Kirkland Lake Gold Ltd. (KL) Q3 2020 Earnings Call Transcript

Kirkland Lake Gold Ltd. (KL)
Q3 2020 Earnings Call
Nov 05, 2020, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. My name is Mariana 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 third quarter 2020 financial and operating results. [Operator instructions] With that, I would now like to turn the call over to senior vice president of investor relations, Mark Utting.

Mark Utting -- senior vice president of investor relations

Thank you very much, operator, and good afternoon, everyone. Welcome to our third quarter 2020 conference call and webcast. On today's call, we will be reviewing our results for the three and nine months ended September 30, 2020. On the call today are many members of the Kirkland Lake Gold's senior management team.

Speaking today will be Tony Makuch our president and CEO; David Soares, our chief financial officer; Ion Hann, co-lead of Australian Operations; Evan Pelletier, our vice president of Mining Kirkland Lake; Larry Lazeski, our general manager of Detour Lake Mine; and Eric Kallio, our senior vice president of Exploration. After we go through the presentation, we'll then open the call up for questions. Oh, I should also mention there are other several other members of our management team on the phone as well. After we go through the presentation, we'll open up the call to questions.

We ask that each person limit themselves to two questions. The slide deck that we'll be referring to is available on our website, both on the homepage and in the events section Before I get started, I'd like to direct your attention to Slide 2 in the slide deck, which relates to forward-looking statements. Our remarks and answers to questions today may and probably will contain forward-looking information about future events affecting our company. Please refer to Slide 2, as well as the forward-looking information section of our most recent MD&A, dated November 4, 2020 for more information.

Also, during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available in our most recent MD&A. Finally, I'll mention that all figures we use today will be in U.S. dollars, unless otherwise stated.

With that, I'll now turn the call over to Tony Makuch, president and CEO of Kirkland Lake Gold.

Tony Makuch -- President and Chief Executive Officer

OK. Thanks, Mark, and thanks, everyone, for joining. And maybe before I get started, maybe we should acknowledge and thank all the people at Kirkland Lake Gold and the families for what's been going on. I know, it's been a very unusual and difficult year for people.

We don't take it lightly, the trust you put in us to keep people safe, providing a safe workplace, and in that order, keep the families safe and keep the communities we live in and work in, safe. As well, we acknowledge the fact that the people that do work with Kirkland as well as the people that haven't come into work, they've been very, very good on working safely during this period of time, and being COVID-free as much as we can at our sites. That's an acknowledgement of people that really recognize the importance of things and attention to detail and also the attention to looking out for everybody else. So anyway, thank you for everybody for what you've done.

And let's look forward to continued success as we go forward into Q4 and into 2021. I'm now on Slide 4. And this slide, just starting off discussions on our efforts into environment and social governance at Kirkland Lake Gold. We've been making a lot of progress with formalizing our approach, documenting, reporting and all the good things we're doing.In terms of the next slide, Slide 5, a key area for us, as I mentioned, is formalizing our processes around public disclosure.

We have signed on to the World Gold Council, Responsible Gold Mining Principles, and are aligning ourselves to be ready for the Mining Association of Canada's toward Sustainable Mining. We've conducted internal gap-assessment and engaged a third-party verified to review our readiness toward these standards. Today, we've made a lot of progress in developing and implementing policies and standards, namely human rights, inclusion, equality, diversity, supply chain management, stakeholder engagement and community feedback. Regarding greenhouse gases, we have a great success story in Kirkland Lake Gold, and maybe I'll spend a little time telling you more about that later.

And we really have been a leader in the industry. Turning to Slide 6, this is actually showing you where we are in our greenhouse gas emissions in more detail. This slide shows our performance versus the global gold mining, gold industry. As you can see, we compare very favorably to our peers, with Detour Lake, Macassa and Fosterville all well below the comparable industry averages.

And particularly, you can see just how low Macassa's greenhouse gas emissions are, given the extensive use of battery powered mobile equipment at the mine. Turning now to our financial and operating results, as shown on Slide 7. We had a strong quarter in Q3 of 2020. Adjusted earnings were $0.91 per share, which increased from $0.80 in last year's third quarter and $0.79 in Q2 of this year.

Once again, we generated substantial amounts of cash flow. Operating cash flow totaled $431 million and free cash flow was $275 million in the quarter. On a year-to-day basis, if you exclude non-recurring items, we generated almost $700 million of free cash flow.The key driver to our strong performance was significantly higher revenue, partly compared to last year's third quarter, particularly compared to last year's third quarter. I'm sorry about that.

And a big part of that will be due to gold price. David will get into the details of that shortly. We also benefited from solid growth in gold sales, which largely reflected the addition of Detour Lake. Effectively, we substituted high-volume production at Detour for high-cost small-scale production at Holt Complex where operations were suspended in April.

From a return standpoint, it is a very valuable shift for us and our shareholders. Going to Slide 8, we reported significant growth in cash in Q3, increasing by over $300 million to about $850 million. The key contributor cash growth was our $275 million of free cash flow. In addition, we added $108 million of cash from selling our shares in Osisko Mining.

It was a good investment for us with a gain of $60 million being recorded on a comprehensive basis. We also gained $75 million in cash from Newmont Canada through a strategic alliance agreement, involving the whole complex and exploration opportunities in the region. Offsetting these sources of cash, we continue to invest aggressively in our key assets, and we made further progress returning capital to shareholders. Let's turn to Slide 9.

Our number one priority in terms of capital allocation is investing in the Macassa, Detour Lake and Fosterville, our three cornerstone assets. So, far this year, we have invested about $345 million of capital into these three mines. Our total growth capital year to date is $60 million, and that number will go up significantly in Q4. Macassa accounts for over half of that amount with the number 4 shaft project being the largest component.

