Kirkland Lake Gold Ltd. Common Shares

Good afternoon, ladies and gentlemen. My name is Brandy and I will be your conference operator today. I would like to welcome everyone to the Kirkland Lake Gold Conference call and webcast to discuss the company's second quarter 2021 financial and operating results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. With that, I would now like to turn the call over to your Senior Vice President, Investor Relations, Mark Udding.

Thank you very much, Operator, and good morning, everyone. Welcome to our second quarter 2021 Conference Con webcast. With me today are most members of Kirkland Lake Gold senior executive team. Speaking during the presentation will be Tony McCooch, our president and chief executive officer. David Soros, our chief financial officer. Ian Hahn, vice president of Australian operations. Larry Lozeski, our general manager for Detour Lake Mine. Evan Pelletier, vice president mining for Kirkland Lake. and Eric Calio, our Senior Vice President of Exploration. As mentioned, there are also several other members of the executive team participating on the line as well. After our presentation, we'll then open up the call to questions. We ask each person to limit themselves to two questions today. The slide deck that we'll be referring to is on our website, both on the homepage and the events section. Before I get started, I would like to direct you to the slides on the show and on the website relating to forward-looking statements. Our remarks and answers to questions may contain and likely will contain forward-looking information about future events relating to our company. Please refer to slide two as well as forward-looking information section of our MD&A dated July 28, 2021 for the three and six months ended June 30, 2021. Also during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available in our Q2 and six-month press release in MD&A. Finally, I'll just emphasize that all dollars mentioned today will be in U.S. dollars unless otherwise stated. And with that, I'll turn the call over to Tony McCooch, President and CEO of Kirkham Lighthouse. Thanks, Mark, and thanks, everybody, for being on the call. Nice summer day in Canada here. We don't get a lot of these days, so we've got to learn to enjoy them. So we'll try to be efficient. We appreciate you guys being on the call and give you some time after we get through this presentation and after question and answer to at least enjoy some of the sunshine that you've seen out there. Anyway, before, you know, I'm going to start on slide four. But, you know, I think, you know, we did put out a press release. You do look at the results for the quarter. And, you know, we had a very, very solid quarter with record results and earnings and throughput and feature, et cetera. And I'll get more detail of that later. you know we again we we're on this call and we get the uh benefit of the being able to talk about about these results but it's really uh you know the results of the work of a lot of people within within within kirk and my gold and our suppliers and and their efforts and the communities and everything that supports us and you know it's you know we we would be remiss if we didn't say thanks everybody for your hard work it's not easy our business that we do as one of the as the board recognizes some of the times You know, when you look at all the challenges that we face in terms of trying to mine gold at depth and or extract bits of gold out of the rock, it's not an easy business, but you've got a lot of people that are working really hard that make it look easy. Anyway, thanks for the efforts. The other part is, you know, again, in acknowledging that, you know, within our operations both in Canada and Australia, our mines are located on traditional lands of numerous Indigenous communities in Kirkland Lake, you know, and we have an IBA in Kirkland Lake for an expense agreement and a very good working relationship with both the Watership First Nation and the Matatchewan First Nation just outside of Kirkland Lake. Over at Detour, we occupy the traditional lands of the Loose Cree, based up at New Sanctuary Island, just on the James Bay Coast, as well as Tequitagamu First Nation, based outside of Cochrane, Ontario, and the Wagasig First Nation as well. And, you know, similarly, you know, we do have exploration agreements. We are working sort of over the Quebec border and the lands there. It's, you know, part of the traditional lands of the Cree nations of Quebec. And over in Australia, whether it's down in Victoria at Fosterville with the Jajawurrung, as well as up in the Northern Territory in Australia, where we're working on doing some seedlings to the land. It's the Wagamon and the Jawan groups So, you know, we have lots of respect, and we really appreciate the opportunity to be partners and to be able to operate on these traditional lands. You know, we're just going through a period of time here in Canada. There's been a lot of developments in terms of land. of uh the truth and reconciliation happening in canada and you know i guess from from our perspective you know we we as a company you know we support people we recognize uh