Kirkland Lake Gold Ltd.
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Good afternoon, ladies and gentlemen. My name is Prandy, and I will be your conference operator today. I would like to welcome everyone to the Kirkland Lake Gold Conference Call and Webcast to discuss the Company's Second Quarter 2021 Financial and Operating Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Mark Utting:]

Thank you very much operator and good morning everyone. Welcome to our second quarter 2021 conference call and webcast. With me today are most members of Kirkland Gold's senior management team. Speaking during the presentation will be Tony Makuch, our President and Chief Executive Officer; David Soares, our Chief Financial Officer; Ion Hann, Vice President of Australian Operations; Larry Lazeski, our General Manager for Detour Lake Mine; Evan Pelletier, Vice President of Mining for Kirkland Lake; and Eric Kallio, our Senior Vice President of Exploration. As mentioned, there are also several other members of the executive team participating on the line as well. After our presentation, we'll then open up the call to questions. We ask each person to limit themselves to two questions today. The slide deck that we'll be referring to is on our website, both on the homepage and in the Events section. Before I get started, I would like to direct you to the slides on the show and on the website relating to forward-looking statements. Our remarks and answers to questions may contain and likely will contain forward-looking information about future events relating to our company. Please refer to Slide 2 as well as forward-looking information section of our MD&A dated July 28, 2021, for the three and six months ended June 30, 2021. Also, during today's call, we'll be making reference to non-IFRS performance measures. A reconciliation of these measures is available in our Q2 and six month press release and MD&A. Finally, I'll just emphasis that all dollars mentioned today will be in U.S. dollars unless otherwise stated. And with that, I'll turn the call over to Tony Makuch, President and CEO of Kirkland Lake Gold.

[Tony Makuch:]

Okay. Thanks Mark and thanks everybody for being on the call on another nice summer day in Canada here, we don't get a lot of these days, so let’s enjoy them., so we'll try to be efficient. We appreciate you guys being on the call and give you some time to ask – as we get through this presentation and ask the question-and-answer, and we enjoy some of the sunshine that you're seeing out there. Anyway before – I'm going to start on Slide 4, but I think, we just – we did put out a press release. You do look at the results for the quarter, a very, very solid quarter with record results in earnings and throughput in Detour, et cetera, and I'll give more detail of that later. But again we're on this call and we get the benefit of being able to talk about these results, but it's really the results of work of a lot of people within Kirkland Lake Gold and our suppliers and their efforts and the communities and everybody that supports us.

[David Soares:]

Thank you, Tony, and good morning, everyone. I will begin on Slide 11, in Q2 2021, we achieved record net earnings of $244.2 million or $0.91 per share. This represented the 63% increase from $150.2 million in Q2 2020 and 51% increase from $161.2 million the previous quarter. The increase from both prior quarter and prior year resulted from higher revenues and lower effective tax rate. In Q2 2020 also saw a sizable foreign exchange loss of $72.8 million compared against Q2 2021 foreign exchange gain of $2.6 million. Adjusted net earnings totaled $246.9 million or $0.92 per share. The difference between adjusted net earnings per share of $0.92 and net earnings per share of $0.91 in Q2 2021 was mainly related to the removal of $3.5 million net mark-to-market gain recognized on warrant liability. Their maintenance costs incurred at our non-operating sites Holt and Colt Complex, and the NT and other items that were not reflective of our operations like COVID costs and other restructuring charges. Turning to Slide 12 in Q2 2021. Total revenue is $662.7 million; the change from Q1 2021 is mainly impacted by increased sales volume and the $26 per ounce increase in average gold price. Compared with Q2 2020, a $111 per ounce increase in average gold price from $1,716 to $1,814 accounted for $36 million of the revenue growth year-over-year. Looking at EBITDA, as show on Slide 13; Q2 2021 EBITDA totaled $451.3 million. The change from Q1 2021 primarily related to a 20% increase in revenues driven by higher volume and gold price. Compared with Q2 2020, the change in EBITDA was due to a 15% increase in revenues and a large foreign exchange loss impacting Q2 2020 EBITDA. Q2 2021 also saw higher depletion and depreciation expense of $111.3 million; the change from Q1 2021 primarily due to higher sales volume. Deferred tax expense was higher in Q2 2021, but overall the effective tax rate for Q2 2021 was lower reflecting favorable tax adjustments during the quarter resulting from reassessments of income taxes paid in prior years. Looking at the next slide, turning to Slide 14. We'll look at our cash balance and cash flow. On the slide you'll see that our operating cash flow was strong. We generated $487.5 million of operating cash flow in the quarter, before $157 million in cash taxes paid in the quarter. During the quarter a $98 million tax payment was made in Australia representing the final tax installment for the 2020 tax year. During the quarter, we invested in our key assets spending $199 million in capital. Cash used for financing activities of $64.3 million reflected the $11.9 million we used to purchase shares in Q2 as well as $50.1 million used for payment of the dividend. Turning to the next slide, Slide 15 looks at the change in cash in a different way. You could see that the largest contributor to growth in cash was from our operations, which generated about $395 million of cash, which is before income tax paid of $157 million, growth capital investment of $82.5 million, exploration spending of $46.6 million, other cash outflows include costs incurred at our non-operating sites. The NT and Holt Complex of $14 million and corporate G&A of $17 million. As noted in the previous slide during the quarter $62 million was returned to shareholders, including $11.9 million used to repurchase shares through the company's NCIB and $50.1 million of dividend payments. Next I’ll turn it over to Ion Hann to discuss operating results at Fosterville.

