Kirkland Lake Gold Ltd.
Q4 2016 Earnings Call Transcript

Published: 29 Mar 2017

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Kirkland Lake Gold Earnings Call for the fourth quarter and full year of 2016. At this time all lines are in a listen-only mode. After the presentation we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, Wednesday, March 29, 2017, at 11

[Ryan King:]

Thank you, operator, and good morning everyone. With me on the call today are Tony Makuch, President and Chief Executive Officer; Philip Yee, Executive Vice President and Chief Financial Officer; Darren Hall, Chief Operating Officer; Doug Cater, Vice President of Exploration, Canada; and John Landmark, Vice President of Exploration, Australia; Alasdair Federico, Executive Vice President Corporate Affairs; Pierre Rocque, Vice President Technical Services; Jen Wagner, Corporate Legal Counsel; Meri Verli, Senior Vice President Finance; Tina Ouellette, Executive Vice President Human Resources; and Galina Meleger, Corporate Communications. Today we’ll be providing comments on our results for the three and 12 months ended December 31, 2016 for Kirkland Lake Gold and for the newly acquired Australian assets as per the closing of the business combination with Newmarket Gold on November 30, 2016. We’ll then open up the call for Q&A. The slide deck that we’ll be referencing during this call is available on our Web site at www.klgold.com under the Investor Relations Events section. Before we get started, I’d like to direct everyone to our forward-looking statement on Slide three. Our remarks and answers to your questions today may contain forward-looking information about future events on the company’s future performance. Please refer to the cautionary note in Slide three of this presentation and the forward-looking information set out in our press release dated March 29, 2017, and the MD&A for the three months ended -- and year ended December 31, 2016 filed on SEDAR. As a reminder Kirkland Lake Gold changed its year end from an April 30 fiscal year end to a December 31 calendar year end effective January 1, 2016. As such, for comparative purposes, we are comparing to the closest reporting period in the previous year. Q4 2016 is for the three months ended December 31, 2016, and includes one month of production from the newly acquired Australian operation compared against two months ended December 31, 2015 as a result of the change in the reporting period, 2016 full-year results for the 12 months ended December 31, 2016 and include the newly acquired Australian operations from November 30, 2016 onward, and the Holt Mine complex from January 26, 2016, after the acquisition of St Andrew Goldfields compared against eight months ended December 31, 2015 as a result of the change in the reporting period, including operational results from the former Kirkland Lake Gold Inc. from the Macassa Mine complex. All figures are in U.S. dollars unless otherwise stated. And with that, I’d like to turn the call over to our President and Chief Executive Officer, Tony Makuch.

[Tony Makuch:]

