In a July 31 research note, ROTH Capital Partners analyst Jake Sekelsky reported that Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) "delivered another strong quarter" in Q2/19. "Kirkland Lake has been a top performer in the precious metals space over the last year."
Sekelsky presented the financial highlights from the quarter. Kirkland Lake's Q2/19 revenue was $281.3 million, above ROTH's forecast of $273.5 million. He attributed this to low costs at Fosterville and Macassa.
Yet, the miner's earnings per share in Q2/19 was a miss, reportedly $0.50 versus ROTH's estimate of $0.56. The cause was higher-than-expected costs at the Holt complex in H1/19 of $906 per ounce, a lot higher than what ROTH anticipated, which was $675, and higher than guidance of $660–680 per ounce. However, ROTH expects costs at Holt "should moderate in H2/19 as the production profile improves, resulting in potentially lower unit costs," noted Sekelsky.
The primary catalyst for Kirkland Lake in H2/19, Sekelsky purported, will be its aggressive exploration programs at Macassa and the company's Australian assets.
A less obvious, potentially positive catalyst over the medium term is activities taking place at Kirkland Lake's Northern Territory assets. For one, the company spent $49.6 million on advanced exploration work and underground development in the Northern Territory in H1/19. Two, it processed 32,000 tons through a bulk sampling program.
Given those two factors, "we believe a positive restart decision in the Northern Territories is likely toward the end of this year," added the analyst.
Sekelsky concluded, "We continue to view Kirkland Lake as a high-quality gold producer with the ability to continue generating organic value."
As such, ROTH has a Buy rating and a US$48 per share price target on Kirkland Lake, whose stock is now trading at around US$44.07 per share.
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Disclosures from ROTH Capital Partners, Kirkland Lake, Company Note, July 31, 2019
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
ROTH makes a market in shares of Kirkland Lake and as such, buys and sells from customers on a principal basis.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.