[Ion Hann:]

Thanks, David. I'm starting on Slide 16. As you have heard, Fosterville had a very strong quarter in Q2 and for that matter for the first six years of the year – first six months of the year. Fosterville produced 158,000 ounces in Q2 2021 based on processing 107,000 tonnes at an average grade of 29.2 grams per tonne and average recoveries of 98.7%. For the year-to-date, we produced 266,000 nearly 267,000 ounces down from last year, but consistent with our plan to reduce production in the Swan Zone by draw at mine life with most sustainable levels. The 266.7 kozs or approximately 60,000 ounces of our planned levels for the half year. Two main factors that are driving this and the main factor being very strong grade outperformance in several Swan Zone stopes, there was also within the resequencing that we did in Q2. Looking at re-sequencing and it involved an area in Swan called audit. We plan to start taking the stocks from the top again, however, once optimized we will changed that sequence and then we click that on its head and did it from bottom up. The result of that was bringing some higher grade stopes from Q4 into the Q2 . Turning to costs, again, very strong for both Q2 and year-to-date. For Q2, we had operating cash costs of $162 an ounce, and all-in sustaining costs of $353 an ounce. For the year-to-date operating cash cost averaged $192 an ounce with all-in sustaining costs of $385 an ounce and these are very low numbers. Entering the second half of the year we're very well-positioned to achieve their production bonds, and potentially it could be better. We're also well-positioned relative to our cost guidance. I’ll now past the presentation over to Larry Lazeski, General Manager of the Lake Mine.

[Tony Makuch:]

Hey, Larry, just before you come on here, Ian, I don't know if the qualify I don't need, that was a slip at the beginning. It wasn't just the first six months of solid performance, but Fosterville is probably is on a trunk cracker – that's six years of solid performance. And I think there's a point in time when we all have to believe that it's a very good mine, very well-run, led by some exceptional people and the people working there is an exceptional workforce and exceptional carrier to be in. We are just lucky to have in our portfolio. So anyway, thanks and sorry about that, Larry.

[Larry Lazeski:]

Thanks, Tony. Hey, no problem, and thanks again. Starting on Slide 17, Detour Lake achieved as Tony mentioned, record quarterly production in quarter two of 2021 of 166,000 ounces based on processing 5.8 million times, at an average grade of 0.96 grams per tonne, with a recovery of 91.5%. This is an increase of 26% from quarter two last year and an increase of 13% from the previous quarter. The quarter-over-quarter increase is largely due to significant improvement in the average grade that are sequencing into higher grade areas as part of our Phase 2 mining plan. We’ve indicated that the market that you would start to see the ramp-up in grade, starting in quarter two and we certainly did. The average of 0.96 grams per tonne was in line with our reserve grade. We all had increases in tonnes processed since the first quarter. Throughput is typically the lowest of the year. Having said that you may recall it Q1 this year was a record for first quarter throughput levels. Year-to-date we produced 312,000 ounces that's 40% higher than the five months after the acquisition last year, and 16% increase from the full six months of year-to-date 2020. Looking at our operating cash costs we average $610 an ounce in quarter two to $674 an ounce for the year-to-date. Excluding the impact of FX rates, our Q2 operating costs per ounce improved from last year second quarter with much of the increase reflecting higher grades and increased sales momentum. All in sustaining costs per ounce sold average $996 per ounce in quarter two and $1,090 per ounce for the year-to-date. Looking ahead, we expect continued improvement in grade for the remainder of the year above the Q2 level, and are well positioned to achieve our full year 2021 guidance. Moving to Slide 18. Again, as Tony had mentioned earlier, we have significant number of projects on the Detour Lake. Our growth capital expenditures of Detour for the first half of the year totaled $80 million of that amount, $44 million was for deferred stripping and $37 million was to support ongoing work to expand capacity. We continue with processing plant expansion is on track with good progress on the crushable improvements through their capacity. Air strip had significant progress. We anticipate not being complete by the end of Q3. The tailings facility is progressing well with a favorable weather conditions and an early start-up, so maintenance facility expansion is nearing completion for the field maintenance area. And finally as pictured, we're expanding our camp, which will be completed by the end of quarter three. It's just to note that this camp once complete will be the largest hotel in Ontario. So you can imagine the size of it. With that, I’ll turn the call over to Evan Pelletier, Vice President, Mining for Kirkland Lake.

