be a true Canadian mining champion.

Tony Makuch, President and CEO of Kirkland Lake Gold, stated, We are very pleased and excited to be entering into a combination with Agnico Eagle. It is a unique strength-on-strength transaction that combines the two global gold producers with the best track records for increasing per share value. The deal creates an industry leader with a dominant position in the Canadian market that is deserving of a premium valuation and is poised to generate superior long-term shareholder value going forward. The transaction represents a true merger of equals, with the business of both companies to benefit from the significant financial strength of the merged company, the extensive pipeline of development and exploration projects to drive future growth, and the potential to realize significant operational and strategic synergies along the Abitibi-Kirkland Lake corridor. It is the right deal for our company and its shareholders, our people, the communities where we operate, and all of our key stakeholder groups.

Strategic Rationale for the Merger

Key strategic, financial and operational advantages of the combined business include:

Creates the Highest Quality Senior Gold Producer The Merger will create the industrys highest-quality and lowest-risk senior gold producer. With expected production of approximately 3.4 million ounces in 2021 at the lowest all-in sustaining costs per ounce amongst the senior gold producers, the Company remains focused in low-risk jurisdictions and regions with high geological potential.
Maintains a Proven and Trusted Senior Leadership Team and Board with a Strong Track Record of Creating Value Per Share The combined leadership team will maintain the consistent and proven strategy of growing both production and profitability per share.
Extends Industry Leadership in ESG and Enhances the Capacity to Make Longer Term ESG Focused Investments The combined entity will be a leader in energy performance and GHG emissions intensity, with a commitment to be Net Zero by 2050 or earlier.
Enhances Position in one of the Most Prolific and Prospective Gold Regions in the World The Merger solidifies the new Agnico Eagle as Canadas leading gold producer, with expected annual production in the country of approximately 2.5 million ounces in 2021 (on a pro forma basis). The combined portfolio will be anchored by high-quality gold production in Ontario, Quebec and Nunavut in Canada, as well as at Fosterville in Victoria, Australia, Kittila in the Lapland region of Northern Finland and Pinos Altos and La India in Northern Mexico.
Drives Fundamental Value Creation from Significant Unique Synergies Estimated at $0.8B over 5 Years and $2B over 10 Years (Pre-Tax) The Merger provides a unique opportunity to unlock significant operational and strategic synergies along the Abitibi-Kirkland Lake corridor and to leverage sector-leading technical expertise to surface additional value across the portfolio.
Highlights Track Record of Growing Mineral Reserves and Mineral Resources The Merger combines the only two major gold companies to have grown mineral reserves and production per share over the last 10 years through consistent investment in exploration and value-added acquisitions, with total mineral reserves increasing by 127% from 2011 to 48 million ounces at December 31, 2020 (on a pro forma basis).
Enhances and Adds Flexibility to an Attractive Minesite and Project Pipeline The Merger combines a robust pipeline of growth projects and exploration opportunities. These projects are located in existing mining camps and will drive manageable, low-risk, high-return production growth over the next decade.
Provides the Financial Strength to Increase Capital Distributions to Shareholders While Investing in Growth Projects The Merger significantly enhances the financial flexibility to fund both the robust pipeline of growth projects and to build on a proven track record of growing sustainable capital returns to shareholders while maintaining a strong balance sheet. In combination, Agnico Eagle and Kirkland Lake Gold have collectively returned $1.6 billion to shareholders through dividends and share repurchases since the beginning of 2020 and expects to further increase returns to shareholders in the future.

Board of Directors Recommendations

After consultation with its outside financial and legal advisors, the Board of Directors of Agnico Eagle has unanimously approved the Merger Agreement. The Board of Directors of Agnico Eagle recommends that Agnico Eagle shareholders vote in favour of the Merger.