you know maybe sometimes we have to all recognize the truth of maybe things that happened in the past you know we can't We can't do things to correct the past, but we can demonstrate as we go forward what we do and how we want to work on these lands and work with our partners in this area. Anyway, maybe I'll get into our results. And before I do that, again, that's why it talks about giving an update on the COVID-19 response. You know, this is COVID-19 we were talking about here, but it's in 2021. We're hoping it doesn't become a COVID 2021 or COVID 2022. But we are encouraged by the developments in Ontario. You know, we do know that now there's some new lockdowns in Australia. But in terms of everything happening from a COVID perspective and the impact on our site, it is minimal impact at this point in time. Maybe, you know, over the last year and a half, two years, the people in Kirkland Lake Gold have done exceptionally well in terms of coverage. you know, putting in good policies and procedures and how we work and people adopting ways to protect each other and work together. And, you know, we've had a lot of success. We have had some outbreaks as defined by public health at Boca Camp and Detour Lake in Ontario during the second quarter. But, you know, the company and the people were very proactive in responding and the situation was quickly resolved. And, you know, actually, in fact, in both cases, we were recognized for the local health units, both the Perks Mine Health Unit, which looks after the detour, and the Timiskameen Health Unit, and for Kirk and Mike, in terms of what we did to prevent transmission and protect our people and protect any community spread from these efforts. So thanks, everybody, for continuing to work hard in these areas and work towards staying safe. Turning to slide five, I'll take a moment to give you an update on our responsible mining efforts. We are signatory to the World Gold Council Responsible Mining Principles, and we're working to achieve compliance to these objectives in our business. And at the same time, we're working to also support the industry as a whole to achieve these objectives as well. And fundamentally for us, responsible mining is integral to everything we do, and it's part of our culture, and we believe it's not just good enough for us to do it, And in Kirk and Mike Gold, we want to make sure that the rest of the industry is there with us and we can demonstrate leadership to the rest of the industry and not just the gold mining companies, but all the mining companies in the region. Also, additionally, as you may recall in Q1, we pledged to achieve the net zero carbon emissions by 2050 or earlier. We've been working towards that, establishing a net zero task force. So we've been working on trying to identify what our carbon footprint is at this point in time in all different areas and then look at ways to, you know, what does it mean? How do we do it? And look at ways to communicate it internally. There's lots to do there. We've also made a pledge where we made a commitment to invest $75 million per year over the next five years, basically on supporting a number of efforts. One is reducing our greenhouse gas footprint and the impact from our sites, so looking at ways to reduce our use of carbon. Also looking at, you know, big areas investing in technology and innovation to support a safer, more productive workplace. And to, you know, digitization, automation, working towards creating smart minds at our mines, both here in Macassar and Canada, as well as Fossaville in Australia. And we've also, you know, committed to providing support to our local communities and regions where people live, where people work to support these areas, make them more livable for our people and for the people in those communities. who host us. During Q2 2021, we achieved a number of achievements in these key areas. We made a significant donation on the area of community support over in Bendigo and next to Fosterville in Victoria, Australia. We made a $12 million community partnership fund. We also made a major commitment to Kirkland Lake Hospital, including providing financing for complete redevelopment of the emergency department at the hospital. Building also on our leadership in minimizing and reducing carbon emissions, we took additional steps in Q2 2021 to further reductions, and some of those, for example, would be the rollout of a new fleet of Z-50 trucks at MACASA, which are the world's first 50-ton underground haul trucks. Now I'm going to turn over to our financial and operating results on slide six. As I mentioned, we had an excellent quarter in Q2, highlighted by record net earnings of $244 million, or 91 cents per share. I think that's pretty much industry leading, by the way. A solid increase in quarterly production, which was 15% higher than Q2 2020 and 15% from Q1 2021. We had strong revenue growth and significant increase in the both operating and free cash flow. All three of our mines increased production during Q2 2021, with fossil having a particularly successful quarter. In Canada, both D2 Lake and Mackenzie achieved solid production growth from both prior periods. Looking at our