[Evan Pelletier:]

Thanks, Larry. I’m starting on Slide 19; production at Macassa in Q2 totaled 55,300 ounces, at an operating cash costs of $586 and all-in sustaining costs of $848. Q2 2021 production was 32% higher from Q2 2020 an increase 17% from the previous quarter. Higher tonnes were processed in Q2 2021, mainly due to better than anticipated widths and strike lengths from stopes in the South Mine Complex. Operating cash costs per ounce sold average $586 million versus $547 for the same period in 2020 and $699 for the previous quarter. With the increase from Q2 2020, reflecting a stronger Canadian dollar in Q2 2021. The 16% improvement from Q1 2021 largely reflected the favorable impact of higher ounces sold, as well as lower maintenance costs and reduce expenditures related to operating development compared to the previous quarter. All in sustaining cost per ounce, sold was largely unchanged in Q2 2020. The impact of a stronger Canadian dollar was offset by higher sales volumes. When you include the impact of the exchange rates, all in sustaining cost per ounce sold improved from Q2 2020, reflecting the favorable impact of higher sale volumes, as well as lower operating cash costs and sustaining capital expenditures. Looking at the year-to-date production at Macassa totaled 103,000 ounces based on processing 167,000 tonnes. And then an average grade of 19.5 grams per tonne with recoveries in the 97.9%. Year-to-date production increased 11% for the same period in 2020, effecting a higher average grade and increased tonnes processed. Turning to Slide 20, we look at our growth projects that are helping us build the future. Our growth capital expenditure for the first half of the year was $43 million, $30 million in Q2 2021. Our total growth expenditure so far in 2021, $22 million were related to the #4 Shaft project. During the quarter, the shaft advanced approximately 600 feet and had reached a depth of 5,600 feet as of June 30, 2021. The project ended Q2 2021 ahead of schedule and on track for completion in late 2022. An additional $10 million, $4.7 million in Q2 21 of growth capital expenditure in year-to-date of 2021 were related to the ventilation expansion project, involving the development of two new ventilation raises. The two new raises will add significant to ventilation into the mine, which have already improved from the level this time last year. The remaining growth capital expenditure in Q2 2021 mainly relates to the number of underground projects, including lateral development from the mine towards #4 Shaft. I’ll now pass the presentation over to Eric Kallio, Senior Vice President of Exploration.

[Eric Kallio:]

