JRM Posted May 20, 2020 Share Posted May 20, 2020 I didn't see an existing thread, so I thought I'd start a new one. I wish I had discovered this company a few years ago, they've had a great run. I'm thinking its still fairly undervalued and could have some upside. They operate gold mines in Canada and Australia. They recently purchased Detour Gold. The all in cash cost across all mines is well under $1000 per ounce, they have $530 million in cash and no debt (~$11B market cap). They reported ~3 million ounces of proven reserves and ~20 million ounces of probable reserves of gold. They are buying back shares and recently doubled the dividend. They are not currently operating at full capacity due to COVID-19, but that is somewhat offset by high gold prices relative to historical. Anybody else have any thoughts on this company? Link to comment Share on other sites More sharing options...
JRM Posted October 13, 2020 Author Share Posted October 13, 2020 Cash is approaching $1B, no debt, sold at an average of $1907 per ounce in the quarter (on a production cost likely much less than $1000 per ounce). I think there is a fundamental mis-pricing of gold miners. Analysts are assuming the price of gold goes back down (because that's what happened last time). Only up 20% since initial post; I think there's a lot of room to run if gold prices stay anywhere above $1300 per ounce. Link to comment Share on other sites More sharing options...
samthefirefly Posted December 3, 2020 Share Posted December 3, 2020 Don't know enough about the gold industry to be fully sold (was hoping there would be a longer discussion about the industry in here). But in terms of profitability/growth/valuation, Kirkland seems to be of superb quality Link to comment Share on other sites More sharing options...
JRM Posted December 3, 2020 Author Share Posted December 3, 2020 I posted a link to this podcast episode in a thread in the General section. https://podcasts.apple.com/us/podcast/the-end-game-ep-12-fred-hickey/id1508585135?i=1000501094047 I'd be happy to share more resources that I find compelling. I would enjoy more discussion on KL, as well. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted December 4, 2020 Share Posted December 4, 2020 I think there are some interesting situations in the gold sector. I've got quite a bit of my capital invested there. KL looks like a nice company, but it is AWESOMELY expensive....P/S, P/B, price to cash flow and so on. My 2nd largest gold position is trading for less than book value, less than 1X cash flow, about 2X FCF, is rapidly rebuilding their balance sheet (cash exceeding debt in 1st quarter 2021?), proving more reserves, getting more operationally efficient (increasing ounces mined), in good tier-1 jurisdictions and so on. They also have some non-operational mines/claims that should provide about 10-15% of market cap in cash in about a year or so when they are sold/options exercised. I would prefer to invest in gold miners that are cheap on current valuation metrics...thus if the price of gold does indeed go up....their valuation metrics should catch up AND you get even more cash flow/earnings. Kind of a "double whammy". Link to comment Share on other sites More sharing options...
Potato Posted December 4, 2020 Share Posted December 4, 2020 I have to admit incompetence or laziness, but I haven't been able to figure out which one you're talking about DTEJD1997, care to give us a name? (I'm not giving up after just a few minutes -- someone else [maybe you on another thread?] had mentioned a gold miner was out there trading at 1X cash flow but I haven't been able to find it, possibly because of bad info in the databases powering TD's screener, entirely possibly that I simply suck) Link to comment Share on other sites More sharing options...
JRM Posted December 4, 2020 Author Share Posted December 4, 2020 I agree there are other good names out there. So far, the stuff I've come across that is deep value territory has some hair for one reason or another. Congrats on those finds. There's probably a good chance of those companies getting bought out by a bigger company. Also, I wouldn't necessarily consider a forward P/E of 9 expensive these days. You could play the game of backing out $1B cash out of the $11B market cap and come up with a lower multiple. I don't really like to think in those terms, though. Link to comment Share on other sites More sharing options...
