Kirkland Lake Gold (Price: 205p | Target: 353p | Rec: Buy) Kirkland Lake reported 2Q14 production of 34,935oz from 12.0g/t ore, in line with our forecast of 34,280oz from 11.7g/t ore.

The company states that production growth will accelerate in the 2H14, but that FY14 production is likely to come in at the lower end of the guidance range of 150-180koz.

We had been assuming 154koz in FY14E so see no reason to alter our forecasts.

Infrastructure capacity is now largely in place, with the labour force the last key hurdle to higher gold production.

Maintain Buy * Delivered ore grades of around 12g/t are already very good, so the key to increasing gold production in the 2H and beyond is lifting ore volumes.

2Q14 ore production was 8% higher than in 1Q14, but the production rate of 1,150 tons per day (c.380ktpa rate in metric) still has some way to go to reach KGI’s target of 2,200 tons per day.

In our forecasts, we assume a maximum production rate of 650ktpa, from FY16E. * Increased shaft capacity is now in place and the plant has ample ability to accommodate current production volumes, so labour is the key constraint currently, both in terms of filling the desired quota and in terms of ensuring that they are all adequately skilled.

Production rates should now accelerate as the expanded workforce is increasingly skilled. * Recommendation and target price: We reiterate our Buy recommendation with our target price of 353p derived from a blend of NPV and forward earnings multiples.

We will need to monitor the gold price, which at the current price of around $1,275/oz, is some way below our assumptions of $1,338/oz for the 2H14E and $1,400/oz longer term.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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