This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Kirkland Lake Gold third quarter 2021 conference call and webcast. 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'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. And if you'd like to withdraw your question, please press star one again. Thank you, Mark Utting, Senior Vice President of Investor Relations. You may begin.
spk03: Thanks very much, Operator, and welcome everyone to our third quarter 2021 conference call and webcast. With the timing of our planned merger with Ineagle Eagle, which we're very excited about, this will likely be our last conference call. And I think if you've looked at our results, You'll agree with me that we're finishing with a bang. We've got record earnings, extremely low unit costs, and a continuation of an industry-leading track record over the last five years for returning value to shareholders. We're going to talk about all these things on today's call. With me today are most of the members of the Kirkland Lake Senior Executive Team. Speaking today will be Tony McCooch, our President and CEO, David Soares, our Chief Financial Officer, Natasha Vaz, our Chief Operating Officer, Ian Hahn, our Vice President, Australian Operations, Larry Lesecki, our Vice President, Cathedral Lake, and Evan Pelletier, our Vice President of Mining, Kirkland Lake, as well as Eric Calio, our Senior Vice President of Exploration. Slides accompanying today's presentation are available on our website and through the webcast. Following the presentation, we'll open up a call for questions and answers. I will draw your attention to slides two and three of the presentation, which contains our forward-looking information and other cautionary language. We will be making forward-looking statements in today's call, so I ask you to give that information due consideration. We will also be referring to non-IFRS measures during the course of the call. Reconciliations involving those measures is provided starting on page 37 of the MD&A we filed late yesterday. Finally, all dollar amounts mentioned today will be in U.S. dollars and less otherwise stated. With that, I'll turn the call over to Tony McCooch, President and CEO. Okay, thanks, Mark, and thanks, everybody, for being on the call. Thank you. It's not necessarily our last quarterly call because we'll just have a different name maybe when we're talking to you in future quarters. But, you know, we have had lots of success at Kirkland Lake Gold over the last few years and definitely a very, very strong Q3. And, you know, we'll go through the results and you can see a lot, lot, lot, lots of performance in a number of areas, particularly, you know, Fosterville and Australia where at the end of three quarters already achieved full-year guidance. And, you know, it continues to, and it's not just grades. It's tons of grades coming out of Fosterville, plus, you know, very high levels. in terms of the kind of social issues there. We're doing a very, very good job in terms of environmental cleanup that's going on up in the Northern Territory in Australia, and a real tribute to the leadership and all the people, the whole number, the whole people that are working for us in Australia do an exceptionally good job in reading. We need to thank them for what they do. And then over in Canada, we have a significant success, in Q3, and, you know, again, Detour's had to have a very exceptional record in Q3, but we had a very exceptional Q4 as well. Again, you know, the demonstration of strong leadership in the company, we read from, you know, from corporate, we read out through the operations and fundamentally the people driving the trucks, the people doing the work at Macasa and at Detour are really making a big difference. And, again, you know, we really thank them for what they've worked on to achieve in the quarter and And as I say, we're looking at a very strong Q4 as well to finish off the year. Anyway, I'll start on slide four here. And then, you know, just to highlight a few things. We did have our recent announcement of an agreement to combine and merger with Eagle Eagle Mines. From our perspective, this is a very exciting development for our company and our shareholders. And, you know, the big thing is this merger creates a new leader in the global gold mining industry. And if we only create a gold mining company, it can definitely be a leader in terms of transforming, not only transforming the industry, but also transforming, changing the perception of our industry as we move forward. Moving to slide five, this basically gives some of the highlights of our merger with Agnico. Basically, we're creating the highest quality seeded gold producer with the lowest unit cost, best risk profile. leading in key areas of ESG and an extensive project pipeline to drive future growth. The combined companies have significant, very strong financial strength and an extensive pipeline of projects and combined with a strong balance sheet, good and solid operations that are performing well and profitable, we definitely see the opportunity to fund future growth internally. We're doing consolidation. A big thing, consolidation of the region of Northeastern Ontario, Northwestern Quebec, provides significant value creation opportunities through synergies. And then, you know, we see some other business improvement initiatives. And, you know, I think that one of the biggest things from our perspective is the development of the new opera beaver and the amalgamated Kirkland coffee. So, And, you know, we see the new eco-eco, you know, definitely being, you know, we got to demonstrate it, but, you know, the warrant of premium valuation and fundamentally, you know, what will drive that, I mean, combination of increased scale, low cost and low risk operations, but I think fundamentally sustainable. to have more