The shaft is progressing very well, and you will hear more about that in a few minutes. Growth capital at Fosterville year to date is about $15 million. We finished constructing a new ventilation system and a new refinery earlier this year. The new ventilation system is critical in terms of being able to increase tonnage coming out of the mine and — sorry, that was the result of it.

The critical aspect of it was significantly improved working conditions in the mine, lower the heat and gases, and basically improve the working environment for people. At Detour Lake, we had a number of other projects since the acquisition. We're constructing a landing strip, bringing people by air, coming into 2022, sorry, 2021, an assay lab, new welding shop and other infrastructure as well. We also have tailings and mill enhancement projects under way, and adding new mobile equipment to support growth as we move forward.

Now I'm looking at Slide 10. The key part of investing in our assets is exploration. It's been a big driver of value creation in Kirkland Lake Gold since 2016. We've invested year to date about $87 million in exploration, and we expect to reach about $130 million by year-end.

I don't want to steal Eric's thunder. He will speak shortly about exploration. But, we are clearly having significant success this year with the drill bit. Our last announcement was a couple of weeks ago at Macassa, and they were some of the best exploration results we have issued in a long time.

We have long felt that — South Mine Complex comes together with the Amalgamated Break could be extremely interesting. And with results like 254 grams over 15 meters, that view is only intensified. At Detour, we have had considerable success very early on in our drilling program. Our drill results increasingly support our view that there is one very large deposit covering the areas around the Main and West Pit.

Finally, at Fosterville, we have put out some very encouraging results during the third quarter. They include better than expected grade from infill drilling in the Swan Zone. They also included results to demonstrate the scale and growth potential of mineralized systems at Cygnet, Robbin's Hill and Harrier. Now turning to Slide 11.

We've made great strides with the second component of our capital allocation strategy, returning capital to shareholders. So far this year, we have returned almost $650 million through share repurchases and dividends. $527 million of that amount has been used to repurchase 14 million shares through our NCIB. We have a stated goal of buying back 20 million shares over 12 to 24-month period and doing very well against that goal.

In terms of dividends, we have ramped it up considerably. We first doubled the quarter dividend in Q1 to $0.125 per share that resulted in over $100 million being paid for Q1, Q2 and Q3 dividend payments. About a month ago, we announced another dividend increase this time by 50% to $0.1875 per share for quarter. The new dividend takes effect with the Q4 payments in January.

As you can see, we are very committed to returning capital to shareholders through buybacks and dividends. To-date we have returned about $2.35 per share, or $643 per ounce of production for year to date 2020. Moving on to Slide 12. The third component of our capital allocation strategy is adding new assets that have transformational potential.

Obviously, the most recent example of this is Detour Gold acquisition. The addition of Detour Lake has been a tremendous transaction for our Company and our shareholders. I've already talked about exploration results have been very encouraging. In terms of performance, the mine is doing very well.

So, far this year, Detour Lake has generated $231 million of free cash flow, which is over 40% of our total free cash flow. We expect to see higher levels of production next year and in the process of getting it permanent, making investment needed to increase tonnage on a go forward basis. Moving to Slide 13. We're doing well against our guidance.

You may recall, we issued guidance on June 30th after withdrawing it due to COVID-19. In terms of production and unit costs, we're in very good shape to achieve our consolidated guidance. Looking at the components of production, we expect Fosterville will beat its target range of 590,000 to 610,000. That will be offset by Macassa which will not get to 210,000 ounces, the low end of its target range.

Macassa has had a number of challenges this year. It has been impacted by COVID more than any of our other operations. We also were affected by extreme heat in mine during Q3. This impacted our productivity and equipment availability.

The result was reduced mining rates and a lower average grade because we didn't have access to many of the higher grade areas we plan to mine. In terms of other consolidated guidance, we're in very good shape. As mentioned, we are adding new projects at Detour Lake, which will result in higher capex in Q4, and we will see a significant step-up in exploration expenditures this quarter as well. With that, I'll turn the call over to Dave Soares, our chief financial officer.

David Soares -- Chief Financial Officer

Thank you, Tony, and good afternoon, everyone. I will start on Slide 14. As Tony mentioned, we had strong earnings in Q3 2020. Adjusted net earnings totaled $249.3 million or $0.91 per share, a 49% increase from Q3 2019 and 14% better than last quarter.

We had a significant difference between adjusted net earnings per share of $0.91 and net earnings per share of $0.73 in Q3 2020. The difference was mainly related to rehabilitation costs of $32.6 million, resulting from the increase in our environmental remediation provision. These costs relate to a new rehabilitation program we have commenced in Northern territory aimed at addressing legacy environmental issues caused by previous owners. Also excluded from adjusted net earnings in Q3 were $23.6 million of non-cash foreign exchange losses, reflecting the strengthening of the Australian and Canadian dollar against the U.S.

dollar, during the quarter, as well as about $8 million of restructuring and severance costs, mainly related to Holt Complex. Turning to Slide 15. As you've heard, the key driver of improved earnings in Q3 was higher revenue. Revenue in Q3 2020 totaled $632.8 million, 66% higher than revenue of $381.4 million in Q3 2019, and higher than the $581 million of revenue reported last quarter.

Of the increase from the year ago, $141 million resulted from a $425 per ounce increase in the average gold price to $1,907 per ounce. $112 million of revenue growth came from a 30% increase in gold sales to 332,000 ounces, mainly related to the addition of Detour Lake. Compared to last quarter, we had a $63 million increase in revenue, which resulted from a $191 per ounce increase in the gold price from $1,716 per ounce into Q2. This impact more than offset $16 million reduction from gold sales with gold sales of 332,000 ounces in Q3, slightly lower than 341,000 ounces last quarter.