Thank you, Ryan, and good morning everyone on the call and anybody later on maybe listening in on the web cast, welcome and thank you for joining us today for the 2016 Kirkland Lake Gold fourth quarter and full year financial results conference call, and this is the first for the new Kirkland Lake Gold Limited. Before I begin, I would like to acknowledge and thank the over 2,000 people at Kirkland Lake Gold, the contractors, suppliers, and all the others that work with us in both Canada and Australia who have done an excellent job, and have contributed to generating the results in 2016 that we get to present today. We here are privileged to have the opportunity to present these results, and basically [ph] credit from the hard work of others, so thank you very much for your efforts. I would also like to formally acknowledge and welcome the new management appointments to the Kirkland Lake Gold team. The new management brings a wealth of expertise and will enable the company to optimize the performance of its global portfolio of gold mines, positioning us to deliver on our targets and create superior shareholder value. So, now beginning on Slide five, Kirkland Lake Gold realized record 2016 and fourth quarter revenue based on record gold sales and a strong gold price in 2016. I’m also very pleased to say that the company begins 2017 well financed with a strong balance sheet, and a cash position of over $235 million. Moving on to Slide six; 2016 and Q4 cash costs and all-in sustaining costs outperformed guidance. Kirkland Lake Gold delivered a record low 2016 operating cash cost per ounce of $571, below the lower range of our operating cost guidance of $600 per ounce. Operating cost per ounce for the fourth quarter totaled $533 reflecting record operating performance at our flagship Macassa and Fosterville mines, which realized record low operating costs of $421 per ounce, and $420 per ounce respectively, so pretty close to each other. Unit all-in sustaining costs during 2016 was $923 per ounce, again below the lower range of guidance of $1000 per ounce, and for the quarter all-in sustaining costs were $883 per ounce reflecting the increasing grade and recovery profiles at our flagship mines, and a focus on operational improvements companywide. Continuing with our financial highlights now on Slide seven, the company reported 2016 earnings per share of $0.35 or CAD0.46, and 2016 adjusted earnings per share of $0.62 or CAD0.82 when excluding one-time costs associated with the Newmarket and St Andrews transactions. Q4 earnings per share was $0.02 or CAD0.03, and adjusted earnings per share was $0.19 or CAD0.25 when excluding the same one-time costs. And for the 2016 full year, we have generated significant operating cash flow from operations of over $180 million or $1.49 per share and free cash flow of $107 million or $0.88 per share. Now, regarding Slide eight, the operations team in both Canada and Australia delivered this record performance attaining consolidated pro forma gold production of over 125,000 ounces for the quarter and over 540,000 ounces for the 2016 full year. On a consolidated attributable basis, fourth quarter production exceeded 106,000 ounces, and 2016 year end production was approximately 314,000 ounces. These include one month of December from the newly acquired Australia mines. During the fourth quarter and for the full year 2016, exceptional record performance was led by our flagship operations in Macassa and Fosterville mines as a result of business units from Canada and Australia completed the year by exceeding previously announced production guidance levels. Strong quarterly production was led by Macassa Mine in Canada totaling 52,318 ounces based on a record mine grade of 21.6 g/t and record mill recovery of 97.6%. Additionally, the Fosterville Mine in Australia achieved record gold production of over 44,000 ounces of gold based on again record grade of 8.5 g/t and record recovery of 92.4%. On Slide nine, as our financial result and record operating results indicate, 2016 was a transformational year for Kirkland Lake Gold. As we merged three companies, we created a new mid-tier gold producer. Yesterday, we provided a very positive update to our 2016 mineral reserves and resources. Notably, we increased our mineral reserves at our flagship Macassa Mine by over 37% to 2 million ounces of gold, driven by a 7% grade increase to over 20 g/t. And Fosterville mineral reserves increased by 66% to over 640,000 ounces, again driven by significant grade increase more so though a 27% increase to 9.2 g/t. During the fourth quarter, we also announced 1% buy back on our NSR with Franco-Nevada to reduce the royalty rate on gold revenue at the Macassa Mine from 2.5% to 1.5%. As supported by our update in the mineral reserves, this is a world class deposit that would be producing gold for well over a decade and with the right decision for the company and the shareholders. This morning we also announced a very exciting corporate development with the initiation of the dividend policy. I am pleased to say that the board of directors approved the payment of the quarterly dividend of C$ 0.1 per share payable on July 14, 2017 to shareholders of record as of the close of business on June 30, 2017. This announcement demonstrates a confidence in the growth potential, free cash flow generation, and supports our commitment to deliver value to our shareholders. Moving on to Slide 10, following the closing of the business combination with Newmarket Gold, we provided 2017 guidance which established Kirkland Lake Gold as a new mid-tier gold producer. In terms of sustainable production from our five underground gold mines in 2017, we expect to produce between 500 and 525,000 ounces of gold. At the high end of our guidance range, approximately 75% of our total production will come from our cornerstone mines including the Macassa, Fosterville, and Taylor. And during 2017, we’re focused on continuing to deliver high quality production with low consolidated cash cost of 625 to 673 per ounce and only sustaining cost of 950 to $1000 per ounce. Our assets allocated some of the most prolific gold districts in both Canada and Australia over the past few years' investment into exploration has been limited in these assets and therefore we believe the discovery and expansion potential was very significant. We are committed to spend 45 to 55 million this year with a clear goal to increase shareholder value. As Dough Cater and John Landmark will attest you later in the call, exploration success today on near mine targets have been delivering exciting results from recently announced drill programs. One of note is the 1429 g/t or 45 oz/t over 15 meters with an estimated true width of about 5 meters at Fosterville. Looking at sustaining capital, we want to invest responsibly into our mines to not only grow production to fill our mills, which all have excess capacity at this time, but to also demonstrate long-term sustainability of these operations. We see great organic growth across all of our mines because of the exploration potentials and the excess mill capacity, and are therefore taking the necessary steps to take advantage of this opportunity. For example, some things and additional 100 t/d at current grade mined at Macassa would lead to over $10 million of additional free cash flow for the company. We’re going to work hard to start realizing that value back for our shareholders. I’ll now turn the call over to Phil Yee, our Chief Financial Officer, to review the financial results for the fourth quarter and 2016 year end.