Thanks, Kevin, and good morning, everyone. My first Slide today is number 21 and related to Detour, where we’re continuing to advance the large-scale drill program commenced in 2020 to evaluate the potential surrounding the main and future West tips. As previously announced, the program includes a minimum of 250,000 meters and aiming for an updated resource and potentially extended mine plan for announcement in early 2022. In terms of progress to-date, we believe it’s still continuing to track very well with 64,000 meters in Q2, and now close to 200,000 meters since starting in early 2020. Additional to this, we’ve now already seen quite a large number of assets return and had six press releases including the one in July with results continued to be very, very encouraging. Summarizing some of the results is the current slide, which is a long section from the latest release and continued color coded pierce point to highlight holes from different areas. Also shown in the image is a series of black dots, which are the pierce points for all holes drilled since the start of drilling in early 2020. As indicated now starting to really fill in the page, especially, in the central and east part of the Saddle. Syndicated on the image, results from the a new work continues to look very promising in all areas with some of the best continuing to come from the central part of the Saddle highlighted by pink and green dots, including new intercepts, such as 1.7, over 80 meters and 1.31 over 87. In addition to several other good intercepts we’ve already reported in the same area. Additional to recover, we also had some very good results from below and to the west of the future west pit; we’re drilling to date as much for limited. Key intercepts in the west pit are marked with blue and orange dots and include 1.09 over 70.5 and 1.62 over 77.8 from near the lower limit of the resource pit, as well as 6 grams over 14 meters, including 25 grams over three near the 550 meter level. Key intercepts to the west, include 1.63 over 32, including 13.35 over 2 meters from approximately 250 meters below into the west of the current resource kit, so continuing to demonstrate expansion potential in that direction. In summary, work-to-date at Detour continues to adapt along very well. Turning now for my next slide, which is number 22. You see an image for Macassa, where we continue to advance our large exploration program to confirm and expand resources. Key targets for the program include the direct extensions of guest and see nominated in main breaks between the 53 and 58 level, but with additional work now in progress to access targets below into the west of the main break on 51 and 58, as well as on the SMC on 34. So in terms of our drilling, our aim for the year is about 200,000 meters and tracking a little bit lower at this time, but in our view, still achieving some good success, but the main highlight being shown on the screen at this time from the east part of the 53 level. As shown on the image, we work with focus mainly on testing of areas of lost right to the east of the SMC, as well as up and down of the current resource and reserves. And there are a number of good intercepts in the release. Looking at the area to the east, we saw drilling reaching almost 180 meters in this direction, and is affecting a number of good values, including a highlight of 589 grams per tonne over 2 meters place near the limit of drilling. And look into the areas up and down dip, we saw an intercepts almost 100 meters in each of these directions. But those down dip being near the junction of the SMC with the amalgamated, where we have announced success in other areas before. And those drills up dip identifying significant new blocks with very little testing and which we will continue to try and expand on from platforms on 53 and 58. Additional limits, we saw some good advancement of the expiration drifts toward the new targets on 34, 51 and 58, keeping us on track for drilling to start on the most likely later this year. As mentioned earlier, these meters will provide access to areas the deep and west parts of the main break and as well above the SMC, where we have not really worked on before, but we think have a lot of potential. I’ll now turning to my next slide, which is number 23. We see an image outlining expiration plan in recent progress at Fosterville. Whereas in the , we have a very large exploration program in place with the vast majority being directed towards lower part of the Fosterville mine and the Robin’s Hill Area. And the remainder towards a series of promising targets, both of which are mainly on to mine property. As indicated on the image, work at Fosterville is designed to focus pretty much entirely on the area down plan of the current reserve to this Swan Zone, includes both development and drilling to convert and extend mineralization to death. But the vast majority of drilling being from the new 39, 12 hanging wall, which is shown here small guideline, that’s we have been working on over the first half this year. And now I’m happy to say that the drift has just been completed in June, and we have drills in progress, five in total and situated along the zone. So although certainly still work, it’s still fairly early in this program, you can say that things are proceeding very well and have expect to have a lot of new drilling done and information to talk to both. As we proceed later into this year and into early 2022. Turning to Robin’s Hill, the plan here again is to focus on the area down ponds of the existing reserves, but we continue to believe that we can not only extend the realization that we have the potential to identify high-grade zones similar to this Swan Zone. Achieve this, we put together what we think is a very good program, including continued advancement of the Robin’s Hill decline and drilling from both surface and underground. work is continuing to progress very well with significant investments in achieving the duty. The new decline, bringing it to more than halfway to Robbin’s Hill now, and a substantial amount of service drilling, preparations in place for underground drilling to start in Q3 to test the very south side of the Robbin's Hill structure. So from all indications today, project advancing very well. We look forward to delivering an increasing amount of information on this in the near future. And with that, I'll pass the call back to Tony.

[Tony Makuch:]

