By The Gold Report
Source: Streetwise Reports 11/30/2019
The perceived pros and cons of the transaction are provided in a CIBC report.
In a Nov. 25 research note, analyst Cosmos Chiu reported that CIBC downgraded its rating to Neutral and lowered its target price to CA$60 per share from CA$73 (current share price CA$55.79) on Kirkland Lake Gold Inc. (KL:TSX; KL:NYSE) due to the increased risk associated with the miner’s agreement to acquire Detour Gold Corp. (DGC:TSX). The transaction is expected to close in Q1/20.
Chiu pointed out that another potential downside to the deal is that it could cause a slowdown in Kirkland Lake’s current efforts to optimize its operations, the Fosterville and Macassa projects, and hamper progress with its Macassa mine.
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The major benefit of the transaction, Chiu noted, however, is it will expand Kirkland Lake’s project portfolio. “Long term, we see the merits of this acquisition, by adding a third cornerstone [open-pit] mine to the asset base and potentially creating a Canadian champion,” he added.
With the acquisition, Kirkland Lake’s reserve base will jump to 21 million ounces (20 Moz) from 5.75 Moz. Its production will increase in 2020 to 1.621 Moz from 1 Moz. However, the all-in sustaining cost will rise in tandem, to CA$773 per ounce from CA$564 per ounce.
Merging the two companies is estimated to result in about CA$75100 million of pre-tax synergies per year.
The analyst reviewed the terms of the acquisition agreement. All outstanding Detour Gold shares will be exchanged for Kirkland Lake shares at a ratio of 0.4343 Kirkland share to 1 Detour share. Accordingly, when the deal closes, existing Kirkland Lake shareholders will own about 73% of the company, and Detour Gold shareholders will own about 27%.
Chiu concluded that “while the proposed acquisition of Detour Lake is a change from Kirkland Lake’s previous focus on high-grade underground operations, it adds a long-life Canadian producing asset that should help the company deliver continued free cash flow growth in the future.”
Next, Kirkland Lake will announce results from its exploratory drilling at Fosterville. Those are expected by year-end 2019.
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Disclosures from CIBC, Kirkland Lake Gold Ltd., Ratings Change, November 25, 2019
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
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Important Disclosure Footnotes for Kirkland Lake Gold Ltd. (KL)
2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Kirkland Lake Gold Ltd.
7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or
more of a class of equity securities issued by these companies: Kirkland Lake Gold Ltd.
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here: Disclaimers & Disclosures.
( Companies Mentioned: KL:TSX; KL:NYSE,