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Coverage Resumed on Canadian Producer Following Acquisition

Streetwise Reports, Streetwise Reports
0 Comments| February 7, 2020

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A review of the transaction and its implications are provided in a BMO Capital Markets report.

Click to enlarge

In a Feb. 3 research note, analyst Brian Quast reported that BMO Capital Markers resumed coverage and lowered its target price on Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) to CA$61 per share following its acquisition of Detour Gold. In comparison, Kirkland Lake Gold is trading around CA$49.75 per share.

BMO decreased its target price on Kirkland Lake Gold for two reasons, Quast wrote. One was to account for the increased risk tied to Kirkland incorporating the Detour assets into its own. The second was to get Kirkland Lake Gold's valuation closer to that of its peers as it moves toward becoming a senior gold producer.

However, Quast highlighted that the Detour purchase was positive, "given that the long-life asset is a good strategic fit for Kirkland Lake's asset portfolio and that the transaction is immediately accretive to shareholders on a net asset value basis (NAV)," by about 26%.

Quast reviewed the Kirkland Lake-Detour deal and how it affects BMO's model on the acquiring company.

In the transaction, each single Detour Gold share was exchanged for 0.4343 share of Kirkland Lake Gold; about 77 million shares were issued in all. "Kirkland Lake Gold now has about 289 million shares outstanding with an approximately CA$15.6 billion market capitalization," noted Quast.

The analyst indicated that cash flow following the merger is estimated to be neutral in 2020 but accretive, by about 14%, in 2021. BMO expects Fosterville will drive Kirkland Lake Gold's near-term cash flow generation.

Quast relayed that BMO's model of the Detour Lake mine, albeit conservative, outlines production of 13,800,000 of gold over a 21-year life of mine at an average all-in sustaining cost of CA$871 per ounce. This assumes BMO metals prices and a 5% discount rate. BMO assigned 50% of Kirkland Lake Gold's NAV to the Detour Gold assets.

BMO has a Market Perform rating on Kirkland Lake Gold.

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from BMO Capital Markets, Kirkland Lake Gold, February 3, 2020


Analyst's Certification
I, Brian Quast, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. 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.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Kirkland Lake Gold.
Disclosure 6B: Kirkland Lake Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: B) Non-Investment Banking Securities Related Services
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Kirkland Lake Gold.

For Important Disclosures on the stocks discussed in this report, please click here.

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