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Edited Transcript of KL earnings conference call or presentation 8-May-19 12:00pm GMT

Q1 2019 Kirkland Lake Gold Ltd Earnings Call

VANCOUVER May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Kirkland Lake Gold Ltd earnings conference call or presentation Wednesday, May 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony Paul Makuch

Kirkland Lake Gold Ltd. - President, CEO & Director

* Darren Tschanz

Kirkland Lake Gold Ltd. - VP Project Development

* David Soares

Kirkland Lake Gold Ltd. - CFO

* Duncan King

Kirkland Lake Gold Ltd. - Former VP of Mining for Kirkland Lake

* Eric A. Kallio

Kirkland Lake Gold Ltd. - SVP of Exploration

* Ian Holland

Kirkland Lake Gold Ltd. - Former VP of Australian Operations

* Mark E. F. Utting

Kirkland Lake Gold Ltd. - VP of IR

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Conference Call Participants

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* Cosmos Chiu

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst

* Craig Philip Stanley

Eight Capital, Research Division - Principal & Precious Metals Analyst

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Ovais Habib

Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining

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Presentation

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Operator [1]

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Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kirkland Lake Gold First Quarter 2019 Conference Call and Webcast. (Operator Instructions) Thank you. Mark Utting, Vice President of Investor Relations, you may begin your conference.

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Mark E. F. Utting, Kirkland Lake Gold Ltd. - VP of IR [2]

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Thank you, operator, and good morning, everyone. With me today are most of the members of Kirkland Lake Gold senior management team, including, Tony Makuch, our President and Chief Executive Officer; David Soares, our Chief Financial Officer; Ian Holland, our Vice President, Australian Operations; Duncan King, our Vice President of Mining for Kirkland Lake; and Eric Kallio, our Senior Vice President of Exploration. Other members of the team are here as well.

Today, we'll be providing comments on our results for the first quarter of 2019. We will then open the call to questions. The slide deck that we will be referencing for this call is available on our website at www.klgold.com under the Investor Relations in Events section and on the homepage.

Before we get started, I'd like to draw your attention to the forward-looking statements slide, which is Slide 2 in the deck. Our remarks and answers to your questions today may contain forward-looking information about future events and the company's future performance. Please refer to the detailed cautionary note on Slide 2 as well as the forward-looking information set out in our news release dated May 7, 2019, and in the MD&A for the 3 months ended March 31, 2019, which is on our website and on SEDAR.

Also during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available within our Q1 press release and our MD&A. Finally, please note that all figures discussed today are in U.S. dollars, unless otherwise indicated.

With that, I'd like to turn the call over to Tony Makuch, our President and Chief Executive Officer.

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [3]

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Good. Thanks, Mark. Thanks, everyone, for being on the call this morning. Looks like we were trying to get spring coming to see us here in Canada, and we're fighting between mother nature and father winter whatever you want to call it. But anyway, thanks for being on the call.

We did have our results out for over a day now. And we had our AGM yesterday, and we saw most of our analysts there. So as a result, we really want to keep this a very short presentation -- our comments from us today. And then we'll leave a lot of time more for questions.

So If I just start at Slide #3, a couple of highlights on this slide. In terms of Q1 2019, a very solid quarter for the company, a record production of almost 232,000 ounces in the quarter. From an earnings per share perspective, we have record net earnings of $112 million or $0.53 a share, and record free cash flow of $93.1 million.

Turning to Slide 4. When you look at how we performed against our guidance, you can see we had some strong results -- strong performance. Mostly we had record results at Macassa, over 72,000 ounces produced at cash cost of $332 an ounce. And then Fosterville really had an exceptional record performance of 128,000 ounces produced in the quarter and cash cost of $144 an ounce.

Definitely, if we're not industry-leading in terms of first or second, we're definitely in the top 10 in terms of the lowest cost producers in the industry. And I think the other thing that bodes well is we expect to see a real pickup in production at Fosterville in Q3 and Q4 and continue solid performance from Macassa and Canadian operations.

And with that, we go over to Slide 5. Based on these results and the expectations what we have for the rest of the year, we improved the 2019 guidance yesterday. And this is actually a second guidance improvement in 2019. So we lowered -- raised the lower end of our production guidance to 950,000 ounces. So we went from 920,000 to 1 million to 950,000 to 1 million in terms of production guidance. And we've also improved the cash cost guidance for the second time and now expect to achieve cash cost between $285 and $305 an ounce for the year.

