It’s Been Said Before, But Kirkland Lake Gold Finally Looks As Though It’s Moving Towards Serious Production Numbers
By Alastair Ford
minesite.com
Somewhere right in the heart of the City of London, below street level on Copthall Avenue, in a basement that may once, for all Minesite knows, have been a dungeon or a debtors’ jail, but which in all probability was actually a scullery or a place for polishing boots, sits an analyst who loves the Canadian mining company Kirkland Lake Gold. This, for any who aren't aware of who sits where in the City, is Simon Gardner-Bond, of Ocean Equities.
His love of Kirkland runs deep – he wants to shout its glories to the world and he feels aggrieved when it’s unfairly slighted. Which is why, just before Christmas, he called Minesite into the dungeon for a chat about why Kirkland hasn’t performed to date, and about why it looks set finally to deliver in the very near future. To be fair, he also paid for the curry afterwards, so it wasn’t all work, work, work. Simon’s one of the only London analysts ever to have been out to Kirkland Lake to see the assets there, so it pains him when other analysts jump to conclusions from behind their desks in London. There’s only so much data that you can pump into, or get out of, a spreadsheet, and there’s nothing like getting onto the ground, and, as the old saying goes, kicking the tyres. And meeting the people.
Simon’s interest in Kirkland isn’t entirely altruistic of course. Kirkland is one of a stable of companies that Ocean looks after that are controlled by Harry Dobson, the well-known Scottish mining entrepreneur, who’s also been known to dabble in horses and football. But the way Simon tells it, Harry’s not the key man to meet if you want to understand why Kirkland will shape up good this year, even though Harry’s market-savvy nous and access to deep pockets are a vital element in the company’s historic and future success. Neither’s Brian Hinchcliffe, the president of Kirkland Lake, and the man who, in partnership with Harry has steered many a moribund asset back into life and profitability over the years. No, the key man in this case, at this time, in this market, is Mark Tessier, vice president operations, the man who will turn Kirkland Lake into a company that eventually produces at a rate of between 150,000 and 200,000 ounces of gold per year, with the first significant ramp up towards that goal starting this year.
Mark is a man with plenty of mining experience on his CV. As chief of operations he sits firmly ensconced in Canada, and is unlikely ever to be wheeled around town in London and put in front of institutional investors or other analysts or journalists. To Simon Gardner-Bond this is a matter of some regret, as he regards Mark’s experience and vision as one of Kirkland Lake’s key selling points these days. Brian Hinchcliffe doesn’t disagree, when Minesite phones him later for the company’s own take on how 2009 will shape up. Mr Hinchcliffe explains: “Mark’s developed a couple of proprietary mining techniques himself, if you will. He developed a couple of twists on old tried and true mining methods”. These methods, to cut a long story short, were developed as Mark took the famous Red Lake mine, owned by Goldcorp, up to production levels of around 600,000 ounces a year. They involve an ingenious variation on the old cut and fill method of mining, in which miners mine down the cut, instead of up it. Simon Gardner-Bond describes Mark Tessier, in light of what he did at Red Lake, as “one of the most respected miners in Canada”. Brian Hinchcliffe says that Red Lake was “one of the most successful gold stories of the last 10 to 15 years”.
So, well and good for Kirkland Lake Gold that Mark fell out with the Goldcorp bosses and came to work at the Kirkland gold camp instead. He could have taken his pick. Crowflight Minerals were allegedly one suitor. But Mark obviously liked what he saw at Kirkland. “The good thing about Mark is he shares our view in seeing tremendous potential across the camp”, says Brian Hinchcliffe. But what has he got planned that’s so special? Well, for one thing, he’s not going to spend a great deal of money. “The highlight of our story”, continues Brian Hinchcliffe, “is that there’s not a lot of capex required to increase production”. Spending at this stage will focus on improving ventilation and on the development of proper mining access to the high-grade South Mine Complex. As part of that development a conveyor will be installed that will enable the easy transportation of ore from the South Mine Complex to the bottom of the existing shaft. That will all cost a penny or two, but as things stand, shouldn't be a stretch. According to the numbers totted up by the Ocean team, as at the end of October 2008, Kirkland Lake had C$23 million in the bank and no debt. It’s also already producing, so a combination of cashflow plus cash in the bank should easily cover any expenditure that Mark Tessier wants to lay out in 2009. Contrary to some expectations in the market, there will be no new shaft, and hence no US$150 million or so outlay. Which is a relief.
The official target for 2009 is 80,000 to 100,000 ounces. Costs are relatively high, but as Brian Hinchcliffe points out, the higher your production, the lower your unit costs, and Kirkland Lake plans to go above 100,000 ounces per year in fairly short order. Ever the cautious analyst, Simon Gardner-Bond says that if Mark can get costs below US$700 an ounce and produce 80,000 ounces, then “they’ll make some good money”. This isn’t just the old analyst habit of under-forecasting to allow the company to “beat expectations”. In the past there have been a couple of what Simon calls “false dawns” on the production side. But if Mark can’t do it, he adds, “no-one can”. Brian Hinchcliffe is equally positive: “I think we’re going to finally get the momentum”, he says. With gold creeping up again as the global economy steadily worsens, the timing couldn’t be more serendipitous. Maybe this’ll be the year that the rest of the market falls in love with Kirkland Lake too. |