samthefirefly Posted December 4, 2020 Share Posted December 4, 2020 Full transparency, I'm no valuation wizard or anything (and I'm missing so much industrial context/info). But I don't necessarily think it's crazy expensive Maybe it's more expensive compared to peers, but you're paying a premium for consistent growth/profitability/financial health: 10-Yr Median Returns: ROA 7.2%, ROE 9.8%, ROIC 11.4% 10-Year CAGR Revenue 44.9% Average cash flow/revenue over the past handful of years is in the high 20s Average net margins over the past 5 years in the mid-20s Minimal financial leverage Quick ratio 1.79, current ratio 2.15, debt/equity 0.01, interest coverage 220 Moreover, the company's prospects seem to have only gotten better (their Fosterville mine in Australia was both the world's highest-grade and lowest cost gold mine in Q1 2020) while the valuation seems cheaper than its historical average (5-year) - P/S 4.75 (current), 5.05 five-year average - P/E 14.21 (current), 27.15 five-year average - P/B 2.24 (current), 3.63 five-year average Again, would love to hear more about the industry (context matters) and I'd love to hear the bear case for the people who don't like the stock Also, heard the podcast that was linked in the discussion, fascinating stuff (got me even more interested in KL). Reminded me that my knowledge in this game will always be non-existent compared to the experts lol. Thanks for providing the link!! Link to comment Share on other sites More sharing options...
montizzle Posted December 5, 2020 Share Posted December 5, 2020 Moreover, the company's prospects seem to have only gotten better (their Fosterville mine in Australia was both the world's highest-grade and lowest cost gold mine in Q1 2020) while the valuation seems cheaper than its historical average (5-year) Issue with Fosterville is life of mine. Currently yeah, they're just tearing through the ultra-high grade deposits there printing money, but those deposits are set to last until 2024. From that point (with quality most likely declining beforehand), Kirkland Lake's AISC is going to shoot up. Detour and Macassa aren't going to be able to fill the (proverbial) hole left by Fosterville, so management's only real choice is acquisitions. Which can get dicey, especially considering how much the market didn't like the Detour purchase Link to comment Share on other sites More sharing options...
samthefirefly Posted December 5, 2020 Share Posted December 5, 2020 Issue with Fosterville is life of mine. Currently yeah, they're just tearing through the ultra-high grade deposits there printing money, but those deposits are set to last until 2024. From that point (with quality most likely declining beforehand), Kirkland Lake's AISC is going to shoot up. Detour and Macassa aren't going to be able to fill the (proverbial) hole left by Fosterville, so management's only real choice is acquisitions. Which can get dicey, especially considering how much the market didn't like the Detour purchase That’s some very interesting insight, thank you for that! I guess my question to you would be if you expect valuation to remain depressed for those 4 years? Legitimately interested in hearing your take. Sounds like they still have a couple of years with the mines operating at full capacity, and I’m personally bullish on the price of gold (at least for the next year). So my feeling is that you should be able to get decent mid-term returns on investment. Link to comment Share on other sites More sharing options...
montizzle Posted December 6, 2020 Share Posted December 6, 2020 I guess my question to you would be if you expect valuation to remain depressed for those 4 years? Legitimately interested in hearing your take. Compared to peers, yeah I would probably expect it to stay at a lower multiple as things are now. I don't see that changing without a good acquisition or some higher grades reported out of detour. If you're bullish on gold it's not a terrible choice though. Locations are geopolitically speaking, as good as it gets, and management has been very prudent for the most part. Link to comment Share on other sites More sharing options...
JRM Posted December 6, 2020 Author Share Posted December 6, 2020 I think there's upside risk in gold miners, and KL. KL doesn't have a hedging program, and they closed out some out of the money hedges when they acquired Detour earlier in the year making TTM financials less clear. With the spread between AISC and spot gold at an all time high, they are in a strong position to fund share buybacks ($6 billion left in current program) and fund the dividend. I would expect both to increase in the next four years. Also, the cash pile is growing ($1B of liquid assets with no debt). Management has proven that they know what they're doing up to this point. They have a good mix of engineers, accountants, and finance types in upper management and the BOD. They don't really provide much in the way of guidance, so it looks like to me the analyst plug in their own assumptions (and may be conservative). The reason I say there is upside risk is they are talking up expansion opportunities in all locations, they're talking up cost savings opportunities, and of course, gold price could go up (hopefully). There is a lot of operating leverage right now with the spread between AISC and spot gold, so if the timing is right a move in gold should result in a large move in earnings (and share price). Link to comment Share on other sites More sharing options...