[Philip Yee:]

Thank you, Tony. Just before we get started, I just wanted to issue a second reminder everybody that Kirkland Lake Gold has changed its reporting currency to U.S. dollars effective December 31, 2016, reporting period. So, all the figures that I am going to reference here are in U.S. dollars unless otherwise stated. On Slide 12, I am pleased to report a strong cash position on December 31, 2016, of $234.9 million. Working capital for the same period totaled 92.3 million. And important point to note is that working capital includes the full debt portion of the convertible debentures of 85 million which mature in 2017 and are classified as current liabilities in 2017. Working capital also includes the current portion of finance leases totaling 15.6 million. As compared to the eight months ended December 31, 2015 and the cash balance is 67.7 million. The increase in the company’s overall financial position is largely the result of increased production resulting from the acquisition of both St Andrew Goldfields and Newmarket Gold in 2016. The increase in cash reflects 180.9 million of cash flow from operations that was generated throughout 2016. And 22.4 million received from the issuance of common shares of the company. The company also acquired 76.1 million in cash that came with the acquisitions of St Andrew Goldfields and Newmarket in 2016. With regards to the company’s convertible and secured subordinated debentures that are scheduled to mature in 2017, the first tranche totaling 56.8 million Canadian with a 6% coupon matured on June 30, 2017. The second tranche totaling 62 million Canadian with a 7.5% coupon matures on December 31, 2017. Based on the company’s financial strength, strong cash, and working capital position, management believes the company has the flexibility to adequately manage the current levels of the convertible debenture as they become due. Net of the convertible debentures, the company has a strong cash position of 149.9 million. Kirkland Lake Gold is currently completely un-hedged in order to benefit fully from the increases in the price of gold. Moving on to Slide 13, we have outlined several key financial highlights for the 2016 year end and for the fourth quarter. As outlined in the MD&A, the prior comparative period in 2015 only represents the result of the Macassa Mine for an 8 month stub year while 2016 represents a full year and includes the operations of the Holt Mine Complex from January 26, 2016 onwards and the Australian operations from November 30, 2016 onwards. Full comparative figures are available in the MD&A document. For the 2016 full year, record production resulted in the sale of 329,489 ounces of gold at an average realized gold price of $1234 per ounce. This generated revenue of 406 million. The revenues for 2016 increased significant when compared to the prior period. During 2016, the average monthly revenue was $33.9 million compared to the eight months stub year ending December 31, 2015 which had an average monthly revenue of 14.5 million. This represents an increase of over 130% attributable to increased gold sales reflecting the added production from the Holt Mine Complex and the Australian operations as well as a higher average realized price of gold in 2016. In terms of cost, total 2016 full year production cost of 198.4 million, royalty expense of 15.6 million, and deprecation of 59.1 million were incurred to arrive at net earnings from mine operations of 133.6 million. As Tony mentioned earlier during the quarter, the company agreed to terms with Franco-Nevada Holdings to buyback 1% and it’s not a royalty and the company’s land holdings in the Kirkland Lake Camp are 30.7 million, reducing the company’s royalty rate on gold revenue for Macassa from 2.5 to 1.5%. So effective at the start of November 2016, the company is now paying reduced NSR rate of 1.5% on Macassa Gold revenues. Other notable expenses for the full year 2016 include 17.8 million for transaction cost including 15.5 million associated with the Newmarket business combination which were incurred in Q4 of 2016 and $2.3 million associated with the acquisition of St Andrew Goldfields in Q1 of 2016. In addition, the company posted care and maintenance cost of $4.1 million related to the transition of the Stawell gold mine in Australia to state of care and maintenance and which is mainly related to one-time severance payments made on December 31, which was the date of notice. So, all will be maintained in a production ready state with the intent of restarting the operations in the future with meaning and enhanced economics and pending successful exploration programs being completed. There were no such costs incurred in 2015. Looking to the bottom-line, the company posted 2016 net earnings of $42.1 million or $0.35 per basic share based on a weighted number of common shares outstanding of $121.2 million. Net earnings for the full year include growth exploration expense of $15.8 million as the company focused on growing its resources all the while continuing to maintain strong cash flow generation. For the fourth quarter, the company reported net earnings of $3.1 million or $0.2 per basic share based on a weighted average number of common shares outstanding of $146.5 million. Fourth quarter net earnings were predominantly impacted by one-time cost incurred, including the previously mentioned transaction cost and care and maintenance cost. From an adjusted earnings perspective, excluding the one-time cost resulted in full year 2016 adjusted net earnings of $75.3 million or $0.62 per basic share. For the fourth quarter of 2016, adjusted net earnings was $27.9 million or $0.19 per basic share after adjusting for the one-time costs. In terms of cash flow, the Company’s operations generated $180.9 million or $1.49 per basic share in 2016 as compared to $39.4 million for the comparative period in 2015. The significant increase in operating cash flows reflects the increase in revenue as a result of record production and higher gold prices in 2016. This reflected the added production from the whole mine complex and the Australian operations. I'm also pleased to announce that the company completed the 2016 year with strong free cash flow of $107.2 million or $0.88 per basic share based on operating cash flow, less minimal property additions and property plan equipment. Overall Kirkland Lake Gold delivered record fourth quarter and full year financial results and I look forward to continued success from our newly expanded operating base that has positioned to generate strong free cash flow from high quality ounces. With that, I will turn it over to Darren Hall our Chief Operating Officer for a review of the operations.

