FINANCIAL RESULTS Q2 2011:
RECORD GOLD PRODUCTION OF 21,542 OUNCES; NET EARNINGS OF $8.6 MILLION
Kirkland Lake Gold Inc. (‘Kirkland Lake Gold’ or the ‘Company’), an operating and exploration gold mining company located in Ontario, Canada, announces its second quarter fiscal 2011 results for the three months ended October 31, 2010. All amounts are in Canadian dollars, unless otherwise noted.
Mr. Harry Dobson, Chairman, commented:
“The second quarter demonstrated record gold production, earnings, and cash flow from operations as we increased the number of ore mining faces from the higher grade South Mine Complex. After meeting all operational costs, spending $15.5 million on capital costs and $1.8 million on exploration, total cash increased by $2.9 million in the quarter to $51.5 million.”
HIGHLIGHTS OF THE SECOND QUARTER
è Cash flows generated from operating activities were $16.0 million.
è Net income for fiscal Q2 2011 was $8.6 million, or $0.13 per share.
è Cash resources (including short-term investments) as at October 31, 2010 were $51.5 million.
è 117 additional people were hired, increasing the total workforce to 600 employees.
è 21,542 ounces of gold were produced in Q2 2011, a record for the Company.
è 38,163 ounces of gold were produced year to date, which is within the range required to maintain the yearly production target of 90,000 – 100,000 ounces.
è The recovered ore grade for the quarter was higher than budgeted at 0.451 ounces of gold per ton driven by new South Mine Complex (SMC) work places coming online below the 53 level earlier than budgeted, and all ore in the quarter being produced by lower dilution cut and fill mining methods.
è The number of ore mining faces available for production was increased from 25 to 28 during the quarter, with another 23 ore mining faces in the development and planning stages.
è Fiscal Q3 2011 gold production is forecast at 24,000 – 30,000 ounces.
DETAILS OF THE SECOND QUARTER
Mine Expansion and Production
è A record total of 21,542 ounces of gold were produced in the quarter for a total of 38,163 ounces produced year to date, which is within the range required to maintain the yearly production target of 90,000 to 100,000 ounces. The completion of the first phase of the Company’s Expansion Project in the first quarter allowed the Company to begin to deploy more resources in the second quarter and to begin to ramp up production.
è The underground haulage ramp between the No. 3 Shaft and the SMC mining area reached the general area of the truck loading chutes and stations below the 53 Level, and excavations for these facilities are underway. The 53 Level track haulage-way was connected to the ramp and excavation of the dumps and dump access drifts on the 53 Level are nearing completion. Rockwork for a related ventilation upgrade was also completed and construction work is now underway. The first dump at the top of the haulage-way above the 51 Level Loading Pocket is also now under construction. This key project is on track for completion by November 2011.
è Methane was encountered for the first time at the mine in an underground diamond drill hole. While readings of gas in the immediate area of the hole did not exceed twelve percent of the lower explosive limit, regulations and best practices prescribe that certain policies and procedures be put in place at a mine where explosive gases are encountered before mining or exploration activities may continue. This resulted in delays in operating the mine of one day, in production activities on the 53 Level of the mine of one week, and in exploration activities throughout the mine of three weeks. These delays reduced production in the quarter by approximately 1,400 ounces. Methane is regularly encountered in several other Ontario mines.
è The Company’s workforce grew by an additional 117 people to 600 employees in the quarter. The majority of the new employees hired were underground workers in the areas of production, maintenance, and capital projects. Most of these employees will require significant training and the opportunity to gain experience in the mine before becoming fully productive. A significant ongoing training effort is underway intended to continue to bring the new employees up to speed safely and to continue to upgrade the skills of all employees. The number of employees in the Safety and Training Group over the course of the Expansion Project has grown from three to eleven, with the activity level per employee also increasing significantly.
è Work to increase the hoisting capacity at the No. 3 Shaft by over 300 percent to an ultimate capacity of 3,600 tons per day continued in the quarter. The planned start up of the new service hoist in the quarter was delayed by electrical design problems. This hoist is required to begin the upgrade of the third compartment of the No. 3 Shaft for service conveyance operations, which has been pushed back by the delay. As a result, the first step change in hoisting capacity targeted for the end of January 2011 is now targeted for the end of the fourth quarter. Shaft upgrade work continued in the quarter, and focused primarily on the head-frame, the shaft services compartment and the underground shaft stations and loading pockets. Crews were also utilized on maintenance projects that were brought forward because of the delay.
