Research Report February 26, 2021 | 07:37 ET | 07:37 ET~
Kirkland Lake Gold
KL-TSX Rating Price: Feb-25 Target Outperform $43.50 $80.00
In-Line Q4/20 Earnings; Record Cash Flow Generation; 2020 R&R Update
Bottom Line:
Total Rtn
86%
Modest positive. KL reported Q4/20 adjusted EPS of US$0.98, roughly in line with BMO and consensus estimates of US$1.04 and US$1.02, respectively. Kirkland reported Q4/20 and FY2020 AISC/oz of US$790 and US$800, respectively, in line with our expectations. The company generated a record US$1.3B in cash flow from operations in 2020, leading to a 20% year-over-year increase in cash to US$848M. Despite COVID-related delays only allowing 65% of planned drilling, Kirkland posted slightly higher reserves and resources. We reiterate our Outperform rating and C$80.00 target price.
Key Points
In-line Q4/20 earnings. KL reported Q4/20 adjusted EPS of US$0.98, roughly in line with BMO and consensus estimates of US$1.04 and US$1.02, respectively. The slight EPS deviation can be primarily attributed to a US$0.03/sh reduction for a prior-period depreciation adjustment. Kirkland reported Q4/20 and FY2020 AISC/oz of US$790 and US$800, respectively, in line with our expectations. On January 12, Kirkland pre-released Q4/20 production of 369.4 Koz, bringing the 2020 total to 1.37 Koz, near the midpoint of the guidance range. See our note here: Q4/20 Production Below Expectations.
Record cash flow generation and a pristine balance sheet. Kirkland finished the year with US$848M in cash, a 20% increase from the prior year. Kirkland generated over US$1.3B in cash flow from operations in 2020, a significant increase from the US $919M in 2019. Kirkland’s balance sheet continues to be pristine, with a large cash balance and no debt.
2020 R&R update. Due to COVID-19 related suspensions, Kirkland was only able to complete 65% of its planned drilling for the year (340 km out of 525 km). Considering the drilling completed, we view the 2.5% increase in reserves, 12.0% increase in M&I resources, and 3.6% increase in inferred resources as a positive outcome. Kirkland's reserve gold price assumptions of US$1,300/oz is unchanged from the prior year.
2021 outlook and beyond. On January 10, Kirkland provided 2021 guidance and the company's expected 3-year production profile. In 2021, Kirkland expects to produce 1,300-1,400 Koz at an AISC of US$790-810/oz, with production growing to approximately 1.5 Moz in 2023. Production is expected to be weighted heavily to the latter half of 2021 with AISC/oz decreasing throughout the year. See our note here: 2021 Operation Guidance; Production Profile Visibility out to 2023.
Key Changes
Estimates Q1 / 21E
Revenue $515
Previous $566
EPS $0.59
Previous $0.74
CFPS $1.07
Previous $1.22
2021E
$2,503
$2,465
$3.39
$3.40
$5.74
$5.48
2022E
$3.49
$3.58
$5.92
$5.79
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules.
For disclosure statements, including the Analyst Certification, please refer to page(s) 5 to 8.
Gold
Brian Quast, P.Eng., JD.
brian.quast@bmo.com
Connor Simpson connor.simpson@bmo.com
Legal Entity: BMO Nesbitt Burns Inc.
Analyst (416) 359-6824 Associate (437) 231-6708
2YR Price Volume Chart
80
70
60
50
40
30 0
15 10 5
Aug Feb LHS: Price (C$) / RHS: Volume (mm)
Aug Feb Source: FactSet
Company Data in C$
Dividend Yield NAV
$0.97 Shares O/S (mm) 2.2% Market Cap (mm)
$41.93 P/NAV
267.1 $11,617 1.1x
BMO Estimates in $
(FY-Dec.) 2020A 2021E 2022E 2023E
Revenue
$2,464
$2,503
$2,643
$2,741
EPS
$3.28
$3.39
$3.49
$3.58
CFPS
$4.87
$5.74
$5.92
$6.12
Gold Prod (koz)
1,370
1,331
1,404
1,475
AISC ($/oz)
$789
$796
$721
$713
Consensus Estimates
2020A 2021E 2022E 2023E
EPS
$2.82
$3.13
$2.87
Valuation
2020A 2021E 2022E 2023E
P/E
10.3x
10.2x
9.9x
9.7x
P/CFPS
7.4x
6.1x
5.9x
5.7x
EV/EBITDA
5.7x
4.8x
4.1x
3.4x
QTR. EPS Q1 Q2 Q3 Q4
2020A
$0.70
$0.82
$0.92
$0.84
2021E
$0.59
$0.86
$0.95
$0.99
2022E
$0.83
$0.84
$0.89
$0.94
2023E
$0.89
$0.89
$0.90
$0.90
Our Thesis
We rate Kirkland Lake Gold shares Outperform. Exceptional performance, mainly from Fosterville, but also from Macassa, has moved the stock to a well- deserved premium valuation. Further upside potential may also be unlocked through the recently acquired Detour Lake gold mine.
Kirkland Lake Gold - Block Summary Model
Income Statement 2020A 2021E 2022E 2023E
Revenue
2,464
2,503
2,643
2,741
Operating Costs
654
696
770
806
G&A
65
53
52
54
Depreciation
383
427
459
489
EBITDA
1,540.05
1,710.36
1,757.25
1,788.40
Tax
327
394
400
408
Adjusted Net Earnings
888
910
937
961
EPS
$3.28
$3.39
$3.49
$3.58
Cash Flow Statement 2020A 2021E 2022E 2023E
CFO
1,316
1,539
1,589
1,643
CFI
(190)
(834)
(361)
(234)
CFF
(987)
(206)
(221)
(201)
Free Cash Flow
733
705
1,228
1,409
FCF/Share
$2.71
$2.63
$4.58
$5.25
Balance Sheet 2020A 2021E 2022E 2023E
Cash & Equivalents
848
1,347
2,355
3,563
Long-Term Debt
19
0