Kirkland Lake Gold finds its feet (March 15, 2010)

Despite a five month production interruption due to a borehole collapse in June 2009, Kirkland Lake Gold (KGI -T, KGI-L) says it is back on track and expects to produce and pour between 45,000 and 55,000 oz. gold in fiscal 2010.

For fiscal 2011 the emerging intermediate gold producer expects to pour between 90,000 and 100,000 oz. gold and says with its second phase of mine development underway, production will likely rise to between 180,000 and 200,000 oz. gold a year before fiscal 2013. The second phase, 36-month low-capex plan, is to develop and expand mine production using infrastructure already in place.

Following the borehole collapse in June 2009, no paste fill could be delivered to the mine for more than three months. A new replacement borehole was drilled and put into service late in the second quarter of fiscal 2010, and a second backup hole was completed in the third quarter. Currently a third hole is being drilled.

During the production delays, Kirkland Lake Gold completed repairs and upgrades to ground support and to mine infrastructure, the company says.

The mine has returned to a normal mining state, with 20 working stopes available and eight of them in the higher grade South Mine Complex (SMC) area.

In mid-morning trading in Toronto Kirkland Lake Gold’s shares were up 15 cents or 2% at $7.64 per share. Over the last year the stock has traded in a range of $5.35-10.96 per share. The company has 67.73 million shares outstanding.

In December 2001, Kirkland Lake Gold purchased the Macassa mine and the 1,500-ton-per-day mill along with four former producing gold properties: Kirkland Lake, Teck-Hughes, Lake Shore and Wright Hargreaves.

The properties in the Southern Abitibi Greenstone Belt of Kirkland Lake extend over 7 km between the Macassa mine on the west and Wright Hargreaves on the east, and, for the first time, are being developed and explored under one owner.

Total reserve and resources (proven, probable, measured and indicated) for the entire mine including the South Mine Complex total 2.38 million oz. gold grading 0.49 oz. per ton. In the inferred category there are 894,000 oz. gold grading 0.59 oz. per ton.

The SMC is made up of fifteen or more shallowly dipping, stacked high-grade mineralized zones. The SMC was discovered in 2005, south of the ’04/Main Break in a new geologic setting.

Gold production for the third quarter reached 8,221 oz, 110% higher than in the previous quarter (3,912 oz. gold) but significantly below normal production rates due to the lack of paste fill and due to the completion of project work interfering with production.

Ore mining areas in the Main Break resumed production in late December. The 50 Level SMC production area came back on line in early January. The 53 Level SMC area, the largest and highest grade production area in the mine, resumed production in late January.

The production delays resulted in a net loss for the quarter ended Jan. 31 2010 of $8.26 million or 13¢ per share, down from a net loss of $10.33 million or 17¢ per share for the previous quarter.

Kirkland Lake Gold recently announced the discovery of two new high-grade zones east and below the SMC. On Jan. 12, it reported that drill hole 53-1520 intersected 6.14 oz. gold per ton uncut over a core length of 13.7 feet (and an estimated true width of 11.8 feet).

Drill hole 53-1506 intersected a new zone 50 feet below and 196 feet east of the New South Zone and returned 8.60 oz. per ton oz. per ton (3.5 oz. per ton cut) over a core length of 5.7 feet (and an estimated true width of 5.2 feet).

Last month Kirkland Lake Gold completed a private placement of 3.88 million units at a price of $8.25 per unit for net proceeds of about $32 million. The money will be used for exploration and the development of mine infrastructure.

Cash resources, including short-term investments, at Jan. 31, 2010 totaled $35.43 million and as of March 10 were $65 million.

“As we make the transition from an exploration and development company to an intermediate gold producer, the next twenty four months will focus on completing our mine refurbishment and infrastructure upgrade project using our existing cash resources and revenue from operations, while steadily increasing our production rates and expanding our total resource base towards our goal of five million ounces in all categories,” Harry Dobson, Kirkland Lake’s chairman, said in a prepared statement.