TD Securities Inc. has provided an opinion to the Agnico Eagle Board of Directors to the effect that, as of the date thereof, and based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the Consideration to be paid in the Merger by Agnico Eagle is fair, from a financial point of view, to Agnico Eagle. BofA Securities has provided an opinion to the Agnico Eagle Board of Directors to the effect that, as of the date of such opinion, based upon and subject to the various assumptions, limitations and qualifications set forth in such opinion (which will be described in the joint management information circular of Agnico Eagle and Kirkland Lake Gold that is expected to be mailed to their respective shareholders), the exchange ratio provided for in the Merger Agreement to be paid in the Merger by Agnico Eagle is fair, from a financial point of view, to Agnico Eagle.

Kirkland Lake Gold appointed a special committee of independent directors to consider and make a recommendation with respect to the Merger. Based on the unanimous recommendation of the Kirkland Lake Gold special committee of independent directors, and after consultation with its outside financial and legal advisors, the Board of Directors of Kirkland Lake Gold has unanimously approved the Merger Agreement. The Board of Directors of Kirkland Lake Gold recommends that Kirkland Lake Gold shareholders vote in favour of the Merger.

BMO Capital Markets and Maxit Capital LP have each provided fairness opinions to the Kirkland Lake Gold Board of Directors, and CIBC has provided a fairness opinion to the Kirkland Lake Gold special committee, to the effect that, as of the date thereof, and based upon and subject to the assumptions, limitations and qualifications stated in each such opinion, the exchange ratio is fair, from a financial point of view, to the holders of Kirkland Lake Gold shares.

Transaction Summary and Timing

The Merger will be effected by way of a plan of arrangement of Kirkland Lake Gold under the Business Corporations Act (Ontario). At closing, all Kirkland Lake Gold common shares will be exchanged for the Consideration, being 0.7935 of an Agnico Eagle common share, for each Kirkland Lake Gold common share held. The arrangement will require the approval of at least 66 2/3% of the votes cast by the shareholders of Kirkland Lake Gold voting at a special meeting of Kirkland Lake Golds shareholders. The issuance of shares by Agnico Eagle under the Merger is subject to the approval of a simple majority of votes cast by Agnico Eagle shareholders at a special meeting of Agnico Eagles shareholders.

The Merger is also subject to closing conditions customary in transactions of this nature, including receipt of Competition Act (Canada) and Foreign Acquisitions and Takeovers Act 1975 (Cth) (Australia) clearance, Ontario court approval and applicable stock exchange approvals. The Merger Agreement includes reciprocal non-solicitation provisions, a reciprocal $450 million termination fee and a $20 million expense reimbursement payable in certain circumstances.

Officers and directors of Agnico Eagle have entered into support and voting agreements with Kirkland Lake Gold, agreeing to vote their shares in favour of the Merger. Officers and directors of Kirkland Lake Gold have entered into support and voting agreements with Agnico Eagle, agreeing to vote their shares in favour of the Merger.

Agnico Eagle and Kirkland Lake Gold have agreed to use their commercially reasonable efforts to complete the merger on or before March 31, 2022.

It is anticipated that both shareholder meetings will take place in the fourth quarter of 2021 and that closing will occur in December 2021 or in the first quarter of 2022 subject to satisfaction of the conditions under the Merger Agreement.

Following completion of the Merger, the shares of the new Agnico Eagle will continue to trade on the Toronto Stock Exchange and the New York Stock Exchange, subject to approval or acceptance of each exchange in respect of the Agnico Eagle shares being issued as part of the Consideration. Kirkland Lake Golds shares will be de-listed from the Toronto Stock Exchange, the New York Stock Exchange, and the Australian Securities Exchange following closing.