Thanks, Eric, and thanks to David, Larry and Evan and Ion for your presentations. As you can see, Kirkland Lake Gold is really – a very awesome company. We've had a significant success this year, but if you really break it down, as I mentioned, possibilities, six years of industry leading and one of the lowest cost gold mines in the world and the profitable gold mines in the world with significant exploration, success and significant motivation, people going forward to continue on that track record. We have Macassa in its current forms of producing one of the – from the historical gold Kirkland Lake camp to be continuing to deliver the solid production results it is and where it can be. And it's not quite where we want it to be yet, but we're investing in a new shaft and investing in new ventilation systems that will significantly improve Macassa and we're patient and diligently working forward there. And once Macassa is – by 2023 until 2024, we expect Macassa to be one of the largest underground and most profitable gold mines in Canada. And as we see with Detour and the growth coming at Detour, Detour has the potential to be the largest gold mine in Canada. And then growing from that to be one among the largest gold mines in North America and get definitely in the top quartile in the world. So, a very solid company we have. And then if you go by that and you tied into the excellent results in Q2 2021, we had record earnings and earnings per share, strong revenue growth, cash flow generation and as we talked about the progress with both our exploration programs and our investment into our assets. And by the way, when we talk about record earnings and earnings per share, it's not only record earnings and earnings per share, but industry leading earnings, industry leading earnings per share. And we're committed to responsible mining. We're committed to recognize uniting and supporting the community where we are and being in terms of doing what we can to ensure the sustainability in the regions and that we can make things better for the – in the local communities and friends of the local indigenous communities in the areas where we are. And we recognize and support a strong and honorable and trusting partnership as we move forward into the future. And also as we look ahead, from 2021, we're well-positioned to achieve our guidance and we're – and again when you look – going out – coming out of 2021 into 2022, we expect to achieve some very important value-creating catalysts at all three of our mines. And there's still a lots of exciting things coming up ahead for us. So anyway, thanks to everybody for listening and happy to take any questions.

[Operator:]

Your first question comes from the line of Fahad Tariq with Credit Suisse.

[Fahad Tariq:]

Hi, good morning. Thanks for taking my question. I'm just going back to the 2021 guidance. You mentioned now expecting the high-end of the production guide. Can you talk a bit about just the puts and takes on the cost side, because on the one hand, the higher production presumably would lead to lower cost per ounce, but at the same time, we're hearing about inflation expectations from some of your peers and for you specifically more of an FX impact. So I just want to get kind of a net effect on cost this year. Thanks.

[Tony Makuch:]

Well, I mean, I'll let David kind of answer the question, but definitely we've got FX rates that are having an impact, but that's an impact on unit costs. We spent a lot of our money in Canadian Australian dollars, and I think in Canadian Australian dollar terms where we are seeing some inflation such as in fuel prices and steel and a few things, but I think the biggest impact is on FX. But David, maybe you can give a little bit of color to this.

[David Soares:]

Yes, no problem, Tony. Yes, we are seeing inflation in specific areas, as Tony mentioned, diesel and steel, for example, but overall costs in local currencies are pretty much in line with what we had in the budget and what we were seeing even last year. And that's really doing part to very good cost management from the sites, our reach at our operations. You're absolutely right. Obviously, there are offsets there. Higher production will lead to lower costs. And some of these pressures that Tony mentioned with regards to FX are offset by some of that. But basically on the full year cost and expenditure, our guidance was based on Canadian to U S exchange rates of 1.3 to 1 and Australian to U.S. exchange rate of 1.39 versus what we currently did to date with this exchange rate of approximately Canadian 1.25 and Australia 1.35, and year-to-date 1.25 and 1.30. So, you know, current exchange – if the current exchange rates continues for the remainder of the year, you know, the expected impacted over that period would be to see a bit of an increase in cash costs and AISC. But having said that, we're well below the budget levels, both measures in the first half of the year and based on strong cost performance in each of our three operating operations. And if we achieve higher than planned production and sales, we're going to work hard to continue that trend. And based on that, we'll continue to target our existing guidance, right. So we've done well so far, and we plan on continuing that trend through to the end of the year.

[Fahad Tariq:]

Okay. So it sounds like the midpoint, it’s still kind of achievable on the cost side. My only other question just on Fosterville exploration, of course we’ve received pretty detailed updates on Macassa and Detour Lake. I’m just wondering on Fosterville is it just a function of the drilling is more second half weighted, or I’m just wondering if when to really expect more detailed results in Fosterville. Thanks.

[Tony Makuch:]

Eric or Ion, you want to answer that?

[Eric Kallio:]

Yes. I think – Keep going, Ion and I’ll hop off.

[Ion Hann:]

Sorry. I’ll go and you can help me, yes. Look that the exploration, if is at Fosterville, certainly, but first we have been doing some drills. However, the focus really has been on the development of the exploration groups. So the Phoenix 31 – 3912 grid it’s really going to open up drilling for the second half of the year into the lowest one area. And we expect, and we’ve got five drills on that now, and we speak in a lot of results that come to the back half of the year. And likewise with the Robbin’s Hill now we’ve had excellent project price advance on the – between groups all the way towards Robbin’s Hill. And we’ll start to see some drilling in Q3 and certainly to Q4 at the really severally and take on the Robbin’s Hill and Tony really expand that resource. But that’s really been the focus for the first half has been a development sort of thing. So Eric, if you wanted to add any more color there.

