In a March 18 research note, analyst Cosmos Chiu reported that CIBC upgraded Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) to an Outperformer rating from Neutral because "the protracted weakness in Kirkland Lake Gold's share price has created an attractive entry point."
Chiu highlighted the company's "key attributes that will attract the interest of generalist investors."
One is Kirkland Lake Gold's significant production at a low all-in sustaining cost. Together, the company's assets, located in mining friendly jurisdictions in Canada and Australia, produce about 1.5 million ounces of gold at an AISC of $825 per ounce.
Another is meaningful expected cash flow. CIBC projects that the Toronto-based miner will generate more than $700 million in free cash flow this year, an 8% yield.
Also, Kirkland Lake Gold should benefit from a weakening Canadian dollar and lower fuel prices. CIBC calculated that a 5% move in the U.S. to Canadian exchange rate equals a roughly 10% move in net asset value. Similarly, a 25% decrease in fuel prices translates to about a $25 per ounce drop in AISC at Detour Lake.
Chiu noted that for the remainder of this year, Kirkland Lake will continue to focus on operational execution at Detour Lake in Ontario and exploration at Fosterville in Australia.
For the latter, the company has budgeted $70–$80 million. About $15–$20 million of those are allocated for development of a 4.8 kilometer underground exploration drive to connect Robbin's Hill to the Fosterville's existing mine infrastructure. Other areas of interest at the Australian deposit are the Lower Phoenix system, Cygnet and Harrier.
Exploration results to date "support our longer-term assumption of exploration success driving a life-of-mine, 20 grams per ton head grade that keeps Fosterville running as a highly profitable, high-grade producer for another 10-plus years," Chiu commented.
CIBC has a CA$62 per share target price on Kirkland Lake, the stock of which is trading now at around CA$45.21 per share.[NLINSERT]
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Disclosures from CIBC, Kirkland Lake Gold Ltd., Rating Change-Upgrade, March 18, 2020
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Important Disclosure Footnotes for Kirkland Lake Gold Ltd. (KL.TO)
• 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Kirkland Lake Gold Ltd.
• 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by these companies: Kirkland Lake Gold Ltd.
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