Governance, Communities, and ESG

On closing, the combined company will continue to be operated under the new Agnico Eagle brand and headquartered at Agnico Eagles existing head office, and will be led by a proven leadership team that builds on the strengths and capabilities of both companies. The senior executive team and Board of Directors of Agnico Eagle will be enhanced by the addition of new members from Kirkland Lake Gold who all have a wealth of knowledge and experience to support the combined operations. The Board of Directors of the new Agnico Eagle will consist of 13 directors, comprised of 7 directors of Agnico Eagle and 6 directors from Kirkland Lake Gold. The key senior management team and directors will include:

Executive Chair of the Board Sean Boyd
Chief Executive Officer Tony Makuch

President Ammar Al-Joundi
Vice-Chair of the Board Jeffrey Parr
Lead Director Jamie Sokalsky

Agnico Eagle will remain committed to maintaining a strong workforce and culture, robust Indigenous peoples, community and stakeholder relations and investment and, as a leader in ESG matters, driving improved performance and delivering on its vision to continue building and growing a high-quality, low-risk, sustainable business.

Tax Treatment

Canadian taxable resident shareholders of Kirkland Lake Gold will be able to elect such that they receive common shares in Agnico Eagle free of Canadian income taxes, and other shareholders will generally not be subject to Canadian income tax. It is expected that U.S. resident shareholders of Kirkland Lake Gold will generally receive shares in Agnico Eagle on a tax-deferred basis for U.S. federal income tax purposes.

Advisors and Counsel

Agnico Eagle has engaged TD Securities Inc., BofA Securities and Trinity Advisors Corporation as its financial advisors and Davies Ward Phillips & Vineberg LLP as its legal advisor in connection with the transaction. Kirkland Lake Gold has engaged BMO Capital Markets and Maxit Capital LP as its financial advisors and Cassels Brock & Blackwell LLP as its legal advisor. The Kirkland Lake Gold special committee has engaged CIBC World Markets Inc. as its financial advisor and Fasken Martineau DuMoulin LLP as its legal advisor.

Analyst and Investor Conference Call and Webcast

Agnico Eagle and Kirkland Lake Gold will host a joint analyst and investor conference call and webcast on September 28, 2021 at 8:00 am Eastern Time to discuss the Merger. Participants are encouraged to dial in 10 minutes before the scheduled start time. The call-in details are as follows:

Via Webcast:

A live audio webcast of the conference call will be available on the Company's website at www.agnicoeagle.com.

Via Telephone:

For those preferring to listen by telephone, please dial 416-764-8659 or toll-free 1-888-664-6392. To ensure your participation, please call approximately five minutes prior to the scheduled start of the call.
#49: 27.09.2021 22:41 robbyredford
Kirkland Lake Gold: Gearing Up For Significant Growth At Macassa
Sep. 27, 2021 6:07 AM ETKirkland Lake Gold Ltd. (KL)48 Comments38 Likes
Summary

Kirkland Lake Gold is one of the best-performing gold stocks this year, up 3% year-to-date vs. a double-digit decline in the Gold Miners Index.
While all eyes continue to be on the company's previous breadwinner, Fosterville, Macassa is one of the most impressive mines globally, not getting nearly enough attention relative to Fosterville.
This is especially true, given that we're nearing the final stretch for completion of the #4 Shaft Project, set to take the governor off the operation, and no longer mine-constrained.
Given Kirkland Lake's position as the lowest-cost senior producer in the sector with meaningful growth at two of three assets, I continue to see the stock as a Buy on weakness.

Mine work underground
sezer66/iStock via Getty Images

It's been a tough 13-month stretch for the Gold Miners Index (NYSEARCA:GDX), with the ETF down more than 30%, and many producers sliding as much as 50%. Kirkland Lake Gold (NYSE:KL) has been a rare sanctuary during the carnage this year, up nearly 5% on a total return basis vs. a 17% decline for the GDX. This outperformance is likely attributed to a massive increase in reserves at its Detour Lake Mine, the company tracking ahead of guidance, and meaningful output growth next year at Macassa. However, while Fosterville gets all the attention, Macassa is an incredible asset, and it's now gearing up for significant growth. Given Kirkland Lake's position as the lowest-cost senior producer in the sector with meaningful growth at two of three assets, I continue to see the stock as a Buy on weakness.

