By: Dylan Sikes - AllPennyStocks.com News

Tuesday, June 24, 2014

Located in the Abitibi Greenstone belt, Canada’s Abitibi gold belt is a world-class gold mining region stretching from Wawa, Ontario to Val-d’Or, Quebec. The fact the Val-d’Or means valley of gold, although there actually isn’t a valley in the region, should give an inkling as to how prolific gold and other minerals are in the area and how important mining is to the economy. Also in the Abitibi gold belt is Kirkland Lake, an area that decades of stellar production and more proven reserves have earned it the nickname, “the mile of gold.” In the Southern Abitibi gold belt, is the operations of Kirkland Lake Gold Inc. (TSX:KGI), an intermediate gold producer controlling about 13,000 acres of five congruous past producing gold mines that it acquired in 2001. The mines on Kirkland’s property historically produced 21 million ounces of gold grading 15.1 grams per ton, mostly from a quartz-vein setting known as the Main/’04 Break system. Kirkland has spent the last decade expanding gold production from this system and developing a new discovery area with a different geological setting, called the South Mine Complex, or SMC.

The proven and probable reserves for the complete property currently stand at 2.78 million tons at grades of 17.1 grams per tonne (g/t), equating to 1.385 million ounces of gold. That’s about $1.80 billion at $1,300 per ounce. Measured and indicated reserves are 4.15 million tons at 16.8 g/t for another 2.055 million ounces of gold. The inferred category shows 2.09 million tons at 0.54 g/t, or 1.133 million ounces of gold. The total mine life is set at 14 years presently.

Through strategic initiatives of an expansion program, including upgrades to above and underground equipment, gold production has been on the rise to the tune of about 18 percent year-over-year from 82,160 ounces in 2011 to a projected 122,309 in 2014. Notably, there was a lull from 2012 to 2013, where production slipped from 100,032 ounces to 91,518 ounces, although a new mine optimization plan was set in motion late in 2013 with the goal of raising head grade and mining to the reserve grade to lower costs and increase productivity.

Kirkland on Tuesday released an update and mine plan for fiscal 2015, which began at the start of May, and guidance for production over the next three years.

Production through the first 51 days of the fiscal year has totaled 52,987 tons at a head grade of 14.4 g/t, or 21,426 ounces of gold. That’s a 32-percent improvement compared to the head grade for fiscal 2013 of 10.9 g/t gold. Last week’s production was particularly strong with a gold pour on June 19 delivering 4,862 ounces.

New mining horizons in development are showing improved grades, with the first stope at the 5,400 foot level of SMC coming online a month ago. Proven and probable reserve blocks from 5,400 feet up to 5,300 feet include 481,000 tons at 19.5 g/t gold, while the 100 foot below level includes 299,000 tons at 24.0 g/t gold, for a total of 483,000 ounces of gold for the two levels. Kirkland expects to mine five stopes from the 5,400 foot level this fiscal year.

1,050 tons per day of ore are being mined at the project, with new equipment slated to arrive within the next six months, which will boost daily ore tonnage between 100 and 200 tons each day. Right now, there is 5,400 tons of ore stockpiled at the mill, according to the company.

With these calculations, Kirkland says it is on track to hit its production guidance of 140,000 to 155,000 ounces of gold in fiscal 2015. Operating costs are forecast between C$800 – C$850 per ounce. Revenue for the year is guided at approximately C$200 million, with cash flow from operations between C$50 million and C$60 million. Free cash flow is expected in the range of C$15 million and C$20 million. The company said it expects to be free cash flow positive in the next two to three months.

Looking further ahead, Kirkland sees gold production in the range of 150,000 to 170,000 ounces in fiscal 2016 and 160,000 to 180,000 ounces in fiscal 2017. The guidance doesn’t include any mining of near surface mineralization that may occur.

"The current fiscal year is off to a strong start with operations thriving under the new strategy of focusing on quality tons to significantly improve head grades,” said George Ogilvie, president and chief executive at Kirkland, in a statement today. “This approach will continue over the next three years, where the plan calls for keeping daily ore tons constant in order to keep labour and other mining costs stagnant, with an increase in produced ounces coming from higher grades.”

Although there has been some volatility, 2014 has been friendly to shares of KGI, which ended 2013 just under $2.60 per share. The stock ran as high as $4.75 in March, before sinking like so many other miners, but has rebounded to close Monday trading at $3.47 for gains of about 35 percent so far this year.

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