The reduction was mainly due to lower sales at Macassa and Fosterville as well as the suspension of operation at Holt Complex, which had no sales in Q3 versus 3,600 ounces of sales in the second quarter. Looking at EBITDA, as shown on Slide 16, Q3 2020 totaled $384 million, a 30% increase from $296 million in Q3 2019. Compared to last quarter, EBITDA increased 24% from $310 million. The change from last quarter relates to net earnings, which were higher, driven by revenue growth and lower losses due to FX, $23.6 million in Q3 2020 versus $72.8 million in Q2 2020.

The deferred income taxes are higher compared to last quarter, driven by increased earnings before tax. Excluding FX gains and losses, we would have compared favorably to last quarter in terms of EBITDA. Turning to Slide 17. It looks at our cash and cash flow.

On the slide, you will see that our operating cash flow was very strong. It includes $47 million in cash taxes paid in Q3 2020. Other factors impacting our cash were ongoing investments in our key assets, in which we sent at $156 million, which was offset by $109 million from the sale of investments, mainly our Osisko shares and also $75 million received as part of the Newmont Strategic Alliance agreement. These items mainly account for the $25 million of net cash from investing activities.

Cash used for financing activities of $146 million reflected $107.4 million that were used during the quarter to repurchase 2.1 million shares. Also, as Tony mentioned earlier, we used $34.5 million for our Q2 quarterly dividend payment of $0.125 per share in July. Turning to Slide 18. It looks at the change in cash in a different way.

You can see that the largest contributor to growth in cash was from our operations, which generated about $310 million of cash, which is before interest, income taxes paid and the impact of changes in working capital. Slide 18 also highlights the impacts of key items mentioned in the previous slide, including the sales of investments, the Newmont option, cash taxes paid during the quarter, share repurchases and dividends paid. On the slide, the reference other includes exploration expense and working capital movements, including the buildup of AP at Detour Lakedue due to timing and increased capital spend and the impact of the Fosterville royalties accrual. With that, I'll turn the call over to Ion Hann, co-lead of our Australian operations.

Ion Hann -- Co-Lead of Australian Operations

Thanks, David. Good afternoon, everyone. I'll be taking the Slide 19. Fosterville had another strong quarter in Q3 2020.

We produced 162,000 ounces. Production was slightly higher than both Q3 in 2019 and the previous quarter in Q2. Our production in Q3 [Inaudible] increased tonnage [Inaudible] slightly lower than the previous period. We produced — processed 168,000 tons in Q3, which was a significant step up.

It was 40% higher than Q3 2019 and 36% higher than the previous quarter. In fact, at times in September, we were running at record mill throughput, which was a tremendous effort.The average grade for Q3 of 30 grams compared to around 40 grams for both the prior periods. We have made a bit unique structure in the mine to support the higher mining rates. We completed a new ventilation system early in the year and completed a paste fill project late last year.

Both of these projects have been very important from the standpoint of increasing our production volumes. We continued to achieve very light costs in Q3 2020, operating cash costs of $142 per ounce, higher than the prior period, mainly due to average grade. ASIC per ounce sold averaged $349 versus $289 in Q3 in 2019, and $273 in Q2 2020. The change from Q3 2019 largely reflects the impact of the new royalty introduced by the Victorian Government, effective 1st of January 2020.

That alone contributed $52 per ounce to all-in sustaining costs in Q3 2020. Excluding the royalty, ASIC per ounce was similar to the prior year levels. ASIC was higher than the previous quarter due to increased operating costs per ounce as well as higher royalty expense. In addition, sustaining capital expenditures were higher in Q3 versus Q2, and that really just reflects the disruptions of project work through the middle part of the year due to all the COVID-19 protocols.

We're back working on projects in Q3. On a year-to-date basis, we produced 476,000 ounces in the first nine months of 2020 at operating cash costs of $132 and AISC of $311 per ounce. Of the $311 per ounce of AISC, $47 added to the new royalty. As Tony mentioned, we are on track to meet our production guidance for the year and in a very good shape to achieve our operating cash cost per ounce guidance.

Finally, during last quarter's call, we discussed the sparking COVID cases in Victoria. We can report that the situation has improved significantly with many of the [Inaudible]. It is something that's been monitored very closely at Fosterville, and we continue to have all of our health and safety protocols in place. I'll now turn the call over to Evan Pelletier, vice president of Mining Kirkland Lake.

Evan Pelletier -- Vice President, Mining Kirkland Lake

Thanks, Ion. I'm starting on Slide 20. Tony briefly discussed Macassa in his remarks as he stated that a challenging quarter. We produced 38,000 ounces at an operating cash cost of $648 and an all-in sustaining cost per ounce of $1,081.

Production was based on processing 78,000 tons and at an average grade of 15.4 grams per ton. It was a combination of factors that contributed to the quarterly performance. First, we were impacted by the health and safety protocols we had in place, some of which were related to COVID and some are related to the excessive heat in the mine. Essentially, there were areas where we could let — we couldn't let workers go for their own safety.

And these areas were largely higher grade areas, were also impacted by the limited development in some areas, which constrained our flexibilities and reduced equipment availability, which largely related to the heat. As a result, our mining rate was down and our grade was lower, given the sequence that we mined. On a year-to-date basis, production totaled 131,000 ounces at an operating cash cost of $573 and an all-in sustaining costs of $915. While not tracking to meet guidance, we're expecting and seeing a stronger fourth quarter.