Kirkland Lake Gold
(Source: Company Website)

All eyes have been on Fosterville over the past year, with many anxiously awaiting new high-grade results from the asset, worried that a decline in Fosterville production would spell trouble for the million-ounce producer. This is because the Australian mine was Kirkland Lake's breadwinner over the past few years, with peak production of ~640,500 ounces in FY20202 at all-in sustaining costs [AISC] below $325/oz. However, after years of extracting the low-hanging fruit (highest grades) from the mine, Kirkland Lake chose to "right-size" the asset, moving to a lower grade profile, resulting in output guidance of ~425,000 ounces in FY2021 and closer to 400,000 ounces at the high-end of guidance in FY2022 and FY2023. This decision was the right move to allow the asset time to bolster the asset's reserve base. Still, it spooked many investors with the assumption that Kirkland Lake would become a high-cost producer without the benefit of Fosterville.

It's quite clear from the 2021 Detour Life Of Mine Plan that Detour is not a high-cost asset at all, despite its grades, with projected AISC of less than $800/oz over the next five years. Meanwhile, Kirkland Lake's other mine, Macassa, is the highest-grade gold mine globally and receives zero attention, with Fosterville stealing all the spotlight. So, while some might still believe that Kirkland Lake Gold is not the same company since the Fosterville right-sizing, I would argue that it's actually a much better company, with a more diversified asset base (3 mines, not 2), with ownership of two of the highest-grade gold mines globally, and the ability to churn out well above 1.0 million ounces of gold per year without reliance on ounce-per-tonne material, which is obviously not sustainable. Let's take a closer look at Macassa below:

Kirkland Lake Gold Macassa Mine Production
(Source: Company Technical Report)

Before digging into Macassa today, it's worth looking at the mine's rich history, with production extending back nearly a century to 1933. For those unfamiliar, operations began nearly 90 years ago, with the mine producing over 5.5 million ounces at a grade of half an ounce per tonne over the past 88 years. The asset was purchased (mine & plant) for a song in 2001 by Foxpoint, which was later renamed Kirkland Lake Gold, for just $5 million, plus a $2 million reclamation bond. This acquisition was completed after the mine was offline for two years due to low gold prices, with the outstanding gold grades at Macassa shown above. As the chart below shows, even after nearly 90 years of mine production, Macassa is the highest-grade gold mine globally by reserve grade, yet the asset receives little praise. This may be due to its higher cost base than Fosterville and its smaller production profile, but as will be explained, this is about to change.

Kirkland Lake Gold Highest Grades Gold Mines Globally
(Source: Company Filings, Author's Chart)

Just over three years ago, Kirkland Lake announced plans for a new shaft at its Macassa Mine (#4 Shaft), designed to improve ventilation, allow for more effective exploration east of the South Mine Complex [SMC] and also take the governor off the operation. This is because the new shaft has a hoisting capacity of 4,000 tonnes per day vs. ~2,200 tonnes per day for Shaft #3 or nearly double the capacity. The completion of the #4 Shaft Project in H2 2022 (less than 12 months away) will allow Kirkland Lake Gold to fill its ~2,000 tonne-per-day mill at Macassa, which up until now, has been operating at less than 60% of full capacity. With mine production increasing to more than ~722,000 tonnes per annum to fill this mill, production is expected to soar, with a compound annual production growth rate of ~14.6% vs. FY2019 levels, or total growth of more than 70%. Let's take a closer look below:

Kirkland Lake Gold - Macassa Mine Annual Gold Production
(Source: Company Filings, Author's Chart)

As the chart above shows, Kirkland Lake Gold has guided for production of ~412,000 ounces at the mid-point in FY2023 and ~310,000 ounces next year, translating to ~29% growth next year and ~70% growth looking out to FY2023. This is set to transform Macassa from an asset that has barely contributed to Kirkland Lake Gold's production profile (post-Detour acquisition) to a mine that will be a massive contributor and the same size, if not larger than Fosterville. Importantly, this massive increase in annual output is expected to pull costs down from $721/oz in FY2019. In fact, Macassa's all-in sustaining costs were expected to average $537/oz from 2020 to 2027, ranging from $375/oz to $675/oz. So, once Macassa's #4 Shaft Project is complete (beginning Q3 2023), we should see the mine's all-in sustaining costs below $600/oz and closer to $550/oz.