[Eric Kallio:]

I just think that we have to keep in mind that the distance below surface that Robbin’s Hill targets, there we’re aiming for areas that are up to a 1,000 meters on strike and to depth, very hard to drill from surface with any detail. Now as we get the new platform in on the decline we’re going to start to get a lot more information quickly from that area. So that’s yes, any of that I like to add.

[Fahad Tariq:]

Okay, great. That’s it from me. Thank you.

[Operator:]

Your next question comes from the line of Josh Wolfson with RBC Capital Markets.

[Josh Wolfson:]

Thanks. Just sort of continuing some of the questions on Fosterville, obviously the quarter was very strong partially from that positive reconciliation and partially from sequencing. Is there any sort of ability to give us some better insight onto what the sort of – what the outlook is the second half of the year or – and specifically the sequencing changes that impact the fourth quarter now.

[Tony Makuch:]

Sure. I mean Natasha or Ion just I think that could be up to you guys.

[Natasha Vaz:]

Sure. I’ll start Ion and then you can fill in. Hi Josh, so if I can really moved a couple of the higher grades that from Q4 into Q2. So I would say move about 20,000 or 30,000 ounces forward into Q2. So it will affect our Q4. You will see that we have maintained our guidance for 400,000 and 420,000 ounces to be there. But having said that and looking at our plan, we are well-positioned to potentially do better than that. But we want to just see how the grades perform for the rest of Q3, as we discussed in our results, we had a significant grade out performance at Fosterville in the first six months. We’re not going to assume that we will – that, that will continue. January at Fosterville it’s a very complex ore body. So when you have some of that outperformed, there is an also offset somewhere down the line. So we just want to see how the mine performs over the next few months before we really look at our guidance. But to say the least we are very comfortable with the 400,000 to 425,000 ounces that we’ve provided.

[Josh Wolfson:]

Okay. Thank you. And then one other question for Detour for the – for guidance this year, there’s a, I guess, an imply improvement in both grades, which it sounds like you’re pretty comfortable on as well as improvement in throughput probably towards that 70,000 kind of day rate that’s expected next year. Is there any sort of detail that can be provided in terms of how that gap going to be bridged from that 64.5 that you’re running it today to that 70,000 tonnes a day towards year end.

[Tony Makuch:]

Larry, I mean, I think you can read the question fairly quickly.

[Larry Lazeski:]

Yes, for sure. Really, it’s just to continuing to focus on the things that we’ve been working on. We’re going to see – by September, we’ll see the – by we have the system repeat the system in place that’ll allow us to continue to keep inside that capacity and there is any downtime in the crushing circuit so that offers, and with the initiatives that we’ve already had in place, like the changing the technology vertex in period, those are showing performance and really focusing on fragmentation and then getting very find in the feed. So and as far as the mine goes, we’re really starting to get to the heart of the ore body as Phase 2 develops that depth. We are working more and more around the other things, and that’s really where the better grade is. We do anticipate kind of grade there, we also have more confident to which helps very quickly. So kind of a combination what we are seeing.

[Josh Wolfson:]

Okay. So just your comment about the September delivery on some of those processing items, should we see the bigger step up in throughput more geared towards the fourth quarter in that case?

[Larry Lazeski:]

Yes. It’d be a gradual ramp up throughout the year, for sure. Yes.

[Josh Wolfson:]

Okay. That’s all my questions. Thank you.

[Tony Makuch:]

But you’ve had some significant – you’ve been concerning keep the records all the time and they’re keeping higher levels off consistently, right, Larry?

[Larry Lazeski:]

Yes. I mean, even in July here we've already – we've – since that's our limit of 75,000 tonnes a day has been removed, we're 11 days this month, we’ve already completed that averages is when we’re adding in July.

[Tony Makuch:]

Any more questions there?

[Operator:]

Certainly. Your next question comes from the line of Ovais Habib with Scotiabank.

[Ovais Habib:]

Thanks, operator. Hi Tony and Kirkland Lake team and congrats on a strong quarter and thanks for taking my questions. Couple of my questions have already been answered but just a quick follow-up on Josh's questions regarding the changes in mind sequencing at festival. You talked about what the grade is kind of looking towards like going into the second half, but does this kind of bottom approach sequencing change impact to me sort of longer-term guidance?

[Tony Makuch:]

Ian?