Looking ahead, we have projects in place to improve ventilation, some of the benefits is being realized this quarter with more to come in 2021. And we'll achieve significant improvements in ventilation with the completion of 4 shaft. Now turning to Slide 21. This slide looks at the 4 shaft project in more detail.

We're about a month ahead of schedule with the shaft. During Q3 we sank to the shaft 780 feet for a total of 3,366 feet by quarter end. We're currently at about the 3,700 level and expecting to achieve over 4,000 feet of advanced by the end of the year. We also continue to make good progress with the steel installation and putting in place all required infrastructures, as you can see on the slide.

I'll now turn the call over to Larry Lazeski, general manager of Detour Lake Mine.

Larry Lazeski -- General Manager, Detour Lake Mine

Thanks Evan. Turning to Detour Lake on Slide 22. The mine produced 140,000 ounces in quarter three, compared to 132,000 ounces in quarter two. Mill throughput totaled 5.9 million tons, which was a quarterly record.

The average grade for the quarter was 0.81 grams per ton versus 0.79 grams per ton in Q2. We're already seeing significantly higher grades in quarter four and expect to finish the year with a solid performance over the final three months of 2020. Looking at the unit costs. Operating cash costs averaged $634 in Q3, compared to $573 the previous quarter.

The increase reflected, significantly higher tons mined, which totaled 6.8 million tons versus a total of 5.9 million tons milled. Also contributing to increased operating costs were reduced deferred stripping and increased maintenance and procurement costs as the mine ramped up following reduced operations in Q2 of 2020. All-in sustaining costs per ounce sold averaged $1,259 versus $1,090 per ounce last quarter. Sustaining capital totaled $80 million versus [Inaudible] in Q2.

The increase largely reflected the ramp-up of capital projects and equipment procurement, which had been impacted by reduced operations related to the Company's COVID-19 response and into 2020. Also, as Tony mentioned earlier, we have added a number of projects at Detour Lake, some of which impact sustaining capital expenditures. On a year-to-date basis, product at Detour Lake totaled 364,000 ounces at average cash cost of $630, and all-in sustained cost of $1,156 per ounce. In terms of guidance, as mentioned, we expect a strong quarter in Q4 and are already seeing improved results.

We are well-positioned to achieve our guidance for the year of 520,000 to 540,000 ounces of production, at operating cash costs $610 to $630. With that, I'll turn the call over to Eric Kallio, senior vice president of Exploration.

Eric Kallio -- Senior Vice President, Exploration

Thanks, Larry, and good afternoon, everyone. My first slide today is number 23, which is from Macassa, where we continue to ramp up explorations from Q2, and as we do, now starting to get some very good results from a few different areas, such as those we announced in an October press release. As shown on the slide and discussed in the release, a large portion of the recent work has been in the west part of the mine and focused on infill and expansion of the amalgamated lower SMC and central SMC drilling. Drilling for the amalgamated lower SMC was mainly from the 53, 56, 57 levels and testing here the west limits of those zones and drilling for the central SMC from the north part of 57 and directed to the south contacts of the zone nearby amalgamated.Intercepts form the three different target areas are shown in clusters on the map in different colors.

Those from the lower SMC are purple; the amalgamated is blue; and then the one the intercept from the central SMC is in the lower right hand corner with yellow. And although all three areas showed some very good results, we did have the very special hole of course from the central SMC of 253.7 grams over 14.5 meters, and which is shown on this slide as rate where the two, the SMC and amalgamated start coming very, very close together. And although it's very possible this hole is not the best angle or a very large step out. The high grade is very encouraging as well as the possibility that system combined with other structures is amalgamated to create wider and better grade zones.

We also note the theory to the western intersection is open for at least another 25 or 30 meters. With that, now I'll turn it over to Slide No. 24 and which is a long section. This should be a long section showing additional details for the building on the lower SMC.

And where is indicated the main focus was on infill for expansion on the west edge of the Kirk Resource and Reserves. As indicated the drilling here very, very successful overall product high proportion of grades ores and some of the best assessing in two areas on either within the main target area.The lower left side was very encouraging, which has mostly inferred resources as defined and then some gaps. And the other area was there in the upper left, where holes were drilled — where there was an untested gap just below the 53 level, so not big step out but still adding potential to add quite a few reserves in this area. Turning to Slide No.

25 now. We see some detailed study now related threshold. We have whole sections a number of a number of different areas, both updated and a standard resource. As indicated most of the results at site 58 North Zone, and again, a couple of key areas to point out would be area that meeting to the west to the Kirk Resource were extended by these 25 meters.

And then of course directly above, what we got several high grade values of up to 50 meters up that of the zone. So turning down to Slide 26, we should be seeing an image for Detour Lake property. In illustrating results from our second batch of — our second batch of results from the large old campaign was condensed in March. And these results were announced in October.

As mentioned in the release the growing part of the 250,000 meter program, which aim to complete before the end of '21 and will allow completion of an updated resource and potentially expanded mine operations. Results from the plant from the main elected areas and sustained and indicate another eight holes into the saddle between main west pit, where there are no current reserves and very limited resources. As indicated in the release, all holes are very successful and continued into broad zone of mineralization with attractive grade open pit and higher separate resource that still have potential for underground Mineral Resources at depth. Below the level that holds release to see one of these really was number 16 which intersected 1.1 over 142 and pretty much the central part of the Saddle basically demonstrating a continuous strong chance of a continuous structure extending between the two main pit.

Turning on Slide 27 to see a long section view looking Northwest through the main west pit the saddle areas and offering a different perspective on the current reserve and the whole. And as indicated, the current reserves are continuing two pitch holes of line the magenta and silver colored blocks to red. These reserves that we have make up to 15 million ounces and the new holes are located in areas between. Most of new holes are now are in the west side of the saddle and east side are the previously announced holes 4, which also had very good results.