Turning to Slide 6. With against us -- driven by our strong performance, the profitability and cash flow generation and our focus on returning capital to shareholders, we announced our Q2 2019 dividend would be increased by over 30% to $0.04 per share and to be equated in U.S. dollars. This is our fourth dividend increase since we introduced the dividend in March of 2017. And as our cash position grows, we'll continue to look for ways to return capital to shareholders, and that will include in terms of continuing to review our dividend policy, but also being continuing to be aggressive with our NCIB in terms of putting value to shareholders.

Anyway, with that, I'll turn the call over to David Soares, our CFO.

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David Soares, Kirkland Lake Gold Ltd. - CFO [4]

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Thank you, Tony. Q1 2019 saw record net earnings. We closed the quarter at $110 million and $0.52 a share. That's a 120% increase from Q1 2018 and an increase as well from Q4 2018. In terms of adjusted net earnings, we saw similar growth of 114% from Q1 2018. And we closed the quarter in 2019 at $112 -- sorry, $112 million and $0.53 a share.

Turning on to Slide 7 (sic) [Slide 8]. Looking at revenue, again, record revenue in Q1 2019, closing the quarter at $304.9 million, a 54% growth from Q1 2018 and a 9% growth from Q4 2018, mainly driven by higher gold sales and also higher gold price. So we closed the quarter in Q1 2019 at 232,900 ounces and realized an actual price of $1,307.

Moving on to the next slide. Looking at cash, we saw quarter-over-quarter a 25% increase in cash. Cash increased $83.9 million and 25% over the Q4 2018 and closing the quarter at $416 million, again mainly driven by strong net cash from operating activities of $174.4 million more than offsetting net cash used for investing and financing activities.

I'll hand over the call now to Ian Holland, our VP of Australian operations.

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Ian Holland, Kirkland Lake Gold Ltd. - Former VP of Australian Operations [5]

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Thanks, David. Referring to Slide 10, I want to give some color to the strong performance at Fosterville for the year for the quarter. It was a record quarter in terms of gold production with 128,000 ounces recovered for the quarter coming from the processing of 140,000 tonnes at 29 grams per tonne and little over 98% mill recovery.

The image on the right of this slide is a section through Lower Phoenix, which highlights where this material came from. There was a significant contribution from Swan during the quarter with 8 stopes mined in total over a number of levels, which can be seen as the yellow stopes dipping to the left on the lowest levels in the section. In total, Swan comprised around 40% of the tonnes mined for the quarter with grade performance in line with modeled expectations.

Fosterville also saw a strong financial performance for the quarter, with the exception of cost metrics really. Operating cash cost of $144 per ounce and an all-in sustaining cost of $315.

With the strong quarter and the outlook for the remainder of the year, yesterday, we announced an improved full year guidance of 570,000 to 610,000 ounces of gold production at operating cash costs of $130 to $150 an ounce. And this is really on the back of anticipated increased production in the second half of the year.

The investment program at Fosterville continues the pace with sustaining capital expenditure of $18.9 million and growth capital expenditure of $11.7 million. The sustaining capital program includes significant component of underground capital development as well as mobile plant and equipment and infrastructure. The growth capital program was dominated by the key major projects, ventilation upgrade, paste plant, and mild water treatment plant, which remain on track to be completed during the course of 2019.

With that, I'll now pass over to Duncan King for the Canadian operations.

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Duncan King, Kirkland Lake Gold Ltd. - Former VP of Mining for Kirkland Lake [6]

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Well, thanks, Ian. Moving to Slide 11. Good morning. I'll focus on Macassa. We had a record quarter production at Macassa, production of 73,000 ounces. The key to the quarter was the grade, which averaged 30 grams to the tonne. The higher grade resulted from outperformance in the stopes on 5700 and 5600 Level areas. Our cash costs for the quarter were very low at $332 while all-in sustaining costs were $602. Raise and a reduction in sustaining capital mainly accounted for the low all-in sustaining cost.

Over the balance of the year, we are pushing towards new zones on the 5700 Level, which we expect to have similar grades. Based on our outlook as we referred, we increased our production guidance from -- for 2019 to 240,000 to 250,000 ounces. We also improved our cash and cost guidance to $400 to $420.