I have used more conservative figures for costs post Shaft #4 Project, given this is a 2-year old report (July 2019). I have used FY2019 figures to discuss the growth rates above, given that FY2020 figures were impacted by FY2020 and less comparable. Relative to FY2020 levels, Macassa will see 125% growth in production looking out to FY2023.

Kirkland Lake Gold Unit Costs
(Source: Company Technical Report)

Based on a conservative gold price of $1,700/oz, this will boost Macassa's margins from sub 50% in FY2019 ($722/oz costs vs. $1,405/oz gold price) to more than 70% in FY2023 ($580/oz estimate vs. $1,700/oz gold price). So, while Fosterville should see higher costs in FY2023 with production in the ~375,000-ounce range unless Kirkland Lake meets the high end of guidance (400,000 ounces), Macassa is going to pick up the slack. At the same time, Detour Lake's costs are expected to drop consistently from ~$1,000/oz to below $800/oz, with optimization work ongoing and the mill ramping up towards a goal of 28 million tonnes per annum.

As should be clear by now, all the groans about a Fosterville slowdown hurting the Kirkland Lake Gold investment case were overblown. This is because Fosterville's increased costs are being offset by a 20% dip in costs at Macassa and a more than 20% decline in costs at Detour Lake. Therefore, Kirkland Lake Gold should maintain its position as the lowest-cost producer in the sector in FY2023 through FY2025, with costs at or below $800/oz. This is supported by 1.1 to 1.2 million ounces per annum being produced at Macassa and Detour coming in at below $800/oz. Combined with a Tier-1 jurisdiction profile (Canada/Australia) and one of the only mines in the sector with close to a 30-year mine life based on reserves (projected in 2022 Detour LOMP), Kirkland Lake Gold continues to be one of a kind.
So, what about reserves at Macassa?

As shown in the chart below, Macassa's reserves currently stand at ~2.28 million ounces of ultra high-grade material (20.1 grams per tonne gold), with a total of ~2.37 million ounces of gold, including near-surface material (86,000 ounces at 8.7 grams per tonne gold). This translates to just ~6 years of production at the new ~412,000-ounce per annum run rate, but it's important to note the trend in reserves over the past decade. As was the point in constructing this chart and the history earlier on the asset, Macassa has doubled its reserve base after depletion since 2012, despite almost no increase in its gold price assumption (2013: $1,200/oz, 2021: $1,300/oz). Therefore, this reserve growth has come at the drill bit and from new discoveries, not from adjusting gold prices, as some producers do, to cover up depletion in the reserve base. In fact, despite more than 1.5 million ounces produced since 2007, the reserve has increased by more than 1000%, from less than 200,000 ounces of gold at ~19.3 grams per tonne to ~2.37 million ounces at 19.2 grams per tonne gold. Excluding near-surface material, which dilutes the average grade, reserve grades are actually up, at 20.1 grams per tonne gold.

Kirkland Lake Gold Macassa Mine Proves & Probable Reserves
(Source: Company Filings, Author's Chart)

Meanwhile, it's important to note that Macassa has another ~1.5 million ounces of gold exclusive from reserves that backs up this ~2.3 million ounce reserve base. This is shown in the chart below, with Macassa currently home to ~790,000 ounces of measured & indicated resources and another ~760,000 ounces of inferred resources. While this material is lower-grade (~15.0 grams per tonne gold), it's still very high-grade and would allow Macassa to maintain its position as one of the highest-grade gold mines globally. Therefore, there should be no worries about Macassa's reserve life. If we assume 80% conversion of M&I resources, and 65% conversion of inferred resources, this would add another ~1.07 million ounces to Macassa's reserve base. This would give the asset a reserve base of more than 3.4 million ounces of gold, or nearly ten years of mine life, assuming no reserves added net of depletion. As history has shown, reserves have always been replaced net of depletion.