The hole 16 is in the central part of the saddle near the 380 meter level. So in summary, work is up to date and Detour continues to go very well and our focus now is mostly on finding ways to increase the speed and billing. We have fixed drills on site at this time and plan to have up to can be for year end, as most of our efforts seem directed toward the saddle area. So now turning on Slide 29.

In Australia, just like I mentioned, that is Canada, our program, the process will continue to ramp up and as indicated in our release at the beginning of the quarter, having some good success in a number of areas, including the Swan, Cygnet, Harrier and Robbin's Hill. This point we have 12 building operations versus only three in Q1, which is close to original budgets and continue to build on the recent success. Although, we don't have any new results at this time, we continue to see signs of course, visible goals, and potential for higher grade mineralization in a number of areas. So, we remain very optimistic on our chances to add to the high grade reserve states.

And with that, I'll pass the call back to Tony.

Tony Makuch -- President and Chief Executive Officer

Thanks, Eric. And I'm on Slide 29. Now to conclude Kirkland Lake Gold we achieved strong results in Q3 2020. We had solid earnings driven by significant revenue growth generated over $270 million of free cash flow in Q3 and close to $700 million for the year to date excluding nonrecurring and unusual items.

We significantly built up of our cash position during the quarter, growing fast by 58% maintaining our industry leading financial strength. We continue to invest in Macassa, Detour Lake and Fosterville. Macassa, the number for shaft ventilation, Detour Lake mill improvements assistant for production growth etc., and Fosterville ventilation and paste fill etc. And the results of board well in Q3 whether it was record mill throughput at Detour Lake in Q3 and really there has been a significant growth in production and mill production that Fosterville.On top of that, with the investment that as our assets, we've generated some very encouraging exploration results as well.

And I think, as you look to the Eric and you see what's happening, you can see there truly are three of the most compelling exploration stories in the industry. Another key part of our strategy is returning capital to shareholders, through share buybacks and dividends, they have returned close to $650 million to shareholders a share, representing $2.35 per share. This will continue to be a priority of ours going forward. Finally, we are extremely pleased with the acquisition of Detour Lake.

It truly has been a case of the right deal at the right time. Detour Lake has generated over 40% of our free cash flow this year. There are many opportunities to enhance the operations, and we are making the necessary investments for the mine to achieve its full potential. So speaking of potential, the exploration results to-date have been very encouraging and provide increasing evidence that we can achieve our goals, substantially growing reserves at the turn in support of production growth, and improve unit costs.

If you really want to look at again get a sense of where decrease can be over the next few years just potentially become the largest not just the largest gold mine in Canada but the largest for mine North America. Anyways, with that, I'll say thank you and we will be happy to take your questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Ovais Habib with Scotiabank. Your line is open.

Ovais Habib -- Scotiabank -- Analyst

Hi, Tony. So just a couple of questions for me, Tony. Starting off at Fosterville, the breed coming down in Q3 was due to the higher tons process and increasing the mining rates from Harrier [Inaudible] and this has also been decreasing the tons from Swan. Can you provide us just the percentage that where the tons came from each zone?

Tony Makuch -- President and Chief Executive Officer

Ion Hann on the call. Ian, can you, OK, providing some color in this Ovais?

Ion Hann -- Co-Lead of Australian Operations

Yes, Tony. Look, for Q3, this Swan comprised of about 54% of the tons and where in Q2 it was 62% of tons and if you compare that with Q3 2019 was there in 61% of the tons. So, as a percentage of the tonnage coming through Swan came down to that quarter.

Ovais Habib -- Scotiabank -- Analyst

And then is this the mix that we should expect going to into Q4 as well?

Ion Hann -- Co-Lead of Australian Operations

Look, you can see on the diagram on Slide 19, yes, we are fairly tightly constrained on the sequence. We did the Swan and they all exit in the May. We certainly with the improvement with pace that we're coming on and the ventilation to the entire mine, we assume to open up few more areas apart from these, within the operations, and we'd expect that to continue.

Ovais Habib -- Scotiabank -- Analyst

And then that should give you runway to achieve that full new capacity there going into front '21.

Ion Hann -- Co-Lead of Australian Operations

We certainly have a lot of plan at Detour and that's continuing to consistently and sustainably increase tonnage throughput over the coming quarters.

Ovais Habib -- Scotiabank -- Analyst

OK. Perfect. And just moving to Detour then mining and milling rates improved nicely quarter-over-quarter; however, grades were below expectations I guess. Can you give us an indication whether you start mining into higher grades in October, November? And also should we expect similar kind of mining and milling rates going into Q4?

Tony Makuch -- President and Chief Executive Officer

And Larry, are you OK with answering this question? Or — I mean I thought I dropped out with you.

Larry Lazeski -- General Manager, Detour Lake Mine

No problem, Tony. So yes, mining and milling rates we expect to be very similar to Q3. And as far as grade, remember in Q2, we impacted some and slow down in that to push our plan back a little bit. But we're getting back on track with our plan and our grades and in Q4 actually with these improve grades going to toward the end of the year.

We are confident in the guidance there.

OK. Sounds good. And just [Inaudible] are we looking to get any sort of exploration results from Fosterville anytime soon?

Tony Makuch -- President and Chief Executive Officer

I think that, I mean it's always a function of when we get material results. I mean, there's a lot of drilling going on. There's a lot of work happening. And when we have information to put out, we don't sit on information.

We will be putting it out. So, the question is that, a combination of maybe yes or no, right.