of a pre-evaluation. And, you know, we see it as the right deal for our company and our people at the time, as well as our shareholders, communities, and all the stakeholders and groups that we deal with. Maybe I'll move over to slide number six and start talking about their core results. Slide six here is really, you know, focusing here on maybe giving a quick update on our responsible mining efforts. For us, responsible minding is integral to everything we do and is ingrained in our culture. All of our Canadian operations participated in the first National Day of Truth and Reconciliation, with learning seminars for all employees, and doing things to support local Indigenous companies through Orange Church programs and painting one of our 795 trucks at Heathrow Lake orange. Additionally, all truck bids were painted green to support mental health awareness with seminars and employee training programs as being held in both Canada and Australia. In Bendigo, Australia, we committed $600,000 to the COVID Wellness Center and Cancer Wellness Program to assist with the sustainability of the program and expanding wellness services and improving access for regional patients. Building on our leadership in minimizing and reducing car credit emissions, we took additional steps in QTree 2021 to achieve further reductions, including testing and building an energy storage system from entirety recycled components, including the battery case and batteries from our Z40s. Turning to our financial and operating results in slide 7, as mentioned, Q3 2021 was a quarter of financial progress. The main highlights are, as Mark alluded to at the beginning, but record quarterly earnings, solid year-over-year production growth, unit costs significantly better than full-year guidance, and strong cash flow generation. A record performance was driven by strong operating results, including quarterly production, throughput, and all-in-sustaining costs at each of our lakes. Q3 was its eventual quarter for diesel lake production with 189,000 ounces. That beat the previous record of 166,000 ounces in Q2 of this year by 23,000 ounces of 14%. And as I said, we're on track for a new record in Q4 of this year. Tossable also had a very strong quarter and a strong 5%. mill for the operation being very successful in terms of moving forward that possible you know and driving our you know having achieving record production performance it also has helped in terms of our unit costs and in our unit costs in Q3D to four year guidance ranges we are also being impacted by we are being impacted by the exchange rates and inflation pressures in certain areas but our operations are doing very very or our guidance for the year. In terms of cash flow, we had operating cash flow of $323 million and free cash flow of $141 million. David Soros will give a little more color on those areas. Turning to slide eight, we continue to have a very strong balance sheet with cash at September 30th of $822 million. Again, a very clean balance sheet and no debt. We also continue on our very successful track record returning capital to shareholders. During Q3, we returned $175.3 million, $50 billion through our Q2 dividend date on July 14th, and $125.3 million through the repurchase of 3.1 million shares through our NCIP. Turning to slide 9, a significant component of our successful track record with capital allocation was investing capital for future value creation. We released encouraging expiration results that all three of our cornerstone assets remain on track with our key growth projects. Eric Kelly will give a little bit more in color on that, but, you know, maybe I'll just talk a few things here. You know, the exploration, a lot of success in our exploration program at Detour, you know, when we announced, and, you know, in early September, we announced the 10.1 million ounce increase in open pit measured and indicated resources at Detour Lake. That's triple the open pit M&I resources. And, you know, it was, at Detour, we see it as, what's it, Definitely a milestone in terms of being able to support strong growth in mineral reserves in the future. That's going to come up next year as we complete our studies this year. And then earlier this week, we announced additional new drill results. And, you know, the needs continue to hide the fact that, you know, the 10 million ounce increase in resources is not the end of the dollar. what we give in terms of our view and the view we put out of Detour when we acquired it back in, when we made the acquisition announcement back in 2019. You know, besides the exploration success at Detour, we are making very good progress with a lot of other projects at the mine in terms of value creation and optimizing the operation. And that included, you know, increasing the throughput in the mill, Actually, the mill in July and August of Q3 actually was running at a rate of almost 28 million tons per year. We had significant improvements in grade management at B-Turk, and we have a lot of other infrastructure that we're installing at B-Turk that really helps in terms of building the operation for the long term and really supports At Macasta, the number four chaffer beans had a schedule on track for completion later this year. We also had, well, sorry, I should say, completion of the sinking later this year, the actual installation of loading pockets of 2022. We also had a significant upgrade in success at Macassar, expanding the cell phone complex and identifying new areas of high-grade minimization on both the modern-based and main breaks. And looking at Fosterville, we did come up with some very new and interesting exploration results. They were released at the end of August, and I guess what it tells you is there's potential for continued discovery of new high-grade intercepts, and our goal at Fosterville is to demonstrate