Turning to Slide 12. Turning to the #4 Shaft Project. We remain on track to commence full-face sinking during the summer. This puts us on track for Phase 1 completion by Q2 2022.

During Q1, we filed our technical report for Macassa. Included in the report is shown that at full production following completion of the shaft, we reached well over 400,000 ounces of production at cash cost below $300 per ounce and an all-in sustaining cost below $400 per ounce. A key finding in the report is that the payback will be very quick, basically immediately following the completion of Phase 2 at the end of 2023.

I'll now turn it over to Eric Kallio.

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Eric A. Kallio, Kirkland Lake Gold Ltd. - SVP of Exploration [7]

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Okay. Thanks, Duncan. Good morning, everyone. My first slide today will be #13 which is on Macassa, where we announced a very positive drill results this week. As announced, the results are from 30,000 meters of drilling, which is focused on extensions of the South Mine Complex, or SMC, but also a small amount on the Amalgamated Break.

The slide shown on the screen is a 3D view across the mine. It gives you a better idea of the overall target and key areas tested. As indicated, it's really just to the East, West and depth of the SMC as well as the Amalgamated Break in the central portion of the mine. Although we had a -- quite a few very good results in the release, some of the more interesting from my perspective would be the ones in holes drilled to the West, which tested up to about 250 meters west of the current resource, and it extracted some very high grades with some of the key highlights, including 436 grams at 2 meters, 158 over 2.4 and even 4,000 over 2 meters in the new zone, which is located between the main structures.

Also encouraged to love the area is that although holes are very widely spaced, they seem to -- the intersection seem to line up generally well with existing resources. And we see some similarities in style to the mineralization in the current resource. We also notice the holes that are near the West limit also have some reasonably good results implying good potential for further expansion even further to the West.

Looking at holes to the East intercepts, we saw drilling design to test upwards to the resource in various direction and also producing very good results. Some of the better ones, from my perspective again, being value of 2,468 grams over 1.8 meters that extended the zone to depth and another value of 118 grams over 2 meters, which expanded mineralization to the South and East. Listed above, we saw some very interesting results from the Amalgamated Break, which is another major structure at the mine which occurred south of the SMC and actually have been tested in many other parts of the mine but surprisingly showing some very positive results on this new round of drilling.

Results are from 2 different areas of the Amalgamated Break, which are roughly 300 meters apart and has some very high-grade assays that as I mentioned have not often been seen. Given that we still see a number of gaps between the 2 areas and along strike, we feel very optimistic about being able to find additional zones of this type. So in summary, progress with the drilling at Macassa coming along very good in point number one.

Turning to my next slide. We go to Australia and the Fosterville mine, where we continue to advance target, but the key areas being that Robbin's Hill, Lower Phoenix and Harrier. Unfortunately, the progress in all areas is not quite progressing as quickly as we would hope at this point but for various reasons. At Harrier, drilling was focused on downtime to the current resources and mostly on the upper syncline target. And we did have a lot of success here. But we are unable to test the deeper anticline target where we believe most of the potential could lie. And the reason being mostly due to an adjustment of interpretation placing the target slightly deeper into the West requiring a new drill platform. We also had some delays caused, some slight delays caused by waiting for amendment to the mining license.

Despite the above, we still feel very confident about the targets and even seen the quartz with visible gold in some of the deeper holes of the upper syncline drilling.

Looking at the Lower Phoenix, drilling also target the resource down plunge and with most of this being done from the new Harrier access drip. But it's just taken a little bit longer than expected due to the length of holes, local difficulties with hole deviations and ground conditions.

Looking at Robbin's Hill. The story is much the same as in Lower Phoenix with the main target being down plunge of the current resource but with drilling being done from surface and just taking a little longer due to the lengths of the holes involved. Despite all above, we now have the permits resolved at Harrier and a plan in place for the new hanging wall drift here. We're also working on a similar drift at Lower Phoenix to help this area go fast as well. We're also looking at adding more drills at Robbin's Hill and possibly underground, which should speed up those processes. Given the above, we believe results can be delivered from these areas within the not-too-distant future.

And with that, I'll pass the call back to Tony.