Larry Lazeski -- General Manager, Detour Lake Mine

Thanks for understanding. That's it for me.

Operator

Your next question comes from Josh Wolfson with RBC Capital Markets. Your line is open.

Josh Wolfson -- RBC Capital Markets -- Analyst

For Macassa, is there any more information you can provide on some of the high heat issues? And what the progression of the quarterly results will look like as get back states

Tony Makuch -- President and Chief Executive Officer

Yes. I mean Evan and Duncan are on the call and they can give us some color, but just fundamentally, I mean, the Macassa is still, I mean, and the reason part of the driver with getting the battery powered equipment there was the fact that we needed and developing the new shaft from surface and a new ventilation system, which we started quite some time ago was to get more air to the mine, as it's going deeper and far out into South Mine Complex. So it is somewhat ventilation constraint. And then combine that with the high heat, high temperatures outside in Kirklank Lake in this summer, it was a very hot summer and that's the source of most of the source of the air.

So, we already have mine heat conditions happening and combine that with bringing more hot air into the mine and not having any ability to put significant ventilation down there. That impacted it. We haven't might be able to give you some more color on that we are — we do have a program. We are developing new ventilation raises for surface.

There has been — there is some improvements scheduled for this quarter, plus coming into 2021 beginning of 2021. And then a fundamentally, once we complete the shaft and add to the number four shaft would be significant improvement in ventilation. But I know, the other part of that question, Evan, are you happy to talk about it quarter over quarter production and where we see production going?

Evan Pelletier -- Vice President, Mining Kirkland Lake

Yes. Sure, Tony. So in Q4 production with us getting the ventilation coming on board and the projects being on schedule, we definitely look in getting into some of these higher grade areas we're in now, and we're getting back on track to getting a solid quarter for Q4.

Josh Wolfson -- RBC Capital Markets -- Analyst

OK. Thank you. And then looking at 2021 going forward for the Company as well as, I guess in context a Detour license life of mine plan. How are you going to be provided with information disclosure on what the — company should we expect to see kind of for your guidance, coinciding with my plan or are those two separate events?

Tony Makuch -- President and Chief Executive Officer

Sorry. You came in muffled. Can you repeat the question?

Josh Wolfson -- RBC Capital Markets -- Analyst

Sorry. I was just wondering on the forward looking guidance for the company. Should we expect to see the three-year guide coincide with the new Detour life of mine plan, incorporate any initiatives that were completed this year? Or are those two separate things that investors should be looking out for?

Tony Makuch -- President and Chief Executive Officer

I mean, in terms of our new Detour life of mine plan and I mean, we have a lot of work happening with expiration, etc. And, we renewed the new life of mine plan to put something out, it's something out this year, but it really would just be a short-term reflection of what truly, what we're trying to build there. And so we don't anticipate, we thought we're not going to work, putting out a new life of mine plan until we really got our work done coming into 2021 in a whole new reserve resource estimate for that in the mine combined with some new permits for West Detour, etc. So that's number one, but not number two in terms of guidance for next year and even for the next three years, we're working on things in terms of going through a budgeting process, etc.

And we may be putting something like that early in the New Year. Maybe we're looking to put something early in the New Year.

Josh Wolfson -- RBC Capital Markets -- Analyst

And just to clarify, the initiatives on the throughput at Detour, maybe some of the Saddle Zone opportunities. Is that something that would be reflected within three year guidance? Or is that the longer term or evaluated feature upside?

Tony Makuch -- President and Chief Executive Officer

That will be longer term future upside, we will be able to give some sort of three year outlook, but it would be an outlook with that, that isn't necessarily going to be what we're trying to build the way that we're looking at something different. So we can give a three year outlook, but with the sense that, we're looking at building something different there over time. And that's fundamentally again we want to get the exploration done in the Saddle Zone and really understand the deposit as it moves to the West. And there you can get a sense of yourself, if you have the ability to tie these pits all together, what the impact of that may be, and or combined with some other sources of feeding in regions in the area, and maybe if there's a couple different scenarios.On top of that, if we can, we get the permits to proceed with the West Detour to have some impact on just moving to what feature fits into production, and then combine the West Detour pit with mining into the Saddle Zone out into the current pit area and so overall third scenario, what might be happening.

So we can give some three year guidance zones which moving probably morning called the West Detour at this point in time, and when we think it'll be some good guidance. There's some good numbers. But there's a truly what we want and what we want, or what we expect to be able to demonstrate to the market from Detour will be what we, when we get to drilling results on post upgraded permits and agreements to proceed with a West Detour and then understanding what's up with the Saddle Zone, which would be toward the end of 2021.

Operator

Your next question comes from John Tumazos with Independent Research.

John Tumazos -- Independent Research -- Analyst

Thank you for all the good work in a tough year. Concerning Detour the prior company for almost a decade, could use the U.S. $1,000 to estimate reserves and hadn't replaced reserves as they produced each year. Will you go to 1,250 or something like that and looking at their reserves this year, and will that add very many ounces?

Tony Makuch -- President and Chief Executive Officer

Maybe Natasha Vaz is on the call. Natasha, are you OK with that providing some color here and then we can get Eric to give some color.Natasha VazYes. So overall, with respect to — hi John, by the way. Overall, with respect to all visits which are looking at maintaining similar gold price that we use last year.

So, there will be higher than 1,000 and it will impact the life of mine for Detour. We have been doing that. We haven't finalized the full price yet for your end users. But of course yes, the higher gold price will add to the ounce base at Detour.

John Tumazos -- Independent Research -- Analyst

In terms of drilling, it's a tough year to replace the 1.4 million ounces of production. Aside from the gold price at Detour, should we expect resource additions in each major mine? Should we expect reserve replacement at one or two of the locations, but not all of them?