unit costs in Q2, we beat our full-year guidance ranges. We are being impacted by the FX rates. Our operations are doing very well, matching costs, and we continue to target our existing guidance. In terms of cash flow, we had operating cash flow of $330 million and pre-cash flow of $131 million. Operating cash flow translating to cash flow per share of $1.65 million. Turning to slide seven, financial strengths continue to improve. Again, we think we have industry-leading financial strengths. Cash increased to almost $860 million. And again, with no debt, we also continued a very successful track record around capital allocation. We made significant investments for future value creation into our assets while also returning capital to shareholders. And what have we been doing? Well, during Q2, we returned $62 million for giving the shareholders $50 million for our Q1 dividend in April and $12 million for repurchase of 300,000 shares. We also demonstrated our commitment to continue to repurchase stock. We renewed our NTID in early June, and our revised NTID now for the next 12 months gives us the right to have the ability to repurchase up to 27 million shares. We followed that up by introducing an automatic share purchase plan, which we used now to buy back 300,000 shares in June, and we're making good use of the automatic share purchase plan in July. To date, in July, we've purchased about 945,000 shares, and that's an additional $38 million. So in total, we're able to purchase 5 million shares on our automatic share purchase plan. Turning to slide eight, you know, again, when we talk about investing and investing for shareholders and providing value for shareholders, first part is, you know, definitely we invest by, you know, giving some money back to shareholders through our dividend policy, through our NTIB, and those ways to make allocations back to shareholders. Second thing is through exploration and investing in our assets in terms of, you know, improving the value of these assets. And another third way we create value for shareholders is through, you know, investing in capital investment into our assets. You know, we continue to have a very successful track record in that. you know at teacher lake we we're generating a you know very encouraging exploration results eric will talk about them a little bit later you know and and you know i think the results continue to point to the conclusion that we talked about when we originally did the detour transaction that there's there's an extremely large deposit along the determined trend uh that's near surface it's much much larger than is included in the current reserves and i would I would say that, you know, until that, you know, that's just the beginning, we might not have even found the other part yet. Once we recover this. We're also making good progress in multiple growth projects, including optimizing the Detroit mine and increasing throughput in the mill. We did have some record throughput during the period, both from a day perspective and for over a period. There's been improvements in grade management coming with the new ASEER lab and looking at changing some of our processes at site as well as other infrastructure to support improvements in terms of mill throughput. We're looking at putting sets of screens in front of the cone crushers and we have to have new feed systems to support when they're down for maintenance. There's a lot of projects. And we're investing over at Mercasa, the number four shot. The number four shot is a significant project. It currently continues to remain ahead of schedule and on track for completion late next year. uh we also had the macassar continued to have a significant exploration success we issued a pressure release couple weeks ago which felt you know the results continue to show that the sulfide complex is is going to keep growing and it also highlights the potential that among both the amalgamated break in the main break for for new mineralization and and new potential mining areas and future And at Fossaville, we've already talked about the strong results in T2 and today, 2021, but basically Fossaville is having a tremendous year, and Ian Hong will discuss it more shortly. Apart from the results, we have also made progress with key underground development, critical for future exploration and sustainability of Fosterville. We've been developing the Robbins Hill as a second mining front, but also looking for cheaper down plunge extensions and new discoveries such as a swan zone. Now on slide 9, this is looking at a year-to-date results. We achieved better than expected production of 682,000 ounces for the first half of the year. Again, this is mainly due to fossil fuel. We achieved very solid unit cost performance. We had record half-year earnings and earnings per share and very strong cash flow. You can also see on the slide that so far this year we have repurchased 2.3 million shares for close to $100 million. That includes 945,000 shares we had bought back in March. In total, we have returned around $1.1 billion to shareholders since the beginning of last year. I think that very importantly, we're additionally on top of the strong