[Ion Hann:]

Yes. I can take that one, Tony. Sure, and it's a good question. So fortunately the team that taught to go constantly optimizing the mine, and we found this out in a situation where with the development ahead of ourselves and we would expect, it gives them some flexibility. So we're not seeing any downside to the changing, and it's only a certain part of the overall Swan Zone in the Audax area. We're not seeing any downside to changing the sequence. And in fact, we've seen some upside particularly when it comes to the mine ability and a few things like that. So it's been a really good down sequence change in it, part of the mine from the mining.

[Ovais Habib:]

And just able, was this kind of in the works for a while now or this is the first decision that you've taken just recently and made those changes?

[Ion Hann:]

Our plans, our role as you can appreciate. So the engineering teams are constantly looking at what we've got down here as new information comes in, as we see how the ground behaves as taking advances and we adjust to suit. And I suppose the fortunate position we find ourselves in is that we are on top of our development and that gives us the flexibility to make these adjustments as we go. And in this particular case in this part of the audit, it was seen that we stood to have a better mine ability of that part of the audit by starting lower down than originally planned. So that was a decision that was made.

[Ovais Habib:]

Perfect, Ian. Guys, that's it for me. Thanks so much.

[Operator:]

Your next question comes from the line of John Tumazos, and please state your company name.

[John Tumazos:]

Thank you. It's John Tumazos, Very Independent Research. Congratulations on the big upturn in results both from the Swan Zone and the Harrier out of Fosterville. Could you just refresh us as to how tightly the drill whole patterns are for those reserves, and as you develop them in mine, it stops the potential for variances, which were so wonderful this current quarter?

[Tony Makuch:]

Go ahead, Ian or Eric.

[Eric Kallio:]

Ian can maybe start on that.

[Ion Hann:]

Thanks, Eric. And another good question, look the drill spacing and look you have to appreciate that the high – an extremely high grade areas of the Swan Zone unique and quite possibly you could drill that down to the degree and still not get a proper handle on it, but, our drilling is then to at times 12 by 25 sort of sentence, 25 by 25. And in a broad range we have a very good handle and very good reconciliations that means models, which we are constantly updating. However, there are specific extreme high grade areas of that complex Swan vein itself that is very difficult to now down. What we have been accused of possibly being slightly conservative at times. And, and to be fair, one of the world's highest ore body, it is tough to not be maybe slightly conservative at times. So we see some swings and roundabouts. However, on the long run reconciliation these model is pretty good and in fact it’s very good, and we get very close to that.

[John Tumazos:]

Thank you. If I could ask one more on the detour west – deep west saddles on extensions, and I know all the technical studies are done, the current reserves appear to carry your production two decades forward. It had trend near 800,000 ounces expanded a few years, should in the big picture we be thinking of these new drill successes as a third decade of 800,000 ounces a year, or possibly a fourth decade of 800,000 ounces a year? Or do you think it's possible that the output could be expanded above 1 million ounces?

[Tony Makuch:]

I would say you have both of those scenarios, sorry, they're both – so your number two and your number three, I think for a decade and another decade of 800,000 ounce, I think it's easy to see that there's potential to add and grow for another potential two decades and/or at those levels and/or work towards increasing production again further at Detour. If you do look at the plan though show, Detour growing up to 900,000 ounces a year as we progress, right. So there's that to look at that, but at the same time just a lot of moving parts to Detour and we have a lot of things to work on. We talked about initiatives gained 28 million tonnes per year, but also putting an act in that continues to process internally combined that we’re trying to understand the size of the minimizing envelope there and the resource. And then how are you going to mine it, right. I think the thing that we should all take away is the mine that Detour is today is going to be a much – is a much better mine than it was a few years ago. And it’s going to be a much better mine in a couple of years from now, and potentially as tends to be a much better mine, even beyond that and a very long lifeline. And then I’ll even say, only talking about saddle and the west extension, to the west, it doesn’t stop. We just – there’s a line – west drilling. So it could go further to the west and we have any new drill, any holes there must flow 700 meters. And in the current main pit, there’s indicated resource at the bottom of the pit. So the big, the other part is we focus on getting costs down as you increase the overall sites. And there’s a lot of exciting catalysts that could come out of Detour over the next few years.

[Unidentified Analyst:]

Thank you and congratulations.

[Operator:]

Your next question comes from the line of Cosmos Chiu from CIBC.