Kirkland Lake Gold Macassa Mine Mineral Resources
(Source: Company Filings, Author's Chart)

The other point worth mentioning about Macassa is that with the much lower costs expected from the #4 Shaft Project, Kirkland Lake Gold will be able to drill more effectively east of the SMC, and could also look at boosting resources with a slightly lower cut-off grade. The latter is possible due to the sharp decline in operating costs once #4 Shaft is complete, which would be a tailwind for resource growth. Currently, Kirkland Lake Gold uses a very conservative cut-off grade of 8.6 grams per tonne gold at 04' Break/Main Break, 5.1 grams per tonne gold at the South Mine Complex, and 3.4 grams per tonne gold for its near surface material at Macassa.

Macassa Mine
(Source: Company Presentation)

In terms of exploration, we can see that Kirkland Lake Gold has continued to announce impressive hits outside of its reserve and resource base, including intercepts like 2.0 meters of 101.7 grams per tonne gold, 2.0 meters of 49.3 grams per tonne gold, and 2.0 meters of 130.9 grams per tonne gold. Most recently, Kirkland Lake announced a blockbuster hole of 2.0 meters of 589.5 grams per tonne gold east of its reserves at SMC, with other hits that included 2.0 meters of 25.1, 16.4, and 14.8 grams per tonne gold, respectively. This points to meaningful resource and reserve growth, especially when we consider that this year's ~250,000-meter drill program is much larger than historical exploration programs at Macassa. In fact, with the significant cash flow generation from Detour following the acquisition, the company has never been in better shape.

This is because the added free cash flow from Detour Lake allows Kirkland Lake to easily fund up to $125 million in combined exploration per annum at its two high-grade assets (FV + MC) while still building up the balance sheet, paying dividends, and doing share buybacks. This increases the probability of making major discoveries, increases the probability of bolstering reserve bases to support 10-year mine lives consistently at these operations. It also affords the company excess capital to optimize these operations and improve its costs through technological improvements. In summary, the Detour Lake acquisition was brilliant, and it's significantly de-risked the Kirkland Lake investment case and arguably the best move we've seen made in the sector in years.

Kirkland Lake Gold
(Source: Company Technical Report)

Despite this material growth at Macassa, one of the sector's most aggressive exploration campaigns, and being the owner of the two highest-grade gold mines globally, Kirkland Lake Gold trades at a dirt-cheap valuation of less than 11x FY2023 annual EPS estimates. This is based on a current share price of $42.50 and FY2023 annual EPS estimates of $4.02. If we back out estimated year-end net cash of ~$1.05 billion ($4.05 per share based on ~259 million shares outstanding), Kirkland Lake trades at less than 10x FY2023 annual EPS estimates. This valuation might make sense for a producer with a $1,200/oz or higher cost profile, translating to sub ~30% margins at $1,700/oz gold, but Kirkland Lake's margins come in ~53% even at a $1,700/oz gold price. I would argue that a fair earnings multiple is 16, translating to a fair value of US$64.32 based on FY2023 estimates or an 18-month target price 50% higher than current levels.

Kirkland Lake Gold Annual EPS
(Source: YCharts.com, Author's Chart)

While some investors continue to be hung up on Fosterville, I don't see any reason to justify this pessimism, given that Kirkland Lake has two assets with massive growth on the horizon. If we combine this with the fact that Kirkland Lake Gold has made two of the best acquisitions in the past decade (Fosterville/Detour Lake), and has nearly $1.0 billion in net cash that it could unleash to make another small-bolt on acquisition in the next year, I would argue that Kirkland Lake Gold is the most attractive producer in the sector. This is especially true, given that it's defensive to gold price weakness, with its industry-leading margins. With the stock trading at less than 11x FY2023 earnings estimates, I continue to see the stock as very reasonably valued despite its outperformance, and I would view any weakness as a buying opportunity.

This article was written by
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Taylor Dart
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- Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Disclosure: I/we have a beneficial long position in the shares of GLD, KL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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