Tony Makuch -- President and Chief Executive Officer

Some of that is a little bit early to say, John. I mean we are working as much as we can to try to replace reserves. We may have some areas that we have some success that. You make a point there may be some resource additions.

There's potential for resource additions that will help us there. But again, it is already to say. You are correct in saying that, there was a reduced effort in drilling and radiated significantly and basically in Q2 and then partly coming in Q3 that has some impact there, but we're building long-term lines here and whether we demonstrate reserve and resource growth all in 2020, or over the next few years, it's a combined effort that we do is year over year and we expect 2021 to be a pretty, a pretty good year for expiration as well.

John Tumazos -- Independent Research -- Analyst

Should we hope now for a million ounces or four million for example or are you saying it's too early to say?

Tony Makuch -- President and Chief Executive Officer

I think it's too early to say. But, there will be some ounces added. But you know, and maybe Eric is on the call. Eric, you want to, you've got some color you want to put in that?

David Soares -- Chief Financial Officer

I guess he doesn't. That's OK, John.

Tony Makuch -- President and Chief Executive Officer

Anyway, We have a lot of work going on at Macassa, and you see the exploration success at Macassa. We are having a lot of exploration success to Detour and in Detour, there's a lot of inferred resources or mineral inventory that we've been bringing on. We expect that then and there's a lot of German going on a lot of work happening at Fosterville. It's about replacing tons mine.

I don't think we need a Holt comment that we don't going to have a problem with replacing one mine in a year. It's about placing announces and finding 30 to 40 ounce material, which is a big part of his challenge at this point in time.

Operator

Your next question comes from Carey MacRury from Canaccord Genuity. Your line is open.

Carey MacRury -- Canaccord Genuity -- Analyst

Hi. Good afternoon, everyone. Maybe a question for Tony on the balance sheet, now you've got $850 in cash generating a lot of free cash flow and now you obviously ramped up the dividends and doing share buybacks. Now just how are you thinking about the balance sheet these days?

Tony Makuch -- President and Chief Executive Officer

A couple of things, I mean, first off, we still permitted to share buybacks that we talked about up to $20 million. So, we got about six and a half million shares to purchase back. We do want to continue to be able to aggressively invest in exploration and infrastructure at our sites to help to improve production and lower costs at those sites. So, we reinvest that capital.

We do really want to maintain a very clean balance sheet with debt free and that's important for us. And then fundamentally, it's all about extra returns to shareholder and we may going to we are and at putting time financially, and we do have to sit there and create a dividend policy that provides, all the time, maybe a little cleaner outlook for shareholders in terms of where we might be in terms of return back to shareholders. There is a point in time when we don't need to keep on keeping cash on the balance sheet and we're looking at what do we think would be there as we do our three year five year plans and look at our cash balances, etc. And then work out what our minimum balance needs to be.

And then and then say the rest, if we don't if we don't have a place to invest it very well for our shareholders. And it should be something that's given back to shareholders.

Carey MacRury -- Canaccord Genuity -- Analyst

And then maybe on Detour you may have mentioned this. But can you just remind us what the timing on getting the mill permits and potentially extending the mill?

Tony Makuch -- President and Chief Executive Officer

OK. Well, we're doing some. The permit, we're kind of looking at Q2 to Q3 next year, for the permit to have the general increase from currently around 75,000 tons per day maximum to 90,000 tons per day on average or sort of an average numbers. But we're trying to work on is number one.

It's one thing to get the permit but the other part of it is to get the get projects in place that it could be able to allow you to do that.And so that's the other parts is aid investments that we were making onto the operation that incrementally increasing throughput year over year over the next few years to get us up to the higher rate. I know, Larry, do you have a little more color than what I gave on that? OK. Sorry, in case we must have Larry. But that's where we are, we are expecting to Q3 next year to have a permits.

We are working very closely with the upgraded IBA for the West Detour up there that certain that will help us move forward in terms of the entire mining rates. And then as I said we are investing in a number of projects capital projects in the mill plant to not only improve increased throughput, but also to improve metallurgical recoveries as well as reduce our overall operating process efficiencies and safety at site.

Carey MacRury -- Canaccord Genuity -- Analyst

So in terms of the average throughput rate I think more like 75,000-80,000 or more.

Tony Makuch -- President and Chief Executive Officer

Yes. More like we were looking at. And this is some arm waving and things. We're looking at trying to grow through an annual throughput for somewhere around 20 million to 23 million tons a year to maybe 25 million to 28 million tons a year.

Carey MacRury -- Canaccord Genuity -- Analyst

Great. And just in terms of changes in the mill is it mostly the back end of the mill that you upgrade or the front end?

Tony Makuch -- President and Chief Executive Officer

No, it's a combination of maybe some screen backs and improved feed systems into the plant. So in feet from the from either the gyratory crusher to the cone or direct feeding and improved feeding methods, screen desk and to the crushing plan for improvements repeatable process, how that works. Some additional fixing and leach tanks, some additional leach tanks to help with retention. Because it's one thing to get through put up with — and get the grind up but the other one is you don't want to lose on a metallurgical recovery and some water tank for process water plus there's some other incremental improvements and a lot of areas that just from a maintenance point of view, just the other part is for.

So we want to go from say 80%-89% availability to plant to grow to 92% to 95% availability as well. So, we're working on a number of those initiatives.

Operator

Your next question comes from Mike Parkin with National Bank. Your line is open.

Mike Parkin -- National Bank Financial -- Analyst

Thanks for taking the questions. With respect to Detour West Pit, the old management owners always kind of spoke to a separate fleet, do you see the potential that you would feel to avoid that with potentially connecting the pit just continue to use the same fleet and avoid a big investment into another fleet in itself for scale?

