Kirkland Lake Gold Ltd. (KL) Q4 2020 Earnings Call Transcript

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Kirkland Lake Gold Ltd. (NYSE:KL)
Q4 2020 Earnings Call
Feb 25, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. My name is Sidarius, 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 fourth quarter and full-year 2020 financial and operating results. [Operator instructions] With that, I would now like to turn the call over to Senior Vice President, Investor Relations Mark Utting.

Mark Utting — Senior Vice President, Investor Relations

Thanks very much, operator, and good afternoon, everyone. Welcome to our fourth quarter and full-year 2020 conference call and webcast. On the call today are many members of the Kirkland gold senior management team. Speaking today will be Tony Makuch, our president and CEO; David Soares, our chief financial officer; Evan Pelletier, our vice president, mining, for Kirkland Lake; Larry Lazeski, our general manager of Lake Mine; Ion Hann, vice president and co-lead of Australian operations; and Eric Kallio, our senior vice president of exploration.

There are also several other members of the management team on the phone as well that may participate in the Q&A. After we go through the presentation, we’ll then open up the call to questions. [Operator instructions] 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 would like to direct everyone to the forward-looking statement slide, Slide 2 on our slide deck.

Our remarks and answers to questions may contain and likely 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 February 24, 2021, for more information. Also, during today’s call, we’ll be making reference to non-IFRS performance measures. A reconciliation of these measures is also available in our most recent MD&A.

Finally, I’ll mention that all figures given today will be in U.S. dollars unless otherwise stated. With that, I’ll 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, everybody, for being on the call. And I guess, it’s definitely been a different time over the last year in 2020. Very — as we can say, a lot of different things happen.

But in terms of the people at Kirkland gold, which includes the people that directly work for us, our suppliers, our communities where we work, and our partners and everybody really stepped up to the forefront and we put in some good efforts. And we had a record year in a lot of different areas. And in some areas, we can be very proud of in terms of how people worked together and achieve these results. But when it came to COVID-19 and COVID-19 response and our — all of the processes at place, I think we’ve had significant success.

And our sites still remain very safe and operating well. And I think people can feel pretty good about what we can achieve and achieve as a group and when you get challenged. Anyway, if I can turn to Slide No. 5, just talk about ESG.

We’ve been putting a lot of effort into the different components of ESG at Kirkland Lake Gold. And really, a big part of it, one is ensuring that we communicate better in terms of what we do from an ESG perspective. And if you go to Slide No. 6, as I mentioned, a key area for us is formalizing our processes around reporting and public disclosure.

And as I also said, we’ve made significant advancements. We published our second consolidated sustainable report in November of this year — sorry, of 2020. And we are on track now to issue our 2020 Sustainability Report before our annual meeting in May. And we’ll be actually issuing our Sustainability Report every year around the same time, and with our normal filings that we would be doing at the end of March.

Additionally, we adopted the World Gold Council Responsible Gold Mining Principles in 2020, and we have completed our year one external assurances. We finalized policies and standards on human rights, supplier for conduct, grievance resolution, and workplace diversity. We are an industry leader in minimizing greenhouse gas emissions and invest significant funds in managing modern tailings. And we wanted to actually be increasing our efforts in those areas and going forward.

And the people at the Detour achieved an important recognition in the year with the top Memorial Mine Reclamation Award for their progressive reclamation program which has been going on there for quite some time. Now on Slide 7, as you can see, we firmly believe in being socially responsible and in providing support to community organizations and groups that provide essential services. At the beginning of the global pandemic, Kirkland Lake Gold committed to supporting medical, social, and community organizations or areas of operations with a focus on homelessness, mental health, addiction, training — youth training and development, and senior citizen care. Our teams have been actively engaging with public service organizations in both Canada and Australia to help those in need, both financially and within kind donations of hand sanitizer, masks, and other PPE.

Our support for our local community will be on COVID-19 is a long list of issues highlighted on the slide. In total, what they demonstrated as a company is beta committed to and immersed in the communities where we operate. Turning now to the fiscal-year 2020 on Slide 8. We achieved a record-year performance.

We reported record production earnings and cash flow. We also achieved all of our consolidated full-year 2020 guidance. We returned almost 850 million to shareholders through share repurchases and dividends. We completed the acquisition of Detour Gold.

We made considerable progress at Detour Lake mine, which generated over 40% of our free cash flow and is already realizing some of the substantial upsides we saw when we looked at this asset. And speaking of the upside, we achieved significant exploration success in 2020 despite the challenges related to COVID-19. And at all 3 of our cornerstone assets, we’ve made good progress, right, with our key projects. And that includes the #4 shaft that project at Macassa, the Ravenhall development over at Fosterville.

And the biggest driver is going to be seen in 2021 in Detour with the expansion of the resource that — with the exploration success, and that, combined with the mill expansion and mine expansion that we’re working on right now. And before I leave that slide, again, I mentioned that we had a record year financially, operationally, but we also had a record year for Kirkland Lake Gold from a health and safety perspective, the lowest injury frequency we’ve had now in five years, or ever, for the company. Looking closely now at our financial and operating results on Slide 9. Our earnings were very strong.

Adjusted net earnings were $923 million or $3.41 per share. This increased 23% from 2019. Operating cash flow totaled just over $1.3 billion, and free cash flow increased 58% to $733 million. The key driver to our strong performance was significantly higher revenue and solid increases in gold sales.

Looking at our operating results. We had record production of 1.37 million ounces of gold. That was 41% higher than 2019. Obviously, the addition of Detour Lake was a key contributor to the increase.

Our unit cost performance remained very strong with operating cash cost per ounce of $404, which beat our guidance, and all-in sustaining cost. Again, from a cost perspective, we are in the leading into the pack of our industry. Turning to Slide 10, looking at Q4 2020. Again, as mentioned, we generated record results in the quarter.

Production was 369,000 ounces and 32% higher than Q4 2019, a 9% increase from the previous quarter, with all three of our operations having their highest production levels in 2020 — in Q4 in 2020, sorry. Our unit costs were strong with operating cash costs of $396 per ounce and all-in sustaining cost of $790 per ounce. Looking at earnings. Adjusted net earnings were $0.98 per share, which increased by $0.88 per share in last year’s fourth quarter and $0.92 in Q3.

The $0.98 of adjusted net earnings was after a $0.03 per share reduction due to prior period adjustments on depreciation costs. David Soares will discuss that more in detail in a few minutes. And looking at cash flow. Operating cash flow was $421 million, while free cash flow totaled $232 million.

Now looking to Slide 11. With our record operating results in 2020, we finished year with a very strong balance sheet. Cash totaled just under $850 million. It’s 20% higher than that than at the end of 2019, and that with no debt.

Key contributor to our cash flow was our 58% increase in free cash flow to just over $733 million. As I mentioned previously, we also achieved $174 million proceeds from the sale of strategic investments and $75 million through a strategic alliance with Newmont relating to our gold complex and exploration in Northern Ontario. Offsetting our strong cash generation was the significant capital returned to shareholders during 2020, returned $848 million through both a combination of repurchasing shares and growing dividends in the year. Now on Slide 12, this provides the details of, I know what we think is one of our very important components of our capital allocation strategy, which is returning capital to shareholders.

Of the $848 million returned to shareholders in 2020, $732 million was used to repurchase 18.9 million shares in the year. I should point out that we also repurchased an additional 1.1 million shares in early January of 2021…