a an operation of 300 to 425,000 ounces a year on an annual basis for seven to 10 years in production. I think we're definitely, we got lots of work to do, but we definitely feel confident that we'll be able to achieve that and demonstrate that to shareholders. Now moving on to slide 10, let's look at our year to date results. We had a solid year to date operating versus our full year guidance. Production with just under 1.1 million ounces, a 5% increase from year to date 2020. We achieved a very solid unit cost performance, record earnings, and strong cash flow generation. You can also see that on the slide that so far this year, we have repurchased 4.5 million shares for close to $184 million. We returned about $334 million to shareholders, which represents $1.28 per share, and $317 per ounce produced in year to date 2021. Now on slide 11, let's look a bit closer at our track record of returning capital to shareholders. We have now returned a total of $1.36 billion to shareholders since we first introduced our NCID in May 2017, and our dividend policy in March 2017. Of this amount, just over a billion was used to refer to 31.5 million common shares, and $315 million was used to make 17 quarterly dividend payments, Those dividend payments have increased seven times since we began issuing them in 2017. In addition, since mid-2016, we have eliminated over $190 million of debt. This includes paying $98 million of debt held by Dietrich Gold Corporation shortly after it was acquired in January 31, 2020. $30 million was also used to close up Dietrich Gold's hedge position. We earned a very good return on that $30 million given the changes in gold and commodity prices and FX rates that followed. 2020 and into 2021. We also repurchased a 1% NSR at McCastle in Franklin, Nevada in 2016 for almost $36 million. Adding it all up in aggregate, we have provided $1.6 billion of value to shareholders since mid-2016. And we've done all this while also building the industry's strongest and cleanest battle machines. Looking at slide 12, it shows our performance against guidance. As you can see, we are very well positioned to achieve our guidance entry in the last quarter of the year. We are targeting the top end of our production guidance and on track to achieve our operating cash cost per ounce guidance. We are doing very well in terms of long-sustaining cost per ounce sold at $785 here today, All-in-sustaining cost is better than our guidance. We definitely expect to potentially meet our all-in-sustaining cost guidance for the year, and that's in spite of inflationary pressures related to fuel and power, energy costs, and the change in the FX rates would have an impact. Looking at our expenditures, if you take sustaining and growth capital expenditures together, total capex guidance is $530 to $585 million for the year, and we are tracking to be in line with that range. Also, exploration spending should be at the low end of our guidance of $170 to $190 million for the year. The lower end of achieving the exploration guidance may be a function of lack of, you know, we can get access to drills, we can get access to a lot of equipment to do the work, but we can't get people to man the drills, and that's been a challenge for our industry. Anyway, with that, I'll turn it all over to David Soros. the 2020 tax terms. Foreign exchange gains, costs attributed to non-operating assets, mainly in Northern Territory, system implementation costs, as well as COVID-19 related costs. Turning to slide 14, in Q3 2021, revenue totaled $667 million. The change from Q2 2021 is mainly driven by an 8,000 ounce increase in sales volume and which partially offset by lower realized gold price in the quarter. Compared with Q3 2020, revenue increased by 34 million or 5% year-over-year, mainly due to a higher gold sales volume which increased mainly as a result of higher revenues. Looking at income taxes, our Q3 2021 net earnings benefited from a lower effective tax rate of 25.3% versus 31.6% in Q3 2020, mainly as a result of the $15.6 million net tax recovery related to the optimization of the eligible tax deductions for Ontario mining tax following a restructuring of the company's Canadian entities early in 2021. Moving on to slide 16. mainly the PNPN Hold Complex of $15 million and Corporate G&A of $14.3 million. During the quarter, $175.3 million was returned to shareholders, including $125.3 million used to repurchase shares through the company's NCIP and $50 million of dividend payments. million of income. operating results.
spk00: Thank you, David. Good morning, everyone. I'm on slide 18, which outlines our consolidated production results for the quarter and year-to-date. So overall, as Tony mentioned earlier, we achieved solid operating results in the quarter, with production just over 370,000 ounces compared to 339,584 ounces in Q3 2020, and a quarterly record production of 379,195 ounces the previous quarter. Our operating cash cost per ounce sold was $438 an ounce, which is well below our full-year guidance. And then as for our ASIC per ounce sold, it was also very strong at $740 an ounce. This is a 16% improvement from Q3 2020 and 5% better than the previous quarter. The $740 an ounce also compares very favorably to our full-year guidance range of $790 to $810 an ounce. So then when we look at our year-to-date operating results, they too are very strong. Year-to-date production total of 1.05 million ounces, which is a 5% increase from year-to-date 2020. Our operating cash cost per ounce sold was $466 an ounce compared to $407 in year-to-date 2020. And finally, our A6 per ounce sold was $785 an ounce versus $804 in year-to-date 2020. So with that, we'll now get into a little more detail on the operation. I'll turn the call over to Ian Hahn, our Vice President of Australian Operations, to provide an update on Fosterville.
