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The quiet community of Kirkland Lake is located in northern Ontario adjacent to the Quebec border, in an area where the forests are far more dense than the population and where the temperatures at this time of year average a high of -10.7° Celsius and a low of -23.4°C. It also sits strategically within what is scientifically known as the Precambrian Shield, considered the oldest geological formation on the planet and one of the richest in natural resources.
The community of 8,000 plus is also home to Kirkland Lake Gold (LSE:KGI), which operates in the heart of the Southern Abitibi gold belt. In 2001 Kirland Lake Gold acquired five contiguous, but inactive, gold mines covering some 13,000 acres. When those mines were operational they produced 21 million ounces of gold at a rate of 0.44 ounces per ton. In 2009 the company began actively pursuing its goal of increasing production capacity to 2,200 tons per day by this month, January 2014. That goal has been pushed back to as far as April based on a current production of about 800 tons per day actual production.
The recent past has not been a particularly good for gold mining, exacerbating Kirkland Lake Golds’ own operational problems. On 21 September 2011, shares of KGI closed on the London exchange at 1,305. By 13 December 2013, the share price had declined to 135.00.
Today, however, investors apparently welcomed KGI’s announcement that it is taking action to address the declining value of investment in the company. (The EPS growth rate currently stands at -108.62%.) The company announced this morning that it will embark on a new strategic review process “to explore alternatives for the enhancement of shareholder value.” Whilst that statement has its own merit, it is important to note as well that the board has initiated this review to be concurrent with its operations optimization efforts. There can be a corporate tendency to focus on one or the other of these issue, to the detriment of the neglected one.
I consider CEO George Ogilvie’s statement that “While we continue to work on our plan to improve the Company’s margins, the Board has approved a process to review and evaluate potential alternatives that may further maximize value for our shareholders,” to be an positive insight into sound corporate direction. In fact, he went on to say that “The strategic review will encompass a careful evaluation of the Company’s business plan, development strategy, market valuation and capital structure and will consider various alternatives for the Company, including the potential sale of the Company’s shares or assets, and any other options identified by executive management with the fundamental objective of achieving the best value for the Company’s shareholders.”
There are some extreme, but guarded, implications in Ogilvie’s remarks, but the point is that Kirkland seems to be mindful that it is not about the gold. It is about making money for the investors.