[Darren Hall:]

Thank you, Phil, and good morning everybody. Thank you to have you at Kirkland Lake Gold and we are committed to providing a safe and healthy workplace for all employees and business partners. As we continue on our journey to [indiscernible] I'm pleased to report a 28% in our total reportable injury frequency rate and $0.26 compared to full year 2015. Turning to Slide 15, we like to provide some reserve highlights from our recent reserve release. Throughout 2016, investment in our flagship operations Macassa and Fosterville have yielded significant positive results, net of mining inflation particularly encouraging is the increase in both tons and grade of both properties strengthening our future. Macassa reserves increase from December 2014 by 37% to just have 2 million ounces with tons increasing 28% and grades increasing by 7%. Fosterville reserves increased from December 2016 by 66% to 643,000 ounces with tons increasing 31% and grades increasing 27%. Fostervilles in CQ reserves increased over 100% to 490,000 ounces at an average grade of 9.8 grams per ton. Total 2016 Canadian reserves increased 20% of 2014 to 2.75 million ounces. Total 2016 Australian reserves increased 24% over 2015 to 952,000 ounces mainly attributable to the 66% increase from reserves of Fosterville, which was underpinned by the high-grade visible gold down-plunge extensions to the lower Phoenix in Harrier Zones. Turning to Slide 16, consolidated pro forma 2016 production of 303,027 ounces was led by Macassa, which delivered a record production of 175,167 ounces. Macassa’s 2016 production was underpinned by record material movement, record run of mine grades averaging 16.52 grams per ton and record recoveries of 97.1%. Fourth quarter production totaled 52,398 ounces or 22% increase over Q3 2016. Quarter-after-quarter the mine continued to deliver increasing production with grades continuing to improve with it with fourth quarter grades averaging 21.6 grams per ton. As a result of these improvements, cost continued to trend down compared to the prior year with the mine delivering fourth quarter operating cost of $421 per ounce and all-in sustaining cost of $834 per ounce. Turning to Slide 17, the company’s newest mine Taylor successfully completed its first full year production. On a pro forma basis, full year production from Taylor was a 199,231 tons grading 6.9 grams per ton yielding 42,639 ounces on new recoveries of 96.5%. The operating cost per ounce as a all-in sustaining cost per ounce to the 11 month ended December 31, 2016 with 438 and $709 respectively. The low cost Taylor mine is a corner asset for the company with significant exploration potential along the prolific mineral rich Porcupine DestorFault. Moving to the Holt min on Slide 18, fourth quarter production totaled 15,761 ounces of gold, the highest of any quarter in 2016 on a pro forma basis 2016 full year production from Holt was 416,048 tons bringing 4.52 grams per ton yielding 57,086 ounces of new recoveries of 94.5%. Fourth quarter operating cost per ounce and all-in sustaining cost per ounce was $542,155 respectively. Unit cost continues to be positive impacted by a conscious focus and responsible spending at the site. Turning to Slide 19, Fosterville delivered record annual results delivering 2016 pro forma production of 151,751 ounces underpinned by record growth of 7.55 grams per ton and recovery of 90.1%. During the quarter, mining focus and optimizing the extraction of high-grade lenses on multi levels to the lower Phoenix area. Fosterville delivered record operating cash cost per ounce of $420 and all-in sustaining cost per ounce of $641 for the month of December. Turning to the northern territory on Slide 20 Cosmo mine delivered pro forma 2016 production at 55,765 ounces at an average grade of 2.9 grams per ton and 93.6% recovery. December 2016 operating cash flows and all-in sustaining cost per ounce were 148 and 1173 respectively from production of 52,789 mine tons at 3 grams per ton, which improves over the Q3 2016 monthly average of 47,030 at 2.5 grams per ton. Mine performance improved as a result of flexibility from development into the Redbelly and Taipan Lodes. I will now pass it over to Doug Cater, Vice President of Exploration Canadian, to provide an update on Canadian exploration activities.