DTEJD1997 Posted December 6, 2020 Share Posted December 6, 2020 I posted a link to this podcast episode in a thread in the General section. https://podcasts.apple.com/us/podcast/the-end-game-ep-12-fred-hickey/id1508585135?i=1000501094047 I'd be happy to share more resources that I find compelling. I would enjoy more discussion on KL, as well. Don't know if I agree with everything in the podcast 100%...but it is still very good and very informative. This type of posting, that adds "intelligence" to the board is more of what is needed. JRM, thank you for taking the time to post it. Link to comment Share on other sites More sharing options...
samthefirefly Posted December 7, 2020 Share Posted December 7, 2020 Fully agree, really appreciate the conversation and links provided. JRM and montizzle, thanks for the insight! Link to comment Share on other sites More sharing options...
Arski Posted January 10, 2021 Share Posted January 10, 2021 Just looked into KL and came to a conclusion that it's shares are very very cheap, considering the growth they have had and with gold at these levels. Even if gold will come down, will they make good profits and probably grow at high rates. This opportunity looks too good to be true. What am I missing? Link to comment Share on other sites More sharing options...
JRM Posted January 10, 2021 Author Share Posted January 10, 2021 It's all about the life and quality of the remaining mines. As was mentioned previously in the thread there are concerns that Fosterville has been a great low cost mine, but is in decline and will be impossible to replace. Either they get lucky in exploration of current properties and expand production or they acquire a smaller miner. I'm thinking Chalice may be a target soon for KL (maybe I'm just hoping). Link to comment Share on other sites More sharing options...
nyctic Posted January 11, 2021 Share Posted January 11, 2021 I try to make a general rule of not discussing gold mining in polite company such as we are here, but have been following Fosterville since it was under Newmarket and JRM is correct that as far as mines go, it is a rare bird. This year it'll generate something like half of Kirkland's ounces and almost two-thirds of its profit. Absent any spectacular discoveries, expect Fosterville ounces to drop by a third for the next couple of years and they'll be more expensive as well. If you're projecting out growth based on the last few years, you're making a mistake. That said, to make an investment case, I don't think you need hail marys for acquisitions or drill bit success. It'd be nice, but base case on what they've guided and telegraphed, between the Macassa shaft coming online and Detour expansion, production shouldn't dip too far from flat (around 1.3-1.4 Moz) through 2023 and then on the upswing from there with company-wide AISCs hopefully settling in around $850 or better. Along the way, they're throwing off something like a billion a year in cash. Link to comment Share on other sites More sharing options...
Arski Posted January 11, 2021 Share Posted January 11, 2021 That gives some clarity, thanks. Link to comment Share on other sites More sharing options...
samthefirefly Posted January 12, 2021 Share Posted January 12, 2021 Let me just say, the discussions here and Kirkland's, in particular, has helped me a lot as I'm trying to learn more about how to value a business and clarify what my personal strategy/investment philosophy is. Thank you all! I think Kirkland as an investment depends on your trust in management's capital allocation. We know the business is solid, financially healthy, and undervalued. Some of the things I like: They've maintained costs Some of the best free cash flow yields in the industry Paying growing dividends High grade mines Lot of exploration/development, significant share buyback Operate in Australia and Canada (great markets), deserves to trade at a premium While there is no doubt that Fosterville (their best mine) will decline over the next couple of years, Detour has a 20-year mine life with average gold production of 659,000 ounces per year. Micassa is estimated to double production over the next three years (Production to total 220,000 – 255,000 ounces in 2021, 295,000 – 325,000 ounces in 2022, and 400,000 – 425,000 ounces in 2023). Forestville will continue generating 425,000 ounces in 2021, moving to a range of 325,000 – 400,000 ounces in 2022 and 2023. At the same time, as Forestville costs go up, the costs at Detour will go down. As stated above, even if we assume there are no drill bit miracles that extend Fosterville mine life, revenues should not decline by any significant amount. At current gold prices (I would argue anywhere above 1500), Kirkland is making a killing and producing cash flow by the buckets. I don't expect gold prices to drop below 1500 any time soon (an assumption I must acknowledge), so Kirkland should continue making a ton of cash flow for the time being. I've liked management's decisions so far, so I have no problem investing in the company. Link to comment Share on other sites More sharing options...