results. We've also played for a very strong second half of 2021. And for the strong value creation going forward, we do have a lot of catalysts coming up in the company, and the main catalyst being, you know, the updated technology. resource reserve estimated detour, which we're talking about into Q1, finishing for this year, effective December 31, 2021, but, you know, coming out in Q1 2022. And we talk about the completion and, you know, the use of the number four shaft and building a new mine over at Macassar. Looking at slide 10, this shows our performance against guidance. As you can see, we're very well positioned to achieve our guidance entering the second half of the year. In our Q2 results and press release, we discussed FX rates and the fact that stronger than budgeted Canadian and Australian dollars is having an impact on our cost and expenditure performance relative to unit cost guidance, not in terms of dollar spend. Offsetting that impact in the first half of the year, we're higher than planned sales and effective cost management, as I say, in all three of our operations. But as it is, if we continue to see the rates like we have in the first half of the year, we will likely come in at right around the top ranges for unit cost and capital spending. But just wrapping that up, what I want to emphasize is that in our operations, our operations performed very well. Our financial results are strong. We continue to have very encouraging exploration results. And we're making an excellent project with all of our key projects and value creation initiatives. Anyway, with that, maybe I'll turn it over to call over to David Soros, our chief financial officer, and give you some highlights on the financial results. Thanks, David. Thank you, Tony, and good morning, everyone. I will begin on slide 11. In Q2 2021, we achieved record net earnings of $244.2 million, or $0.91 per share. This represented a 63% increase from $150.2 million in Q2 2020 to and 51% increase from $161.2 million the previous quarter. The increase from both prior quarter and prior year resulted mainly from higher revenues and lower effective tax rates. Q2 2020 also saw a sizable foreign exchange loss of $72.8 million compared against Q2 2021 foreign exchange gain of $2.6 million. Adjusted net earnings totaled $246.9 million, or $0.92 per share. The difference between adjusted net earnings per share of $0.92 and net earnings per share of $0.91 in Q2 2021 was mainly related to the removal of $3.5 million net mark-to-market gains recognized on warrant liability, care and maintenance costs incurred at our non-operating sites, uh holt and cold complex and the nt and other items that were not reflective of our operations like cobit costs and other restructuring charges starting to slide 12 in q2 2021 total revenue is 652.7 million the change from q1 2021 is mainly impacted by an increased sales volume and a 26 per ounce increase in average gold price compared with q2 2020 A $111 per ounce increase in average gold price from $1,716 to $1,814 accounted for $36 million of the revenue growth year over year. Looking at EBITDA, as shown on slide 13, Q2 2021 EBITDA totaled $451.3 million. A change from Q1 2021 primarily related to a 20% increase in revenues driven by higher volume and gold price. Compared with Q2 2020, change in EBITDA was due to a 15% increase in revenues and a large foreign exchange loss impacting Q2 2020 EBITDA. Q2 2021 also saw higher depletion and depreciation expense of $111.3 million. The change from Q1 2021 primarily due to higher sales volume. Deferred tax expense was higher in Q2 2021, but overall the effective tax rate for Q2 2021 was lower, reflecting favourable tax adjustments during the quarter, resulting from reassessments of income taxes paid in prior years. Looking at the next slide, turning to slide 14, we'll look at our cash balance and cash flow. On the slide, you'll see that our operating cash flow was strong. We generated $487.5 million of operating cash flow in the quarter before $157 million in cash taxes paid in the quarter. During the quarter, a $98 million tax payment was made in Australia, representing the final tax installment for the 2020 tax year. During the quarter, we invested in our key assets, spending $199 million in capital. Cash used for financing activities of $64.3 million reflected the $11.9 million used to repurchase shares in Q2, as well as $50.1 million used for payment of the dividend. Turning to the next slide, slide 15, looks at the change in cash in a different way. You could see that the largest contributor to growth in cash was from our operations. which generated about $395 million of cash, which is before income tax paid of $157 million, growth capital investment of $82.5 million, exploration spending of $46.6 million. Other cash outflows include costs incurred at our non-operating sites, B&T and Holt Complex of $14 million, and corporate GNA of $17 million. As noted in the previous slide, during the quarter, $62 million was returned to shareholders, including $11.9 million used to repurchase shares through the company's NCIB and $50.1 million of dividend payments. Next, I'll turn it over to Ian Hahn to discuss