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [8]

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Okay. Thanks, Eric, and thanks, everyone, in terms of giving our guidance here -- sorry, comments for the quarter. And I'll just finalize from Slide 15. And as you can see, from the results we've had for Q1, we had industry-leading performance. The company well on track to achieve its new guidance for the year of 950,000 to 1 million ounces, with a Freudian slip of 1,000. And in terms of -- and if you look at the low end of 950,000, you'll get the sense that our next quarters are going to be substantially improved from Q1, although I will say that maybe Q2 might be a lot similar to Q1 and then Q3 and Q4 are really, really going to be strong quarters.

The other part is our operating cash cost. Again, we reduced our guidance or improved our guidance $285 to $305 per ounce. We feel well on our way to achieving those numbers and potentially even beating those numbers as the year progresses, and all-in sustaining cost of $520 to $560 an ounce.

Similarly, we have industry-leading earnings and earnings per share as outlined previously. We had strong free cash flow during the quarter and then had some substantial growth in our cash. And the company continues to be focused on rewarding shareholders. We did increase our dividend by 30% -- 34% in the quarter and now equating it in USD 0.04 per share.

We're also focused on return to shareholders in a number of other ways too. We do have our NCIB, and we'll continue to use that to provide value to shareholders. As well we're investing very heavily in exploration. Our targets are $100 million to $120 million this year. We expect to be at the top end of that. We really feel exploration and investment for the shareholders and return for the shareholders.

We're also investing in infrastructure. You can see the investment at Macassa for the new shaft and then the benefits that's going to pay in terms of what it's going to do for adding value for the company as it gets completed. And similarly, we have some capital projects being taken place at Fosterville both for ventilation and paste fill which are going to have significant value creation for the shareholders.

And on top of that, we really focus on cost management. And you can see where the costs are -- our operating costs are coming down in terms on a per ounce basis and we've even got higher-margin ounces and more value. So there's a lot of areas where we're focused on creating value for our shareholders.

And I guess I would be remiss without -- in finalizing, I should say, thank you to really none of us in this room had much say in the performance in the quarter, it really is the people at our mines in both the Australia and Canada, the people that are working on the diamond drills and the people that are actually doing the work. And we have to thank them for all their efforts in the quarter and continue to have for them to be diligent and work hard and safe and -- in the rest of the year. And I think there's even more things to come in terms of value creation for Kirkland Lake but it's because of this plus 2,000 people that are really focused and hard working.

Anyway, with that, I'll end the presentation, and we'll be happy to take any questions you have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Cosmos Chiu with CIBC.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [2]

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Maybe my first question is on exploration here. Eric, you kind of touched on it. There were some issues in terms of drilling. It seems like a lot of it has now been resolved. But you spent about $80 million in Q1. Your full year budget is $100 million to $120 million. Are you still expecting to hit those budgeted numbers?

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Eric A. Kallio, Kirkland Lake Gold Ltd. - SVP of Exploration [3]

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We are still planning to do the budget pretty well and we're looking at the areas that we in mine as you might have heard the -- we had the exploration lease expired. So it will affect some of the work potentially on the exploration land, the LODE program seems to be more regional. But areas inside the mine, we plan to complete those.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [4]

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And the expiration of the exploration lease, that's at Harrier?

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Eric A. Kallio, Kirkland Lake Gold Ltd. - SVP of Exploration [5]

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This would be in lands that surround the mining lease. So outside of the Harrier.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [6]

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Okay. And then may be focus -- yes.

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Ian Holland, Kirkland Lake Gold Ltd. - Former VP of Australian Operations [7]

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Sorry, Cosmos, just to expand on that. One of the really successful things that we had over the quarter was the grounding of a significant increase to the mining lease at Fosterville. So it was 17 square kilometers. It's now in excess of 28 square kilometers, including a significant expansion to the South. That really covers a significant amount of the potential for area in other systems as they push to the South. Now it was grounded and agreed in March. So that does affect -- that had affected some of our ability to drill in Q1 itself, but it's actually a really significant outcome because it secures that tenure going forward.

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David Soares, Kirkland Lake Gold Ltd. - CFO [8]

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On the other side to clarify from our exploration programs as well, some of our exploration is classified into capital as opposed to an exploration. So we are on track to spend $120 million on exploration.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [9]

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Okay. And then maybe focusing a little bit more on the Harrier South. You started drilling there in Q4 2018. Myself and, I think, some investors as well would have expected some true results to have been released by now. And some have even expected a reserve or more like a resource update or inaugural resource. Once again, I know you have issues there. But could we expect some true results to come out within the next several quarters or sometime soon?

