Be Prepared for the Next Gold Tailwind With Kirkland Lake Gold
- By Alberto Abaterusso
President Donald Trump's plans to impose 10% tariffs on $200 billion worth of Chinese goods is making gold investors anxious. As the tension between the U.S. and China simmers, the U.S. dollar becomes stronger and stronger, which is not supportive of the yellow metal.
The situation is building so much pressure that the bullion may be catapulted beyond $1,250 per ounce once the trade conflict calms down. A strong U.S. dollar does not stimulate the export of U.S. goods and services. If the president continues to impede the U.S. economy, the dollar cannot be supported long term.
Warning! GuruFocus has detected 3 Warning Signs with KL. Click here to check it out.
The intrinsic value of KL
Therefore, investors should be prepared to take the tailwind. One way of doing so is through investments in publicly traded gold mining stocks. Kirkland Lake Gold Ltd. (KL) is one of the best options for investors who want to gain exposure to the precious metal.
Shares of Kirkland Lake Gold are trading lower from early August. The share price of $18.4 is below the 100- and 50-day simple moving average lines. The stock fell slightly to $18.32 in early trading on Sept. 17. The current share price falls within a 52-week range of $11.52 to $23.86.
Why is Kirkland Lake Gold worth a look today?
First, the miner has proven to be more profitable than most of its competitors with an earnings before interest, taxes, depreciation and amortization margin of 54% . The industry has a median EBITDA margin of 23%.
The stock has also outperformed the Van Eck Vectors Miners exchange-traded fund (GDX) by nearly 70% for the 52 weeks through Sept. 14.
Second, the company has gold reserves in Canada and Australia, which are two of the friendliest mining jurisdictions in the world.
Third, the company has a strong balance sheet, which is characterized by moderate leverage and a sizeable amount of cash on hand and securities. The amount of prompt liquidity, plus a yearly operating cash flow of $300 million to $350 million are providing the miner with enough financial resources to continue improving operating performances at the Fosterville mine in Australia and the Macassa mine in Ontario.
The two gold-producing assets are key to the company's success. For the remainder of 2018 and all of 2019, the company is targeting an increase in production of the precious metal thanks to a higher grade of ore processed. For fiscal 2018, the miner forecasts production of 635,000 ounces of gold.
The Canadian miner also operates the Holt and Taylor mines in Ontario.
In addition, the company has one of the best operating costs of the entire industry. The operating cash cost ranges between $400 and $425 per ounce and the all-in sustaining cost ranges from $750 to $800 per ounce of metal sold. Concerning the AISC, Kirkland Lake is even beating Barrick Gold Corp. (ABX), which has an AISC of $765 to $815 per ounce of metal sold. The Canadian mining company is one of the two world's largest gold producers. The second is Newmont Mining Corp. (NEM).
Kirkland Lake also distributes a portion of its free cash flow to shareholders. On Monday, the company announced it will pay a quarterly dividend of 3 Canadian dollars (2 cents) per ordinary share on Oct. 12. To benefit, investors must be on the company's record no later than Sept. 28.
During the second quarter, Pioneer Investments (Trades, Portfolio) reduced its holding of Kirkland Lake Gold by 4.26% to 316,600 shares and Jim Simons (Trades, Portfolio)' Renaissance Technologies reduced its holding by 70.72% to 39,700 shares.
Bridgewater Associates leader Ray Dalio (Trades, Portfolio) increased his holding by 7.34% to 38,491 shares and Joel Greenblatt (Trades, Portfolio) bought 12,334 shares.
Disclosure: I have no positions in any security mentioned in this article.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Signs with KL. Click here to check it out.
The intrinsic value of KL