JRM Posted January 12, 2021 Author Share Posted January 12, 2021 I think that's a very sober analysis. I said previously I think Chalice would be a good acquisition for Kirkland. Here is the latest investor presentation from them: https://chalicemining.com/sites/default/files/presentations/20201215%20Chalice%20Corporate%20Presentation%20vF.pdf Link to comment Share on other sites More sharing options...
Arski Posted January 13, 2021 Share Posted January 13, 2021 Let me just say, the discussions here and Kirkland's, in particular, has helped me a lot as I'm trying to learn more about how to value a business and clarify what my personal strategy/investment philosophy is. Thank you all! I think Kirkland as an investment depends on your trust in management's capital allocation. We know the business is solid, financially healthy, and undervalued. Some of the things I like: They've maintained costs Some of the best free cash flow yields in the industry Paying growing dividends High grade mines Lot of exploration/development, significant share buyback Operate in Australia and Canada (great markets), deserves to trade at a premium While there is no doubt that Fosterville (their best mine) will decline over the next couple of years, Detour has a 20-year mine life with average gold production of 659,000 ounces per year. Micassa is estimated to double production over the next three years (Production to total 220,000 – 255,000 ounces in 2021, 295,000 – 325,000 ounces in 2022, and 400,000 – 425,000 ounces in 2023). Forestville will continue generating 425,000 ounces in 2021, moving to a range of 325,000 – 400,000 ounces in 2022 and 2023. At the same time, as Forestville costs go up, the costs at Detour will go down. As stated above, even if we assume there are no drill bit miracles that extend Fosterville mine life, revenues should not decline by any significant amount. At current gold prices (I would argue anywhere above 1500), Kirkland is making a killing and producing cash flow by the buckets. I don't expect gold prices to drop below 1500 any time soon (an assumption I must acknowledge), so Kirkland should continue making a ton of cash flow for the time being. I've liked management's decisions so far, so I have no problem investing in the company. That's indeed a solid analysis. I am not sure if Detour costs will go down because there is just 0.97g/t gold which is really low. I am not read into this company that well so I could be wrong, but I think they have solid revenue and income for 2/3 years and to continue growing or making huge profits they need to make quite a favourable acquisition and I don't know how capable management is in that area. This will at least be critical for the long-term and if they manage to do it, the return will be good. I am not sure about the stock if they don't manage to do it. Link to comment Share on other sites More sharing options...
montizzle Posted February 26, 2021 Share Posted February 26, 2021 Earnings yesterday was pretty irrelevant, nothing new was really given. I'm inferring that the drill results at Fosterville have been disappointing, since nothing was disclosed. CEO Tony Makuch was interviewed by TD a month ago and mentioned that they've wanted to report drill results before earnings but just wouldn't have them in time. No reporting yesterday leads me to believe it was so low grade that it was immaterial...All that said, would definitely recommend a listen to this call, it was a bit of a shit show. Last caller in was having a breakdown about the recent drop in share price. Those 5 minutes are definitely worth it for a laugh Link to comment Share on other sites More sharing options...
K2SO Posted March 1, 2021 Share Posted March 1, 2021 Geez I'm listening to it now and all they had to reply is that the value will be realized by the market in the long term, as opposed to humouring this guy who from the sounds of it is used to trafficking in penny exploration stocks. ::) Link to comment Share on other sites More sharing options...
montizzle Posted March 2, 2021 Share Posted March 2, 2021 Geez I'm listening to it now and all they had to reply is that the value will be realized by the market in the long term, as opposed to humouring this guy who from the sounds of it is used to trafficking in penny exploration stocks. ::) Yeah it was a real juxtaposition between this guy and managements mindset. I'm surprised he was even able to get on the call, I've been trying to google his alleged company and I can't see anything showing it even exists. Really seems like he was just a random guy. Not the best look for the company Link to comment Share on other sites More sharing options...
JRM Posted March 2, 2021 Author Share Posted March 2, 2021 That was bizarre. I wish management would have said something about stock buybacks or possibly what they may do with the growing cash pile. Link to comment Share on other sites More sharing options...
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