Canadian Mining Eye - Q2 2017

Q&A with Anthony Makuch

President and CEO, Kirkland Lake Gold

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  • Q.

    What is your view of the mining sector?

  • A.

    Mining is a cyclical business, so we always seem to be running into the same roadblocks. Overall, gold prices are doing fairly well, especially in Canadian and AUS dollar terms. When you look at the industry as a whole, 2017 is turning out to be a positive year.

    With that said, the industry does have to deal with cost pressures as it relates to capital costs. Thinking about some large joint venture projects in the market, it’s natural to understand that the size, cost, technical and market risks command a delicate balance.

    On the investment side, attracting new investors to our industry continues to be challenging. We need to build the infrastructure at our mines during the downturns so that we reap the rewards during the price upswing.

  • Q.

    What trends do you expect to see in the remainder of 2017 and going into 2018 in the mining sector?

  • A.

    I think re-investing in the business will remain an important trend in our industry. There may still be some companies out there that pad their cash flow for short time by starving their business of capital. But, overall, I believe that our sector as a whole increasingly understands that this approach is an exercise in short-term gain for long-term pain. The market clearly is looking for companies that can demonstrate a capacity to sustain themselves and finance their growth well into the future.

    At KL, we focus our investments on sustaining and growing production that will support operating cash costs under US$650 per ounce and all-in sustaining costs of under US$950 per ounce. Over the long term, having that kind of cost structure is the key to being able to succeed and to ensure you have the capital you need for the diamond drilling, development, equipment and infrastructure that are critical to successful operation. You also need to invest in exploration to extend orebodies and find new discoveries. We are spending between $45 million and $55 million on exploration in 2017 and have already reported some very encouraging drill results at three of our mines, where we are extending existing orebodies and identifying new areas of gold mineralization.

  • Q.

    How is Kirkland Lake Gold (KLG) doing since the acquisition of Fosterville?

  • A.

    Things look positive. The Fosterville gold mine is performing very well and has the potential to be a generational deposit. If I take a step back and look at the acquisitions that were done last year, the St. Andrew’s arrangement with KLG took our diversified production from between 160,000 and 180,000 ounces a year to between 270,000 and 290,000 ounces a year. We actually exceeded the guidance in both cost and production for 2016.

    With the merger of Newmarket Gold Inc. in December 2106, we added th Fosterville gold mine in Australia. Prior to 2016, the mine grades were between 4 and 6 grams per tonne. In 2016, Fosterville produced over 150,000 ounces of gold and the grades were over 7 grams per tonne. This year, we are on track to achieve grades at least double that level and are targeting total production of over 250,000 ounces.

    We also have discovered a a new high grade ore body at Fosterville called the Swan Zone where grades are about 58 grams per tonne, to there are, so there are a lot of good things happening as part of the acquisition.

    Fosterville is playing a key part in our overall business plan for the year, which includes our upgraded guidance for the Company now targeting total production of between 570,000 and 590,000 ounces.

  • Q.

    What are the key challenges for mining companies?

  • A.

    The mining industry generally has a negative perception. But what most people don’t realize is the role mining plays in our lives. When we talk about green energy, for example, we’re talking about lithium that has to be mined.

    For Kirkland Lake Gold, since we completed our recent acquisitions, we still have integration issues to work through. Our focus is on bringing our cultures together, and getting our people thinking about costs and safety.

    Another key challenge is algorithm trading in the gold space. That’s the move from traditional fund managers to computer trading. In this digital age, we’re seeing money move around at a pace which has little to do with market conditions, but which have a great impact on metal prices and our share price.

  • Q.

    What is your opinion on the trends for gold prices?

  • A.

    I remember the fundamentals of gold that my father taught me. There are two things you can rely on in investing: gold and land. Both will hold their value over time. What would you rather find in your backyard, a box with $10,000 in 1900, or with $10,000 worth of gold in 1900. Gold will always hold its value. However, I feel that there are things that are affecting the gold market that are out of the control of mining companies.

    Trends will always come and go, and that may limit gold prices. But over time, gold trends up. If you look at gold in terms of reserves worldwide, it is not growing as much as the demand. The long-term trend will be positive.

  • Q.

    How do you view the future of the gold sector?

  • A.

    As gold companies, we need to reinvent ourselves. Part of the issue we have is that we’re dealing with a fluctuating market.

  • Q.

    What is your view on digital mining and what does it mean for KLG?

  • A.

    I think digital mining is something we need to embrace. For example, at Macassa in Kirkland Lake, Ontario, we are exploring the use of applying digital intelligence to our battery-powered battery-powered underground equipment, or alternative digital methods for running our equipment underground. Because all of our equipment is electric, we should be able to understand our data better, which will allow us to track and control activities in real time. We could make hot spots underground or even make the entire mine a WIFI hotspot.

    At KLG, we feel we are leading in terms of introducing battery power at our mines. But there is still more that we can do to embrace technology, optimize our equipment and apply that in our underground mines.

  • Q.

    What is next for KLG?

  • A.

    Our focus remains on Fosterville. There are many opportunities there, and it could potentially become one of the lowest-cost gold mines in the world with costs under US$320 an ounce. The safety and the quality is exceptional and we hope to demonstrate to the world that it’s not just a mine with a 600,000 ounce reserve we started out with in 2017, but rather a multimillion ounce deposit. At Macassa, we continue to have encouraging exploration success and are focused on continuing to extend the life of this historic, highgrade mine, as well as on optimizing production to take advantage of the significant processing capacity that exists.

    Over the next year, we also expect to focus on stabilizing our integrated company and executing what we do well collectively for KL shareholders.