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Eric A. Kallio, Kirkland Lake Gold Ltd. - SVP of Exploration [10]

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Well, I mentioned we are drilling at the Harrier but mostly on the upper syncline target. And to do the testing on the deeper anticline target, we need to do the hangingwall drift, which is actually scheduled to start very shortly and to be completed sometime in mid-summer. So we're looking at probably drilling as soon as the drift is done. We may be able to get some drilling done from more angles (inaudible) deal prior to that. But we need to do the most effective drilling on the anticline, we have to get the angular drift on.

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Ian Holland, Kirkland Lake Gold Ltd. - Former VP of Australian Operations [11]

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Cosmos, we don't want to tell a half story here. So it's important that we tentatively fully test and understand the target.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [12]

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And then maybe switching gears a little bit here. You're running a bit ahead on growth CapEx. Growth CapEx is spent about $50 million in Q1, budgeting $155 million, $165 million for the year. It looks like you spent quite a bit of your budgeted number in Q1 for the #4 Shaft. Could you maybe talk a bit more about that in terms of, are you expecting to still spend, I believe, you put in $55 million to $60 million at the #4 Shaft for 2019. Is that still a number? Or you -- or are we going to expect it to go past in terms of what you're spending?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [13]

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Darren Tschanz?

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Darren Tschanz, Kirkland Lake Gold Ltd. - VP Project Development [14]

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So we're on target. We have some -- there was carryforwards from last year and working to start the sink. We have other as far as concurrent work. So there's quite a bit of work in the front end till we start to sink. So we'll see that kind of gauge down as we move ahead, but we are on track.

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [15]

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Yes. The big part -- this is the setup stage for the overall shaft, and we're working -- a big part of it -- some of the costs coming in this quarter was now the hoisting plants, which are in -- really, we did the prepaids in 2018. And that's almost like $19 million that all of a sudden are coming because the hoists are coming and getting installed. So this is a big part. Once you get into sinking cost, it become -- it go in a different area. This is where we're putting all the investment in for the surface infrastructure.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [16]

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Yes, of course. And maybe related to CapEx as well, you spent about $10 million in the Northern territories. I believe if I can confirm with you, there's still some money to be spent in Q2. But I guess my question is, when is the final decision? When are you expecting to make a final decision in terms of a potential restart at those assets?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [17]

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We're working diligently on that. I mean, I would expect over the next few quarters that we'll be in a better position to say what we want to do. Ultimately, we're getting to the point where we're fairly close to say to have some confidence in what we want to do. But there is a lot of -- it's an exploration effort, and we're looking at -- when we do restart operations there, we want to restart operations at both a meaningful level of production and a meaningful costs and margin for us. So we're trying to put it together. We don't want to start at a 30,000, 40,000-ounce a year operation. We're looking at a 100,000-ounce-plus, and with potential to grow to over to 200,000, 250,000 ounces. So it's coming together. But it's -- we need to get that. In order to do that, we need multiple mining fronts, which we're working both at Cosmo/Lantern area as well as the Union Reefs area.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [18]

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And maybe one last question for me, if I may. You spent about $12 million in Q1 for Fosterville for growth CapEx, including ventilation, paste fill and a new water treatment area or plant or whatever it is. Can you remind me, Tony, does that add to throughput in any way? Or how does that work? Because I remember at one point in time you're talking about upgrading the gold room that would have -- I think that's been completed. I think that adds to throughput. How about all these other projects here?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [19]

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Okay. So in terms of the projects for this year, the last year, we put in the whole or gravity circuit. And that -- but we -- this year, a big project we have now is our refinery, where we're building a whole new refinery to allow us to handle the amount of gold that we're pouring. We do have limitations in terms of how many ounces that can be poured there. So that's one part of the project. The paste fill is going to have impacts in terms of -- which we haven't really expressed it yet in terms of the improvements in productivity in the mine and also in turnaround time from a backfilling point of view and improving working conditions. The ventilation is there as again a part of increasing the amount of air in the mine, which should improve working conditions and at the same time allow us to put more pieces of equipment in certain strategic areas of the mine. Right now we're limited in terms of how many pieces of equipment we can run. So those benefits will come from that infrastructure from the ventilation. And ultimately, this is all part of a plan which in future years could be the future growth, a potential growth from Fosterville as we mine some other areas tie into our aggressive exploration program, too.