[Doug Cater:]

Thank you, Darren. Management continues to investment in growth programs with the aim on to eliminating near term resources growth at our Canadian operating mines. For the 2016 full year the Company invested approximately $14.5 million in growth exploration expenditures consisting of multiple drill programs at Macassa, Taylor and Holloway operations. At the peak of the exploration program during 2016, 15 drill rigs were in operation across our Canadian district scale and package of 120 kilometers of strike length along the prolific Porcupine DestorFault zone known as the Holt complex and on our 10 kilometer long claim surrounding the Macassa mine. Turning to Slide 22, the Macassa mine remains one of the highest grade gold mines in the world with the discovery of the SMC driving grade improvement at depth and results from ongoing drilling to likely provide further growth in adding higher margin tons to augment mill feed. For the full 2016 full year exploration programs at Macassa were focused on underground drilling and drifting and include the delineation of the SMC from the 53,00 level and testing the 04 and 05 grades from the 40 to 50 level. Over the year, a total of 99,000 meters were drilled from 120 holes including surface and underground programs. With strong ongoing results from drilling in 2016 from the 04 break zone about the 34 elevation, the company intent on continuing to test the 04 break mineralization with the aim of adding another mining horizon adding between 100 and 200 tons per day to current throughput rates. Recent underground drilling during Q4 under 5300 level continue to focus on defining the easterly and westerly strike extension of the SMC. Underground drilling results returned outstanding interceptions including 651.8 gram per ton gold over 3.8 meters, 40.1 gram per ton gold over 3 meters and 97.7 gram per ton gold over 1.6 meters. The high-grad SMC zone has now been defined over a straight length of 1300 meters and a vertical extent of 690 meters with the zone being present down to the 7000 elevation. Recent drill results from the SMC program continue to support the view that the system remains open for expansion. The company is in the process of extending the 5300 level exploration drift further to the east currently at about 30 meters closing the almost 1500 meter gap between the current known extent of the SMC mineralization and the regional surface holes that encountered previously reported SMC style mineralization. The company is currently compiling and interpreting the results of the 2016 drill program. However, asset results from the program continue to return significant intercepts containing high-grade mineralization. Turning to Slide 23, at our newest operating asset the Taylor mine reported new discoveries and extensions to mineralization on 2016 exploration results. During 2016, a total of 22,000 meters consisting of 13,400 meters of surface and 8400 meters of underground core was drilled. Recent drilling targeted new or prospective mineralized extensions situation both at depth and along straight to the east of the shaft deposit and west of the WPZ, which includes the 1003 1004 and 1008 zones. Two exploration drifts have been budgeted for 2017 totaling 300 meters of lateral development; 100 meters have been allocated to the 430 east exploration drift, which will provide a platform to explore the easterly plunge of the shaft deposit at depth, currently developed at 50 meters. Recent highlights intercepts include surface drilling, west of the WPZ, 300 meters from the edge of known mineralization at the WPZ deposit intersected 10.31 gram per ton gold over 3.2 meters and 13.91 gram per ton gold over 1.5 meters. Follow-up drilling is underway with two surface drill rigs. Underground exploration drilling outside of the WPZ near the 1004 and 1003 zones returns 9.5 grams per ton gold over 4.5 meters up depth of the 1004 zone and 39.62 gram per ton gold over 1.1 meters located 330 meters down depth of existing development in an area with very minimal drilling providing a suitable target for follow-up in 2017. In addition, during 2016 an air-borne magnetic, electromagnetic survey was recently flown over many of our claim blocks located along the Porcupine-Destor Fault Zone with survey results being incorporated into our targeting exercises. This type of survey has the capability to see down to a depth of 500 meters below surface. I will now pass it on to John Landmark, Vice President, Exploration, Australia, to provide an update on exploration activities at the Australian operations.

[John Landmark:]