Tony Makuch -- President and Chief Executive Officer

That's part of the things considered, it couldn't be the option where you just keep the same fleet. On the other side, if you're looking at ways to increase flexibility of the mine, increase productivity, we may be investing in fleets. So there's a lot of trade-offs to do. Everything we're doing Mike is and then I think John Tumazos asked earlier about cut off grades, or sorry, our gold prices use that somewhat affects cutoff grade.And there's a number of scenarios we are looking at putting in an assay lab at sites and we get processes where we can get a lot more production as saying happening in the pit and have the ability to combine either improve our grade segregation for going to the mill, no higher grades, and create more and much larger great stockpiles, and/or just increased overall throughput to the plan and throughput from the mine.

So if there's a number of trade-off if we were to just do West Pit by itself as a pit by itself, that's one scenario. But we were looking at it over time that it could be it could be something bigger. The fleet there, I mean, the fleet is it we really support the current mining rates. We would have to increase the diesel fleet over time to increase mining rates.

But some of it also affects what we use for kind of great design effects to strip ratio so and also.

Mike Parkin -- National Bank Financial -- Analyst

[Technical difficulty] bought it and assume you're kind of continuing on with the fragmentation improvements that raised mining costs a little bit, but has the huge benefit that you're getting much better tonnage rate into the mill. Is that kind of fully exhausted or do you guys see more room to kind of go on optimizing on fragmentation patterns?

Tony Makuch -- President and Chief Executive Officer

I mean, there's a big thing we did was we've taken over the blasting ourselves from the contractor. So now the explosion surprise, surprise explosives, we have a more hands on approach to doing that. There are optimizations being done some of it is wall control. We are looking at some now as you get better wall control sets or some increased bench heights at certain parts on the north wall or the pit, which have some benefits in terms of what it might be able to do.

Definitely as your optimized fragmentation is it may cost a little bit more in drilling and explosives so we're looking at, ways to automate or optimize our drilling. We are increasing our drilling fleet. But the improvements in fragmentations to help you in terms of whether shovel productivity, truck productivity, crusher productivity, so that they might be a little bit more money spent on explosives and drilling but there's, it says it pays for itself all the way back down the line up so when you deliver the rock to this segment. Everybody forgets that before you get an ounce of gold out of it, we got to turn that stuff to dust.

If we found a way to doing blast and make just the first part and then that would be the best. And then if you can blast in shape and gold reanimate making the pit.

Mike Parkin -- National Bank Financial -- Analyst

Yes. One last question is switching over to Macassa. Now that you just continually getting very interesting results at depth, you kind of mentioned key to potentially be a challenge in the summer. Are you bringing on additional fund raises to address that? Is there anything, like, do you find the ventilation that you're bringing in plus what will come in with the shaft have more than sufficient? Or is there any, just because everything's just seems like a more interesting as you go a little bit deeper.

Is there any thought around like a cooling unit? Like if anything uses that are on just to ensure productivity's maintained at highest levels in maybe the summer months where it's maybe the most challenging business at all, fall, winter, spring, or are you comfortable with the ventilation program here you're implementing?

David Soares -- Chief Financial Officer

No. The way we are looking at a combined, I mean, cooling combined with increased ventilation, fundamentally Macassa over the next three to four years, you've been almost quadrupled amount, not quite quadruple by over three times, the amount of fresh air brought into the mine is what we need. And then, depending on conditions in mine money and heat, whether the requirement for cooling, we've got, there's lots of options for cooling. But we got to make sure that the cooling plants we bring in don't create heat conditions as well, right, at the operation.

And part of it is just the logistics of where the mining is in relation to the ventilation rates, etc. We've done a big part of the challenge has been to put in ranges and improving the systems to get less recirculation of air, which helps in terms of not having hot caught air being pushed back into the workplace.

Operator

Your next question comes from Leon Cooperman with Cobalt Capital. Your line is open.

Leon Cooperman -- Cobalt Capital -- Analyst

I was just saying if you guys are going to give us some guidance for the next year or two, but I think someone already asked and you said you were going to do that later on so ...

Tony Makuch -- President and Chief Executive Officer

Yes. So we expect that as we complete our year end, we doing — we're into year-end budgets at this point in time? We'll be reviewing things and coming up with our plans for 2021 and the next few years, and we should have something up early in the New Year.

Operator

There are no further questions at this time. I will now turn the call back over to the presenters.

Tony Makuch -- President and Chief Executive Officer

Thanks very much operator. And again, thanks everybody for taking part in today's call. As you heard, we had a very solid quarter in Q3, and you also heard that we expect and insights are having a very strong finish to the year in Q4, both in terms of our performance, but also in terms of our activity around advancing projects, and we're very active in expiration this quarter. So next time we get together for our next call, we should have a lot of good things to talk about.

Thanks again for joining us today, and enjoy the rest of your day.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Mark Utting -- senior vice president of investor relations

Tony Makuch -- President and Chief Executive Officer

David Soares -- Chief Financial Officer

Ion Hann -- Co-Lead of Australian Operations

Evan Pelletier -- Vice President, Mining Kirkland Lake

Larry Lazeski -- General Manager, Detour Lake Mine

Eric Kallio -- Senior Vice President, Exploration

Ovais Habib -- Scotiabank -- Analyst

Josh Wolfson -- RBC Capital Markets -- Analyst

John Tumazos -- Independent Research -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

Mike Parkin -- National Bank Financial -- Analyst

Leon Cooperman -- Cobalt Capital -- Analyst

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