operating results at Fosterville. Ian Hahn Thanks, David. I'm starting on slide 16. As you have heard, Fossil had a very strong quarter in Q2, and for that matter, for the first six years of the year, first six months of the year. Fossil produced 158,000 ounces in Q2 2021, focused on processing 107,000 tonnes at an average grade of 29.2 grams per tonne and average mill recoveries of 98.7%. For the year to date, we produced 266, nearly 367,000 ounces Down from last year, but consistent with our plan to reduce production in the Swan Zone to draw out mine life at more sustainable levels. The 266,700 ounces were approximately 60,000 ounces above planned levels for the half year. Two main factors were driving this. The main factor being very strong grade outperformance in several Swan Zone stoves. There was also the benefit of some re-sequencing that we did in Q2. Looking at the resequencing, it involved an area in Swan called Audax. We planned to start a section of stoats from the top and work our way down. However, once optimised, we changed that sequence and really flipped it on its head and did it from bottom up. The result of that was bringing some higher-grade stoats from Q4 into the Q2 time zone. Turning to costs, again, very strong for both Q2 and year-to-date. For Q2, we had operating cash costs of $162 an ounce and oil and sustaining costs of $353 an ounce. For the year to date, operating cash costs averaged $192 an ounce with oil and sustaining costs of $385 an ounce. And these are very low numbers. Entering the second half of the year, we're very well positioned to achieve our production guidance and potentially could do better. We're also well positioned relative to our cost guidance. I'll now pass the presentation over to Larry Lanzetti, my general manager, for the detail like mine. Larry, just before you come on here, Ian, I don't know if we could qualify. I don't think that was a Freudian slip at the beginning. It wasn't just for six months of solid performance, but Fosterville is on a track record of six years of solid performance, and I think There's a point in time when we all have to believe that, you know, it's a very good mine, very well run, led by some exceptional people. And the people working there, it's an exceptional workforce, an exceptional area to be in. And we're just lucky to have it in our portfolio. So anyway, thanks. And sorry about that, Larry. No, thanks, Tony.

Hey, no problem. And thanks, Ian. Starting on slide 17, Detour Lake achieved, as Tony mentioned, record quarterly production in quarter two of 21 of 166,000 ounces based on processing 5.8 million tons, an average grade of 0.96 grams per ton with a recovery of 91.5%. This is an increase of 26% from quarter two last year and an increase of 13% from the previous quarter. The quarter over quarter increase is largely due to significant improvement in the average grade with our sequencing into higher grade areas as part of our phase two mining plan. We've indicated to the market that you would start to see the ramp up in grade starting in quarter two, and we certainly did. The average of 0.96 grams per ton was in line with our reserve grade. We also had increases in tons processed since the first quarter. Throughput is typically the lowest of the year. Having said that, you may recall that Q1 this year was a record for first quarter throughput levels. The year to date, we produced 312,000 ounces, which is 40% higher than the five months after the acquisition last year, and 16% increase from the full six months of year to date 2020. Looking at our operating cash costs, we averaged $610 an ounce in quarter two, and $674 an ounce for the year to date. Excluding the impact of FX rates, our Q2 operating costs per ounce improved from last year's second quarter with much of the increase reflecting higher grades and increased sales volumes. All in sustaining costs per ounce sold averaged $996 per ounce in quarter two and $1,090 per ounce for the year to date. Looking ahead, we expect continued improvement in grade for the remainder of the year above the Q2 level and are well positioned to achieve our full year 2021 guidance. Moving to slide 18. Again, as Tony had mentioned earlier, we have a significant number of projects on the North Detour Lake. Our growth capital expenditures at Detour for the first half of the year totaled $80 million. Of that amount, $44 million was for deferred stripping and $37 million was to support ongoing work to expand capacity. Continued processing plant expansion is on track with good progress on crushing improvements for their capacity. Airstrip had significant progress. We anticipate that being complete by the end of Q3. The tailings facility is progressing well with favorable weather conditions and an early start-up. Full-bound maintenance facility expansion is nearing completion for the field maintenance area. And finally, as pictured, we're expanding our camp, which will be completed by the end of quarter three. It's just a note that this camp, once complete, will be the largest hotel in Ontario. So you can imagine the size of it. With that, I'll turn the call over to Evan Pelletier, President Mining for Kirkland Lake.