Thank you, Doug, and good morning everybody. On the Australian side, investment into internal exploration projects has yield significant growth opportunities across our mine results. The total of $14 million was invested to advance growth initiatives to the 12 months ended December 31, 2016 and some 50% of this was attributable to Fosterville. At the peak of the exploration program during 2016, a total of drill rigs were in operation across our Australian assets. Turning to Slide 25, an aggressive growth drilling campaign continues at Fosterville with nine rigs operating in the range of infill resource definition and exploration programs, exploration results at Fosterville continue to provide positive share price catalysts by delivering record high grade insists many containing visible gold mineralization. Over the course of last year, a total of 23,000 meters of gross drilling is completed and this year we will more than double that to Fosterville. On this slide, we have a long section projection looking to the West of the Fosterville Mine where we have approximately 20 kilometers of potential gold bearing structures on the 500 square kilometer property highlighting the exceptional potential of this premier gold district. In early November, we announced record high visible gold mineralization intercept at Harrier confirming the potential for Harrier to provide a high-grade independent mining front in addition to the current Lower Phoenix South mining area. Drill results returned a higher gold grade ever recorded in the Harrier systems including 129 grams per ton of nearly seven meters in addition drilling into the nearly -- the newly discovered west dipping Lower Phoenix Footwall Structure intercepted high grade gold mineralization including 550 grams per ton gold over 3.75 meters. Further surface-based drilling programs also continue to confirm the resource expansion potential of the Phoenix system with an intercept of 6.5 grams per ton gold over 27.8 meters and this is located approximately 350 meters north of the Lower Phoenix mineral reserves. More detailed resource definition during quarter four last year was announced in mid-January returning exceptional results including the results Tony had mentioned earlier the highest ever return from possible mine of 1,429 grams per ton gold over just over 15 meters that downhaul link that the estimate is true with about five meters and included in that was 21,490 grams per ton over 60 centimeter intersection and this was in Holt 1817. To date we've been able to successfully demonstrate that high grade gold mineralization extend the depth on both the Lower Phoenix Footwall and Eagle structures ahead of the current mining area and both of these high grade structures remain open down plunge. Switching to the next slide, to Slide 26, in the Northern Territory, the targeted near mine gold exploration program has resulted in the discovery of new zones of gold mineralization at Cosmo Mine in 2016, specifically advancement in the understanding of the mineralization has resulted in the definition of new exploration targets including the discovery of the Western, Silver, Taipan, and Redbelly Lodes, and most recently the discovery of the New Lantern Gold deposit, this new discoveries parallel to current mining zone and it is situated less than 100 meters from existing underground infrastructure and it returns significant drill intercepts of 119 grams per ton over 4.5 meters and 15.3 grams per ton over 11.1 meters. The discovery of the Lantern gold deposits represent significant potential to expand resources and become near term mining front under the historical open pit. The deposit remains open to expansion along strike and down plunge and it will be tested in the next six months in an aggressive step up exploration program which includes sourcing and resource definition and also construction of underground development to access the Lantern Deposit. I will now pass it over to Tony for closing remarks and wrap up before we open it up for questions.

[Tony Makuch:]

Okay, thank you, John and the rest of the presenters; Ryan, Phil, Darren, and Doug. As you can see this is an exciting and valuable company with a lot of new value creating opportunities, you can also get it from the presentation we have much to talk about and we hope you enjoyed listening and we appreciate that you took time to listen to our presentation. Summarizing now, I will go to Slide 28 and again reiterating 2016 was the transformational year for Kirkland Lake Gold as we merged three companies to create a new mid-tier gold producer, the resulting newly formed company provides a compelling investment thesis for new and current shareholders, and is supported by a strong financial position and an exciting pipeline of growth opportunities and exploration upside in prolific mining camps. Building on our successes in 2016, during 2017 we expect to continue to deliver on our top goal of creating shareholder value by remaining focused on four key value drivers, one is delivering on responsible low-cost, predictable, and achievable gold production. Secondly, we want to continue to generate strong free cash flow and maintain a strong balance sheet. Three, we want to continue to demonstrate growth through exploration success and improved efficiencies and generate the organic growth in other ways. And lastly, we strongly believe that today’s dividend initiation announcement will be another key value driver for our shareholders. So, summarizing here, thank you very much for dialing into the fourth quarter and year-end conference call with Kirkland Lake Gold, as I said prior too; I would also like to thank our Board of Directors and the shareholders for their support. And we look forward to continue success during the rest of 2017. As usual, myself and Ryan are always available for any additional questions that you may have after the call. And I will now turn the call over to the operator for any question and answers.

[Operator:]

Okay. [Operator Instructions] Your first question comes from Stuart McDougall with M Partners. Your line is open.

[Stuart McDougall:]

Hi, guys. Just my question is about the Fosterville, and specifically when you think the higher grading reserves might come into play in a more regular basis with the production that seem to have come into play in December. Is that something we will see coming in maybe back half of 2007 or 2008? And then, again around Fosterville, when do you think you might be in a position to consider a mill expansion for taking in area of second mining front, and what might that look like based on what you’ve seen so far today.

[Tony Makuch:]

Okay, Darren Hall may be able to answer the question there.

[Darren Hall:]

Yes, no, thanks for the questions. I guess is that first off we’ll tackle the grade discussion. I mean, as you follow the asset you’ve seen an improving grade over time over the last 18 months - two years, and particularly saw quarter-on-quarter improvements in grade through 2016, culminating with some outstanding grades in Q4. And you saw the reserve release that went out today as well, with an average grade of 9.8 [indiscernible]. And again, you could trace that back and you can predict what the future will look like. With a couple of years of reserves you can anticipate how that’s going to play out from a production perspective. We are nearly at the end of Q1, and we look forward to, in April, updating everyone on our Q1 performance, which I think will also be enlightening.

[Tony Makuch:]

John, you got any additional color you might want to put on that?

[John Landmark:]

No. I think, Stuart, just to comment, it’s worth noting that the grades we’re seeing at Harrier [ph] are comparable to what we’ve been seeing at across the Phoenix. And that’s worth just keeping in mind.

