The Fed did nothing yesterday. I’m not going to join the herd of writers pretending to be able to tell you “what you need to know” about it. I think it would be more useful to comment on another past pick of mine.
Several readers have asked about Kirkland Lake Gold Ltd., so here we go. Just remember that I can’t answer every question about every company I get. For more in-depth guidance on what I’m actually buying, please subscribe to the Independent Speculator.
Kirkland Lake (KL, KL.TO, US$17.89, C$23.05, 211.1M shares, US$3.5B enterprise value)
Summary
Kirkland Lake is an emerging mid-tier gold producer with high-grade mines in Canada and Australia. The Macassa mine in the Kirkland Lake district of Ontario is one of Canada’s highest-grade gold mines, and the Fosterville mine Down Under has been growing in size and grade and production and profit for years.
Key Analytical Points
- Kirkland Lake is raking in cash. The company just reported record EBITDA, increased cash flow, increased production, increased cash, increased mine reserves, increased dividends, and increased earnings. The latter rose from US$13.1 million in Q1 2017 to US$53.8 million in Q1 2018.
- Growth looks solid. Grade at both flagship mines (Fosterville and Macassa) increases with depth. This is part of why the company seems to have more gold in the ground after every year of mining. However, the company also has two more mines in Canada and another in Australia. None of these is as high grade as the flagships, but all have the potential to add more gold to the story.
Conclusion
History: Back in my Casey Research days, I recommended shares in Newmarket Gold, because it had just acquired Australian assets including Fosterville. That was in September of 2015, at C$1.25. I had also recommended Kirkland Lake Gold that year, for its Macassa mine. That was in July of 2015, at C$5.13. The companies merged and became the current Kirkland Lake in late 2016. Both speculations worked out quite well (it’s almost a 20-bagger today, for those who bought Newmarket), so if I had been allowed to buy back then, I would doubtless have taken profits by now. Nothing beats a risk-free position with full exposure to whatever upside remains in a speculation.
My current take: I’d be happy to Hold a risk-free position.
Would I buy if I were new to the story today? I might, if I were a long-term gold investor looking for a relatively stable, highly profitable dividend-payer. But that’s not what I’m looking for today. My focus is on maximum gains. That’s hard for a larger company like this to deliver—even one with great results like Kirkland Lake.
Would I sell if I had bought was still long? If I hadn’t taken profits yet, I certainly would do so now. Would I close the position? Maybe not if I had modest gains, but maybe I would if I had a big win. The company keeps delivering in spades, but larger producers like this are not where my personal focus is right now. And the stock’s apparent immunity from general market volatility can’t last forever.
Bottom Line: I like the company a lot, but it’s not for me, today.
But that’s just me. One size never fits all.
Important Reminder: I am not making any recommendations in this service. I’m just saying what I would do.
