Reporting second-quarter revenue of $281.3 million, Kirkland Lake Gold (KL), a mid-tier gold producer with assets in Canada and Australia, beat analysts' estimate of $279.5 million, while the company met expectations on the bottom line, reporting earnings per share of $0.50.
There's much more to a company's quarterly performance than just two numbers, so let's dig up some of the more interesting nuggets.
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1. Another quarter of strong production (with more on the way)
Following an impressive performance in Q1 -- when it set a quarterly record for gold production of 232,000 ounces -- Kirkland Lake reported gold production of 214,600 ounces, a more than 30% increase over the 164,700 ounces the company reported during the same period last year. Although on a consolidated basis, that didn't set a new record, investors found another record-breaking performance at an individual asset: The Fosterville mine in Australia reported gold production of almost 141,000 ounces, representing a year-over-year increase of 82%.
Due to the accessing of higher grade at Fosterville and an operations ramp-up at the Holt Complex in Canada, Kirkland Lake foresees gold production increasing through the second half of the year. Consequently, management remains steadfast that it will meet its revised 2019 gold production forecast in the range of 950,000 to 1 million ounces.
2. Counting the costs
For investors, a quick look at the company's costs in the second quarter may temper the excitement generated by the strong gold production in the quarter. Reporting all-in sustaining costs (AISC) of $638 per gold ounce, Kirkland Lake recognized an increase over the AISC of $560 per ounce that it reported in Q1. Although the cost of producing the metal crept higher last quarter, the rising price of gold helped to mitigate the escalation in costs. In Q1 and Q2, for example, the company reported average gold prices of $1,307 and $1,320, respectively.
On the bottom line, investors will find that the rising costs did little to affect earnings. In Q2, it reported EBITDA of $185.8 million, representing 66.1% of revenue and the same margin that it generated in the first quarter, when it reported EBITDA of $201.6 million on revenue of $304.9 million.
And those concerned that the company's AISC of $597 per ounce year to date is higher than the 2019 forecast of $520 to $560 can take solace in the fact that management remains confident that it will achieve its guidance as quarterly production increases at Fosterville and sustaining capital-expenditure levels decline at Macassa in Canada.
3. A little ebb but a lot of flow
Turning to the company's cash flow, Kirkland Lake continued to show its prowess in generating strong cash in the second quarter. Operational cash flow of $178.4 million was a quarter-over-quarter increase of 2.3%. Free cash flow, conversely, tapered off a bit, dropping from $93 million in Q1 to $53 million. Taking into account the company's performance through the first half of the year, the increased cash flow is noteworthy. Through the first six months of 2019, Kirkland Lake has reported operational cash flow and free cash flow increases of 69% and 32%, respectively, versus the year-ago period.
Image source: Kirkland Lake Gold.
Thanks to the company's ability to turn gold into green, investors can expect it to continue the internal funding of growth. Besides the completion of the Macassa No. 4 Shaft project, management recognizes growth at Fosterville and the potential for operations in the Northern Territory assets in Australia and the Holt Complex in Northern Ontario as avenues of growth in the long term.
The takeaway
Turning in another strong quarterly performance, Kirkland Lake continues to shine brightly in 2019. And according to management's expectations, the company will gain even more glitter as the year proceeds. With gold production expected to rise, the prospect of strong cash flow, and a balance sheet absent of debt, it's clear why Kirkland Lake continues to represent one of the more alluring options for gold-minded investors.