[Darren Hall:]

Yes, Stuart. And kind of closing the loop there on the second part of the question like was related to mill capacity when we look at a mill expansion, I guess, is that there’s always that opportunity in the future, but our absolute focus right now is fully utilizing installed capacity and realizing the full potential of the asset. And we’ll do that by adding another 150,000 tons a year plus [indiscernible] circuit, and that’ll come through improved mining performance, expanding areas, and adding mining flexibility and developing into Harrier [indiscernible], which we’re developing into now, and we anticipate that supplementing production in the back half of 2017, sorry.

[Tony Makuch:]

Yes, and to reiterate, that excess capacity, as Darren referred to, is already there in the mill.

[Darren Hall:]

Yes, absolutely. It’s very, very cheap incremental capacity.

[Stuart McDougall:]

Good. Thank you very much guys.

[Operator:]

Your next question comes from [indiscernible]. Your line is open.

[Unidentified Analyst:]

Okay, hi, good morning. I didn’t listen to the entire presentation. I had to take a phone call or two in between, but you mentioned, I heard, that all your numbers starting three months ago are in U.S. dollars as opposed to Canadian or Australian. My question is when are you going to apply for a listing on a NASDAQ or the New York Stock Exchange, American stock exchanges, is that in your plans? Thank you.

[Tony Makuch:]

Yes, actually to answer that question, you mean it’s something that we’re considering and we’re going to -- we're seriously looking at. But at this point in time we can’t give you any progress on that because it’s one of the things that we want to address and to discuss, but we’re not definite yet that that’s what we’re going to do or we can do.

[Unidentified Analyst:]

You know if you look at your volume you see like 90% of it is in Toronto, whereas other companies that are dual listing it’s the other way around, Canadian companies that are listed in both places. So I believe it would help the stock price as well in getting…

[Tony Makuch:]

I don’t disagree with you whatsoever. I think we’re -- I guess -- we support what you’re saying. We understand that. And we just -- we're investigating what’s required to do that.

[Unidentified Analyst:]

So you agree with me in theory but not practice?

[Tony Makuch:]

I agree with you in theory. Executing the practice, there’s a lot of things that happen for us to be able to execute the practice. And let’s just say that we’re working on it, so.

[Unidentified Analyst:]

That’s nice, thank you.

[Tony Makuch:]

Yes.

[Operator:]

[Operator Instructions] Your next question comes from Craig Johnston with Scotiabank. Your line is open.

[Craig Johnston:]

Hi guys, thanks for taking my call. Couple of questions from me, first one, just following up on Fosterville and the grades, am I correct to be thinking that guidance this year uses about seven grams per ton?

[Tony Makuch:]

Yes, correct, Craig. And what it used was the reserves we had stated at that time.

[Craig Johnston:]

Okay. So a fair assumption would be that that guidance at Fosterville could be very conservative?

[Tony Makuch:]

I would hope so. But again, as we trend through the year we’ll be able to provide updates. You got the reserve updates; we’re coming out with Q1 performance here within the next month. And that’ll allow you to make a more informed call.

[Philip Yee:]

And as we said, we expect to get predictable and achievable production targets.

[Craig Johnston:]

Yes, no, I appreciate that. And then, yes, with respect to Harrier, you were just saying you’re developing down there now, and will be. That will provide some supplemental or in the second half of the year. Can you give us any sense of how much from Harrier you plan to mine in 2017?

[Tony Makuch:]

It’s a work in progress as we go, and the focus right now is to develop to with we had anticipated adding that production in 2018, but given the favorable results we’re focusing on bringing that in. It’s too early to say at this point, Craig, but we continue to push it as hard as we can. As we will also the up-plunge portion of Lower Phoenix as well. The more flexibility we can build into the site allows us to ensure that we maximize the recovery from the down-plunge Lower Phoenix, and also allows us to ensure that we did the best possible job to fully utilized and installed mill capacity.

[Philip Yee:]

And you got to recognize that in order to do this, I mean, it requires equipment and manpower reorganization -- utilization. It also requires infrastructure ventilation systems, et cetera. So Darren and the guys are doing a lot of work on that to try to get there.

[Craig Johnston:]

Yes, no, for sure. Totally appreciate that. And then maybe just switching to Macassa, couple of questions there, one, what drove the big grade jump in Q4? Was it just one high-grade stope? And can we expect that to, say, sneak into Q1 as well or should that come off of it?

[Pierre Rocque:]

Hi, Craig, it’s Pierre here. The big increase in grade that we saw at Macassa is typically coming from the SMC stopes. As you know, most of those stopes are grading 20 grams and over. So we will continue to examine how much of that SMC we can bring in the plan. But right now, I would say what we’ve seen in Q1 is not out of the ordinary.

[Craig Johnston:]

Okay.

[Tony Makuch:]

Q4.

