I want to talk about Kirkland Lake Gold (KL. TSX). They are up 609% in the past year with dividends reinvested. This company is somewhat of a unicorn in the fact that they have zero debt, all while having $700 million in cash as of December 31, 2019. Most large companies have at least a little bit of debt in order to run their operations. I stumbled on this company in 2018 at $18.47 per share. Their most recent closing price was $63.56.
Kirkland Lake also pays a decent dividend with a yield of 1.22%, which leaves a lot of room for future growth in their dividends. They raised their dividends twice last year, the first time converting the $0.40 quarterly dividend from Canadian dollar to USD (equivalent to about a 30% increase at the time. The second increase changed the quarterly dividend from $0.40 to $0.60 per share, equivalent to a 50% increase. I don’t expect there to be any dividend increases this year due to coronavirus and its affective decrease in Kirkland’s production ability for the year.
On top of paying a dividend Kirkland Lake also has a very extensive stock buyback plan which they have increased substantially in the first quarter of 2020. In 2018 and 2019 Kirkland repurchased 2,767,000 shares, with an additional 9,713,500 shares repurchased for $329,849,000 in the first quarter of 2020. Share repurchases will probably be slower for the rest of 2020 due to coronavirus, but the company has (and plans to continue to have) an aggressive share buyback plan going forward.
Detour Gold Acquisition
January 31, 2020 Kirkland Lake Gold completed the acquisition of Detour Lake Gold Corp; no cash was burned up in this acquisition, as it was an all stock deal. This resulted in some dilution to the shares temporarily hurting people who already owned the stock (it dropped about $4 a share when the deal was announced). In the first quarter of 2020 Detour Gold’s former mines accounted for 40% of Kirkland’s free cash flow ($78 million) in the last 2 months of the first quarter. The shareholders of Detour Gold received 0.4343 shares of Kirkland stock for every share of Detour that they had previously held. This amounted to the addition of about 77 million shares being issued for Kirkland Lake Gold.
Kirkland Lake Gold has seriously outperformed the TSX Composite Index in the last five years (and will likely to continue to do so in the future in my opinion, though maybe not by as large of a margin).
|Dec 31,2014||Dec 31, 2015||Dec 31, 2016||Dec 31, 2017||Dec 31, 2018||Dec 31, 2019|
|Kirkland Lake Gold Ltd.||$100||$228.66||$2299.66||$6312.59||$11662.07||$18751.04|
|S&P/TSX Composite Index||$100||$91.68||$111.01||$121.11||$110.34||$135.59|
|S&P/TSX Gold Index||$100||$86.97||$128.49||$125.92||$117.88||$167.99|
I stole a little bit of information from Webull to make a few comparisons. Kirkland ranks 4th out of 533 companies in the gold sector with an EPS of 3.4365. Newmont Goldcorp, Aura Minerals, and Caledonia Mining all ranked higher if you feel like checking out the competition. They also ranked 14th for Dividend yield at 0.32% (the yield is actually over 1% today (July 10th)). The top 3 ranked companies for yield are Gold Reserve 33% (probably not sustainable), Centamin 4.27% and Dynacor Gold 2.32%. Kirkland’s P/E (Price to Earnings) ranks 18th overall at 16.35. The top 3 companies in this category are Black Dragon Gold 0.28, Noble Metal Group 0.45, and Alba Minerals 2.24.
Only 3 Gold companies from their benchmark group outperformed Kirkland in share price growth over the last year. 1 of which was Detour Gold, which is now part of Kirkland. The other 2 where Eldorado Goldcorp. and Centerra Gold Inc. If you were inclined to check them out (there is always the chance they have more future growth potential than Kirkland does at this point).
Kirkland Lake Gold also holds significant holdings in several smaller gold companies for potential profits or takeover potential. These include Bonterra Resources Inc. (8.5 million shares), Osisko Mining Inc. (32.6 million shares), Novo Resources (29.8 million shares), and Wallbridge Mining Company Ltd. (57 million shares). These will allow Kirkland to have input into how these companies operate as well as allowing them to keep a close eye on any potential large gold deposits discoveries.
Company performance increased substantially in 2019 for Kirkland as well which will give them a really good springboard to continue their strong growth in 2020. Production increased 35% from 723.7 Kozs to 974.6 Kozs of gold. AISC (All in sustaining costs) were down 18% year over year from $685 per oz to $564 per oz. Revenue increased 51% from 915.9 million to 1.38 Billion. Earnings per share increased 111% from $1.3 to $2.74 per share. Free cash flow increased 81% from 255.2 million to $463 million.
Kirkland is also very committed to keeping their money within the local economy and the trickle down effect. This is very good for Australia and Canada (where the mines are based out if), as this keeps money flowing within their respective communities and allows local businesses and populations to grow. 62% of the companies total spending was done within Northern Ontario in their Canadian operations and 53% in the Bendingo and Victoria area of their Australia operations. On top of that Kirkland has many Social and Environmental Responsibility initiatives to reclaim unused and closed mine land as well social programs donating $1 million USD in 2019 to various charitable and not-for-profit organizations.
I believe Kirkland has been and will continue to be a very good long term holding in anyone’s portfolio for a very long time. Their lack of debt, ability to grow their operation substantially while keeping costs down as well as their dividend and aggressive stock buyback programs will allow them to keep up a very solid return on investment for their investors for the foreseeable future. I know I will be taking every opportunity I can find where their stock price dips a bit (doesn’t happen very often) to increase my holdings in them.
Disclaimer: I am long on Kirkland Lake Gold currently and probably will continue to be for a long time. Kirklands stock price is as of July 9, 2020.