spk04: Thanks, Natasha. I'll start with Fosterville on slide 19. As you have heard, Fosterville had a very strong Q3. Fosterville produced 135,000 ounces in Q3 2021, based on processing just over 180,000 tonnes at an average grade of 23.6 grams a tonne, and average mill recoveries of 98.7%. Production in Q3 2021 exceeded expected levels, mainly due to continued great outperformance in the Swan Zone. For the year to date, we produced 401,400 ounces, significantly higher than target levels, largely reflecting great outperformance in the multiple Swan Zone states during the year to date, as well as some changes to sequencing involving moving high-grade states from Q4 into Q2 earlier in the year. Production year-to-date 2021 compared to production of 476,000 ounces for year-to-date 2020. The reduction reflecting a lower average grade consistent with our previously stated plan to reduce production with the intention of creating a more sustainable operation while we continue our extensive exploration programs. Partially offsetting the impact of a planned reduction in the average grade was a 28% increase in tonnes processed to just under 525,000 tonnes year-to-date 2021. Turning to costs, again, we achieved a very strong performance for both Q3 and year-to-date. For Q3, we had operating cash costs of $170 an ounce and oil and sustaining costs of $337 an ounce. For the year to date, operating cash costs average $184 an ounce, with all outstanding costs of $367 an ounce. I'll now turn the call over to Larry Lozeki, General Manager and Vice President of Detour Lake Mine.
spk01: Thanks, Ian. We'll start on slide 20. As Tony mentioned earlier, quarter three was an outstanding quarter for Detour Lake. We achieved record quarterly production in Q3 of 189,000 ounces based on processing 6.2 million tons at an average grade of 1.04 grams per ton and average recoveries of 91.6%. This is an increase of 35% from Q3 2020 and an increase of 14% from the previous quarterly record of 166,000 ounces in Q2. The quarter-over-quarter increase was largely due to a 5% increase in tons processed as well as an 8% improvement in the average grade. Mining during the quarter focused largely on high-grade areas as part of the Phase 2 mining plan. For year-to-date 2021, we produced 501.8,000 ounces, which is 38% higher than the eight months after the acquisition last year, and a 22% increase from the full nine months of year-to-date 2020. Looking at our operating cash costs averaged $601 in Q3 and $647 per ounce for the year to date. Very importantly, the mine achieved record all in sustaining costs of $937 per ounce sold. Our strong cost performance was achieved despite some inflationary pressures we've seen on diesel, fuel and energy and in a few other areas. We continue to work on mitigating the impact of those cost pressures. Moving to slide 21, as Tony mentioned earlier, we have a significant number of projects on the go at Detour Lake. Our growth capital expenditures at Detour for the first nine months of the year totaled $137 million. Of that amount, $66 million was for deferred stripping and $70 million was for the procurement of mobile equipment and projects involving tailings management area, process plants, as well as construction of a new assay lab and airfield. With that, I'll turn the call over to Evan Pelletier, Vice President, Mining, Kirkland Lake.
spk02: Thanks, Larry. I'm starting on slide 22. Production at NACASA in Q3 totaled 46,000 ounces at an operating cash cost of 657 and an all-in sustaining cost of 859. The increase in production from Q3 2020 mainly reflected a higher average grade in Q3 2021 compared to the same period a year earlier. The reduction in production from Q2 2021 reflected lower tons processed due to largely to higher levels of underground maintenance and reduced equipment availability, as well as the impact of the lower than planned average grade due mainly to mining sequencing. Looking at year-to-date production at Macassar totaled 148,854 ounces based on processing 243,615 tons and at an average grade of 19.4 grams per ton and average recoveries of 98%. Production year-to-date is lower than planned with the underperformance being due largely to reduced equipment availability caused by increased maintenance requirements, poor battery performance and delay in receiving new batteries. Moving to slide 23, where we are doing very well at Macassar is advancing our key projects, mainly the fore shaft, as well as with exploration, which I know Eric talked about in last quarter's call. Looking at fore shaft during Q3 2021, the shaft advanced approximately 500 feet and had reached a depth of 6,100 feet as of September 30th, 2021, with development of the 6,100 level station also being completed. We also made good progress with other projects, such as our ventilation expansion, involving completing of the two vent raises. With that, I'll turn the call back to Natasha Bass.