[Cosmos Chiu:]

Hi, thanks, Tony and team. I guess I can ask a question on Macassa here. Good to see you’re your transitioning or adding even more battery powered trucks to your fleet. Could you remind me how much more key transition over from diesel powered equipment or battery powered equipment. And what percentage is that right now in terms of the total fleet in terms of battery powered equipment?

[Tony Makuch:]

I think, Evan Pelletier, a good person to answer that.

[Evan Pelletier:]

Sure, I can speak to it. Hey, Cosmo. Currently, we’re sitting around 75% of our fleet at that battery equipment and the plan is definitely to increase that moving forward for numerous reasons. The trucking fleet has improved tremendously as well. And regardless of some of the ventilation improvements, we still plan on moving forward with carrying on with the battery here.

[Cosmos Chiu:]

And that was the purpose for my question. I know that you’re adding the two ventilation raises, which we’re at about 200,000 cfm of capacity. But could you remind me in terms of with a battery powered equipment with the current fleet right now. What’s your draw on the ventilation and what’s the capacity here.

[Evan Pelletier:]

So the current drawn ventilation that we’re pulling from surface, Cosmos. So the plan is to have about 300,000 come down the #3 Shaft and then 230 of that – sorry, 200 of that is going to go towards the FMC with the current ventilation plan and 30,000 from one of the raise mores and 100,000 of that 300,000 going to the lower north. And obviously as we move ahead, things are going to improve with the second raise bore. There’s one more lake, we’re in the last lake of the four lakes of the raise bore breakthrough on surface. And obviously with #4 Shaft reaching at depth and commissioning that will improve things drastically in the lower part of the mine. It’s to bring the temperatures pretty well down cooling off the mine as well. And if we – if you think about it, your main arteries right now are feeding your ventilation, if you start putting diesel gear in the main arteries, you’re just going to keep the mind back up, right? So the point is, and the plan is to stick with the battery. It’s much more healthier for our employees and for the environment.

[Tony Makuch:]

Yes, Cosmo, just to clarify, so it would be a doubling or more than double ventilation air to the mine, which is a big part of it. We want to reduce the heat and the humidity in the mine and improve the working conditions in the workplace. I mean, there you would have some flexibility for diesel gear, because we are working at the leading edge of battery powered equipment underground, but our commitment is to battery powered equipment. And in the fund man, the big part of increase in ventilation, it was not, we – I think, the logic to send to battery powered equipment, so we don’t have to ventilate to the same level, I think is wrong. We should – we need to ventilate to the level, whether it was diesel equivalent or battery equipment in order to deal with heat and another conditions in the workplace that affect people. And that’s our main motivation here.

[Cosmos Chiu:]

Yeah. And that’s good that you brought it up Tony and I seem to recall last year, there were some issues in terms of seat during the summer months. It’s been fairly hard in Ontario once again this year. Has it been okay so far into the summer of 2021?

[Tony Makuch:]

Go ahead, Evan.

[Evan Pelletier:]

Yes, so absolutely. We’ve definitely seen a positive impact on the ventilation upgrades. In the FMC alone, you’re looking at a drop of three to four degrees from current year. And the things that are definitely improving throughout the mine on the ventilation aspect. So yes, it is cooler down there compared to what it and last year summer was rather quite hotter than this year. So yes.

[Cosmos Chiu:]

Great. And I know one last question just to follow-up, in Northern Ontario; we’ve seen some forest flyers. I track it. I think there’s an Ontario website that tracks it. I don’t think there’s anything close to Kirkland Lake or Timmins or Cochrane or anything like that. Is that – could you confirm that and are you at all worried about what’s happening.

[Evan Pelletier:]

So I can speak to that too. Yes, we do track it daily calls, we have an app called Windy.com, which, which helps us out. They track us to your level in forest fires and wind directions. So we’re in pretty good shape here so far and we’ve been getting quite a bit of rain up north. So things are looking great.

[Cosmos Chiu:]

Great. Those are the questions I have. Thanks again.

[Operator:]

And there are no further questions at this time.

[Mark Utting:]

Great. Well, listen, it’s Mark here. And thanks everybody for participating in the call. As you heard, we had a record quarter in terms of earnings, not just record; we had industry leading earnings and very strong cash flow, two things we’ve been known for over the last several years as being at the forefront of the industry. We’re making a lot of progress moving towards some pretty big catalyst for our company from a value creation standpoint. And we look forward to our next quarterly call to update you on how much more progress with me. Thanks a lot and have a great week. Take care.

[Operator:]

This concludes today’s conference call. You may now disconnect.