[Pierre Rocque:]

Q4, sorry.

[Craig Johnston:]

Q4. Okay, sounds good.

[Philip Yee:]

Craig -- sorry, Craig, just to reiterate too. I mean, if you look at the trend there on the graphs, there was an improving profile over the three quarters as well, right. So it wasn’t just a one-month issue. I mean, we’ve seen improving grades over 2016.

[Tony Makuch:]

And also, the grade, I think it’s already been disclosed within Kirkland Lake Gold previously. That as we develop the SMC at depth the grades somewhat improve.

[Craig Johnston:]

Yes. No, for sure. Okay, and then maybe just a broader question with respect to plans for the asset. I know that in previous discussions we’ve had around infrastructure plans. With the new reserve update, the 2 million an ounce number there, resources also looking good. How are you guys thinking about plans for extending out on new potential shaft in the SMC? Are you guys close to making a decision there? Or, is say this year’s exploration program designed to kind of better understand where maybe a new shaft will go?

[Tony Makuch:]

You’ve got some things updated reserve and resource that we put out for Macassa and we are getting our heads around life of mine plans et cetera. It is all leading us to what we want to do for the next 20 to 30 or 50 years at Macassa. And so, we are working towards that and -- but before we really get our heads around cost and schedule et cetera, we are trying to get a feel for what it means. And what are the different alternatives in terms of the creating value for the shareholders and maximizing that asset.

[Craig Johnston:]

Yes, now that makes sense. So is it fair to assume though that on the current reserve life that it’s economic -- and I guess I am probably answer my own question here, but economic to mine say those last portions of the SMC in the reserves with the current infrastructure in place?

[Tony Makuch:]

The short answer, Craig, is yes. The mine plan we have is using the existing infrastructure for all the reserves at SMC.

[Craig Johnston:]

Okay. Okay and then maybe one just housekeeping item before I step off here is just with the change of big acquisition in November, just wondering if you guys had any guidance with respect to depreciation expense for the year just so we can hone in on our EPS estimate.

[Tony Makuch:]

Well, I could that you should be seeing probably around 280 to $280 per ounce increase in terms of the depletion.

[Craig Johnston:]

So, sorry, $280 an ounce increase in…

[Tony Makuch:]

Yes, yes.

[Craig Johnston:]

Okay. Okay, great. Thanks guys. And yes, good quarter and great reserve update.

[Craig Johnston:]

Thanks, Craig.

[Operator:]

Your next question comes from John Tumazos with Very Independent Research. Your line is open.

[John Tumazos:]

Thank you, and congratulations on everything. Last year’s exploration expense for the various companies was about U.S. 30 million including the couple months October - November. Newmarket consolidated by other company. If you spend 67% more dollars this year for the midpoint of your 45 million–55 million, will that generate 67% more [indiscernible], or are there fixed items exploration, risks manpower budgets? Roughly how much more information do you [technical difficulty]

[Tony Makuch:]

John, we had a hard time hearing you. Can you sort of try to repeat the question a bit? Sorry about that, but we couldn’t hear you.

[John Tumazos:]

How much more information in terms of the number of assays or [indiscernible] will you have in this year compared to last year with about 50 million versus 30 million spent for exploration?

[Tony Makuch:]

Some of it is - actually it was a question, John, and lot of it is related to where we are exploring whether it’s underground or surface drilling. And in terms of gathering information how many pierce points et cetera, definitely the surface drilling at Macassa is a lot of [indiscernible] and sometimes you are at 6,000 or 8,000 feet before you get an intercept, lot of which [indiscernible] especially coming into 2017, we are doing a lot more underground drilling. Similarly at Macassa, we are really focused on -- we’ve got 5300 exploration drive. We are focused on exploration. So that would give you a lot more data, in the shorter holes and a lot more pierce points into the mineralization that we can use to help us in terms of resources and growing that resource and interpretation. Is that part of what you were trying to get…

[John Tumazos:]

Sure, I was wondering in my mind if you have 67% more information would the gross resource addition prior to depletion be 67% bigger?

[Tony Makuch:]

Well, it would be nice if it was linear. And it could be linear, John, but it could also be exponential. So we are algorithmic. We don’t quite know what it is, but you know, you got to recognize that when you are drilling into resources, part of it is drilling into resources and upgrading infill resources to measure and indicate it. So, some of that you know, could be linear; some of it is drilling into new areas and coming up with new discoveries, and that could be algorithmic in terms of what it could add for resources. Right, so…

[Operator:]

And there are no further questions at this time. I will turn the call back over to the presenters.

[Ryan King:]

Thank you very much to everybody for attending the Q4 and full year earnings call. Again, to reiterate, Tony and myself are available anytime for calls. Thank you very much, operator.

[Operator:]

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