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Operator [20]

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Your next question comes from Ovais Habib from Scotiabank.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [21]

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Congrats on the quarter. A lot of questions have already been asked by Cosmos. Just a couple of quick questions from me. At Macassa, that obviously, you guys had a very good quarter there. And I believe you're currently mining at the 5700 Level. Was this kind of a one-off quarter? Or should we see this kind of outperformance going into the year?

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Duncan King, Kirkland Lake Gold Ltd. - Former VP of Mining for Kirkland Lake [22]

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We expect to continue going through the year.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [23]

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And will you be mining at this current level? Or is this another level that you're going to be moving towards?

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Duncan King, Kirkland Lake Gold Ltd. - Former VP of Mining for Kirkland Lake [24]

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No. We're expanding the 5700 Level. So we expect to be in a new stope at the end of next month. And we're expecting similar grades from there. So that will give us 4 pretty good grade stopes all in one. That's pretty good.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [25]

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Perfect. Okay. And then just moving on to Fosterville, obviously, you guys had a good quarter there as well and is expected to get better in the second half. Is the improvement -- and then this is more a question for Ian. Is the improvement more expected from improvement grades or throughput or both? How should we look at the second half?

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Ian Holland, Kirkland Lake Gold Ltd. - Former VP of Australian Operations [26]

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Yes. It's largely grade, Ovais. So we would expect Q2 to be broadly similar to the last 2 quarters, so Q4 last year and Q1 this year. And then expect to see some improvement in Q3 and Q4 on the back of some higher grade. It's really sequencing Swan control. So it's a grade-driven increase.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [27]

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Perfect. And then just, Ian, in terms of the percentage of Swan or in the second half, can you give me a little bit color on how much you're expecting to take from Swan in the second half?

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Ian Holland, Kirkland Lake Gold Ltd. - Former VP of Australian Operations [28]

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So it's broadly similar to our last quarter. So it was about 40% of the material in the last quarter. That's about the proportion of Swan and by tonnes in our reserve base. So we expect it to be in line with that sort of number.

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Operator [29]

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Your next question comes from John Tumazos from Very Independent Research.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [30]

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Congratulations on a 33.3% ROE this quarter and 22.6% last year. Tony, as you look at potential capital projects in the company, it's a big bar to match your recent rates of return. Going beyond the big exploration outlays and the Macassa #4 Shaft, do you have any other projects that both require significant cash as you're building cash up and have returns at least half of the rate you've been generating as a company, I'm thinking of are there any little details in the Macassa mill for 2022/'23 when the tonnes rise as the crusher at hole up the speed if Taylor finds more ore all the way, could there be a shaft in one of the zones some of the Fosterville? But do you have any big projects that both would help you use cash and generate similar or at least half as good a return as you're doing now?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [31]

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Yes. Good questions, John. When you talk about that, if we go through parts by parts, so we talk about Macassa, definitely the shaft, and that infrastructure is important. We are -- you have our mail tailings expansion that we're doing, putting a whole new tailings area here. And this is in our capital program in 2019. And we're also -- we've also taken a position that we're going to -- our tailings deposition is high-density tailings in Kirkland Lake. So we're installing high-density tailings down there.

And going into 2020, some of the things that we're really going to look at is improvements in our paste fill productivity and Macassa have already doubling the capacity of our paste fill plants and improvements in terms of borehole locations to reduce the amount of the delays in terms of delivering paste from surface and as well as some of the -- automate some parts of that a little bit better. That should help us in terms of reducing cost and improving productivity in the mine. So that's up at Macassa.

Over at Fosterville, we are looking -- we are at a point where we have a mill and we have this first stage -- these programs coming in. But we do have to look -- we want to look at there's a larger resource base there, how do we deal with that in order to bring that into the mill to increase mill throughput? Similarly, what we -- we're doing the exploration as we're talking about. As we get exploration success being prepared with our -- anyway, we got capital programs to now bring these new areas into production as well. So that's -- those are some of the things we're looking at.

And fundamentally, over time, it could result in a shaft at some point in time at Fosterville, if we need to, we're still somewhat time away from that. But those are things we are looking at. And we are looking at now a development program potentially to go out and do a more advanced exploration program at our Robbin's Hill project which would require some development.