è The number of ore mining faces available for production was increased from 25 to 28 during the quarter, with another 23 ore mining faces in the development and planning stages. The maximum daily ore production remains limited to no more than 700 tons per day until the initial hoisting upgrade is completed due to hoisting capacity restrictions. In practice, the actual average tonnage of ore to be hoisted per day is being limited to that required to meet the yearly ounce production target, as hoisting less ore allows more time for hoisting waste and completing other expansion and exploration project related work. The ore tonnage hoisted was planned to be lighter in the first two quarters of the year and heavier in the last two quarters of the year, as more resources are deployed and more ore headings are brought on line. A lower tonnage and higher grade contingency mineplan has been implemented due to the hoisting limitation being extended by three months.
è Additions and improvements to the surface maintenance facilities, headframe, surface muck handling facilities, warehouse, cold storage facility, offices and parking lots, compressor plant, electrical plant, and backfill plant are now being planned or are underway. This work is planned to be completed as required during fiscal years 2011 and 2012.
è More diamond drills moved to a seven day per week operating schedule as the contractor added drillers to the workforce as requested by the Company.
è An exploration drift was advanced to the edge of the Amalgamated Kirkland - Queenston joint venture property of the Company and Queenston Mining Inc. in preparation for driving a drift onto that property in order to establish a central diamond drilling station by the second quarter (Q2) of fiscal 2012.
è Net income for Q2 of fiscal 2011 was $8.6 million or $0.13 per share, which compares to a net income of $3.3 million for the first quarter (Q1) of fiscal 2011, and a restated net loss of $7.3 million for Q2 of fiscal 2010.
è Operating costs were $365 per ton ($809 per ounce) in Q2 of fiscal 2011, compared with $256 per ton ($709 per ounce) in the prior quarter, and $569 per ton ($2,718 per ounce) in Q2 of fiscal 2010. Total cash costs were $390 per ton ($866 per ounce) in Q2 of fiscal 2011, compared to $273 per ton ($756 per ounce) in the prior quarter and $583 per ton ($2,788 per ounce) in Q2 of fiscal 2010. Unit costs benefited by a positive inventory adjustment in the first quarter, and were affected by a negative inventory adjustment in the second quarter. Over the longer term, these inventory adjustments tend to net to approximately zero, and longer term unit costs approach the average of the quarterly unit costs. The Company is targeting a reduction in operating costs to less than $250 per ton by continuing to expand and upgrade the operating facilities and workforce and by increasing production.
è Cash flows generated from operating activities were $16.0 million in Q2 of fiscal 2011 compared to $0.1 million in Q1 of fiscal 2011. Operating cash flows before working capital changes were $9.7 million in Q2 of fiscal 2011 compared to $5.0 million in Q1 of fiscal 2011. The major components of the working capital changes are gold inventory and accounts receivable changes.
è Gold poured in the quarter was 23,419 ounces, which compares to 14,086 ounces for the previous quarter and 6,622 ounces for the same period in the previous fiscal year.
è After meeting all operating costs, spending $13.6 million on capital and $1.8 million on exploration, total cash resources (including short-term investments) increased $2.9 million during the second quarter to $51.5 million. As at December 7, 2010 this number had decreased to 43.3 million.
Health and Safety
è The Company completed the quarter with the lowest accident frequency in the Province of Ontario in the Large Mines category.
The production forecast for fiscal 2011 remains unchanged at between 90,000 and 100,000 ounces of gold. The operating strategy for the fiscal year included recovering 38,000 to 42,000 ounces of gold in the May through October 2010 period. These six months were expected to be low production labour months due to the allocation of workers to the completion of the first phase of the Expansion Project at the end of the first quarter, the retention of workers on higher priority Expansion Project activities throughout the summer, the reduction of labour available due to summer holidays and the lower initial productivity expected from the additional workers to be hired and trained starting in July. Actual production for this period was 38,163 ounces. A total of 21,542 ounces were produced in the second quarter, which was a quarterly record for the Company.
Production in the period between November 2010 and January 2011 (Q3 of fiscal 2011) is expected to be 24,000 to 30,000 ounces of gold assuming ongoing success in the critical recruiting and training activities and as more mining areas are brought on line. An increase in project and exploration activities will also take place during this period as more labour is employed in all areas.
In the period from February to April 2011 (Q4 of fiscal 2011) production is estimated to be in the range of 28,000 to 32,000 ounces of gold. Achieving this level of quarterly production is dependent on increasing recovered grades as production will be hindered by the expected late completion of the budgeted hoisting upgrade.
The Company’s expansion activities will continue to take priority, and the available resources will be managed accordingly. The tonnage of ore to be hoisted and mined will be managed to meet these targets, provided higher priority activities are not hindered. The Company will continue to prioritize the work and investment required to meet our goals of attaining 5,000,000 ounces in total gold reserves and resources and of reaching a profitable production rate of 180,000 to 200,000 ounces of gold per year by November 2011.