spk00: Thanks, Evan. So to wrap up the operating review, I'll look at the outlook for the full year. I'm on slide 24. On a consolidated basis, Tony has already touched on it, and as he mentioned, we are on track to achieve the top of our production guidance of 1.3 to 1.4 million ounces. Operating cash cost per ounce is on track to achieve guidance, and we are positioned to either meet or potentially even beat our all-in sustaining cost per ounce guidance. Okay, so just looking at the individual operations, Fosterville achieved its full-year guidance in the first nine months of the year, so we're now expecting Fosterville to produce around 500,000 ounces per year or higher. Also, with respect to operating cash cost per ounce, we should easily beat the guidance range of $230 to $250 an ounce. Over at Detour, we're targeting another record quarter in Q4 with production to exceed the Q3 level of 189,000 ounces. So we now expect production for the year of at least 700,000 ounces with operating cash costs at the top end of our guidance range or slightly higher. And then over at NECASA, we are already seeing improved results in P4. Having said that, we're not expected to achieve our guidance with production now planning to be within 190 and 210,000 ounces at operating cash costs above the guidance range. With that, I'll turn the call over to Eric Calio, our Senior Vice President of Exploration.
spk03: Okay, thanks Natasha. Good morning everyone. Our first slide today is number 25 from the Detour Lake project, where we continue to have tremendous success with both drilling and advancement of the resource, with the creek product being an updated resource and a substantial increase in ounces from our latest DRN. Here are information from the estimates shown on the current slide, which is a long section looking northwards across the project area, containing pit shells from both the new and the older work. As indicated, the updated resource has added approximately 10.1 million ounces to the overall total, and bringing the new total to about 14.7 million ounces, exclusive of reserves, which at year end were about 15 million. All this material lies in a pit shell, which is measuring about four kilometres long and extending to about the maximum depth of 600 metres from surface, with all reserves located at the top, shaded in the dark green, and all the resources lying below as shaded in yellow and lighter green, which is essentially covering the whole Battle and Westwood area, the foot main focus of our recent drilling. Important to note that all this increase was accomplished with only about 180,000 metres of drilling, or two-thirds of the planned 270,000-metre program started last year. And the limits of the pit are really close to the limits of drilling, and we are still seeing good holes at those limits. So now turning to my next slide. 26, what we see here is another image from a detour illustrating additional details from the resource model along with new drill results released just two days ago and already demonstrating additional upside potential here. As announced, new results include an additional 39 holes and six wedge holes targeting mainly towards the left pit and in our view containing a lot of very good positive messages. including reinforcement of our overall geological model of westward plunging chute and some very positive drill intercepts. Some of the key holes to note from the drilling include a cluster, from my view would be cluster holes on the west side of the current Hitch Hill where there was very limited drilling in the past. and now containing some wider and higher grade intercepts, as well as hole number 300, which you see more in the central part of the west pit, which is actually drilled under the north wall of the pit and also having good intercepts. The other good hole I'd like to point out is number hole 295, located in the eastern part of the settle, which intersected 20 grams over 25 meters, so just in the immediate west wall of the main pit. We still have 11-12 drills on site, continuing the program, and we actually are feeling very confident about the project and our possibilities to get more answers by the time we do the next update. Now turning to my next slide, which is number 27, we see the first of four slides relating to Potsdill, and where we also saw some very good success. in Q3, including multiple high-rate intercepts for both the Lower Phoenix and Robin Hill areas. In terms of the slide at hand, what we see is a long section across the long area showing the location of these two main targets, as well as some details for our 21 exploration program. Indicated in the Lower Phoenix is on the left-hand side, has two main targets, including the Swan and Cygnus, and most of the work at this time being focused on the Swan and down-plunge extension of mineralization from current reserves The second zone is located 100 meters in the footwall and it's also an important target here. It's important to note that until the early part of this year, most of the work at Swan was not really available to us but only became more available when a new trip was finished in June. And now we have five drills at this location and able to do a lot of drilling in this area. Additional to this, we also now have a lot of drilling happening at Robin Sails. And as with Swan area, the main target is down plunge from the reserve. Most of the work to date has been done from surface, but as you can see, we are still continuing to advance the underground deep line and getting very close to be able to start drilling from underground. Search my next slide. What we can see is some additional details for the work that's happening at the Swan Zone in the Lower Phoenix area. And key things to note here would be we're starting to get a large number of holes, 109 holes were actually released in early, in the last press release here, and the All these holes are showing a fairly consistent trend down plunge from the reserve. We're also seeing some very high-grade intercepts right near the limit of the reserve, including 51.7 grams over 2.6 meters, 12.8 over 4.6, 9.6 over 6.4. In addition to that, what we've seen is high-grade intercepts within the trend, 14.1 over 7.5, 10 over 10.4, 13.2 over 3.2. So in our view, offering potential for high-grade lenders within the overall trend.
Disclaimer