So those are some things that we're spending time looking at, which fundamentally, all would be tied into it to expanding -- sorry, improving our mill throughput at Fosterville similar to what we're trying to do with the shaft at Macassa and really go both to the next level of growth and production that will happen from these assets. And as we talk about we're looking hard at what we're doing at both Holloway and Taylor and we're looking hard at what we're doing at the Northern Territory in terms of bringing them into the meaningful levels of production. So both (inaudible) over time going from a whole complex from 150,000 -- 140,000 to 150,000 ounces a year currently to well over 200,000 ounces here in the next few years. And as I mentioned at the Northern Territory operations similar types of levels. So we do have a lot of other things. We're looking at investing in terms of bringing growth to and more value creation for the shareholders and the company.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [32]

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Now I go around Toronto. I asked the other companies, "Kirkland does over 20% ROE, can you guys at least get 5%?"

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [33]

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Thank you.

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Operator [34]

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Your next question comes from Craig Stanley with Eight Capital.

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Craig Philip Stanley, Eight Capital, Research Division - Principal & Precious Metals Analyst [35]

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3 very quick questions for me. What's the budget in the second half of this year for the Northern Territory?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [36]

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Spending budget, you mean?

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Craig Philip Stanley, Eight Capital, Research Division - Principal & Precious Metals Analyst [37]

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Yes.

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [38]

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We're probably going to be spending pretty much similar to what we did in Q1 in terms of a quarter-by-quarter basis. So we're spending some -- that's in combined exploration and development programs that we're doing there.

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Craig Philip Stanley, Eight Capital, Research Division - Principal & Precious Metals Analyst [39]

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Okay. Secondly, Macassa, I noticed in the MD&A, previously you were talking about over 400,000 ounces per year in 2022. This MD&A said almost 500,000 ounces in 2022. Just curious, is that a typo? Is that -- something changed there?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [40]

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Maybe it's a Freudian slip, but there's potential at Macassa for growth. So...

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Craig Philip Stanley, Eight Capital, Research Division - Principal & Precious Metals Analyst [41]

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Okay. And then just finally, the drill results you had last week from Macassa, Amalgamated Break, needless to be a new -- the next South Mine Complex?

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [42]

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Go ahead, Eric.

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Eric A. Kallio, Kirkland Lake Gold Ltd. - SVP of Exploration [43]

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Well, the Amalgamated, we're still assessing that. I mean we're moving into an area that there has been very low testing. We know this is a large -- it's a big structure. It's always been thought to be the self-limit of the mine and hasn't had good results in a lot of areas. But we're in a whole new area here, and we've got 2 new lenses not very far apart from each other. So at this point, we still have a lot of drilling to do, but we are optimistic about looking and you find more.

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Anthony Paul Makuch, Kirkland Lake Gold Ltd. - President, CEO & Director [44]

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Maybe to realize the South Mine Complex is basically filled within, let's say, other conjugates or shares between the Main Break, or the '04 Break, at Macassa and an Amalgamated Break. So what's happening there, definitely, there's some interaction and more significantly Amalgamated Break as we're getting here because you've seen the South Mine Complex being formed between those 2 breaks. So we don't know yet. But as Eric mentioned, the drill results are demonstrating that things are there. And that's been -- we've talked about that. It's been thought about by the geology group within Kirkland for quite some time. We just -- yes, there's a point in time when we get a chance to drill it, we'll get the drill platform in. It's starting to happen.

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Operator [45]

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And there are no further questions at this time. I will turn the call back over to Mark Utting for any closing remarks.

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Mark E. F. Utting, Kirkland Lake Gold Ltd. - VP of IR [46]

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Thanks very much, operator, and thanks very much, everyone, for participating in today's call. We understand it's a very busy day for analysts and investors with a lot of companies reporting. As you've heard, we expect going forward to have continued strong operating and financial results, continue to make progress with our exploration. You've heard we had very good results with Macassa and our high-priority targets in the SMC and along the Amalgamated Break. We remain very optimistic about Fosterville and our key targets where we've intersected the quartz veining with VG in multiple locations. We've done the work that we needed to go and should be reporting on that as we go through the year. So you can see there's a lot going on. A lot of progress being made, and we look forward to our next conference call for the Q2 results. Thanks very much.

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Operator [47]

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And ladies and gentlemen, this concludes today's conference call. You may now disconnect.