VANCOUVER — Aggressive drilling has paid off for producer Kirkland Lake Gold (TSX: KGI; US-OTC: KGILF) at its Macassa and South Mine Complex (SMC) in Kirkland Lake, Ont., with the company expanding gold mineralized zones associated with the SMC on its main South and HM claims.
Kirkland Lake hopes that its exploration program — funded via a $7.5-million flow-through financing completed in early July — will add ounces to its resource and reserve base. Total proven and probable reserves at Macassa were last pegged at 1.4 million tonnes grading 18.5 grams gold per tonne for 813,000 contained oz., with measured and indicated resources tacking on 1.4 million tonnes at 23.7 grams gold for 1 million contained oz.
A mining horizon is being developed on the 5,400-foot (1,646-metre) level of the SMC that saw its first stope come online in May. This gives Kirkland Lake three mining horizons in the SMC, and the company is developing a main decline in order to mine on the 1,700-metre level, where it reports higher reserve grades that will be incorporated into operations by 2016.
Underground exploration confirmed more high-grade mineralization and unearthed new footwall zones in the SMC. The program’s Macassa program at the 1,615-metre level was designed to extend and upgrade resources on the South claim from a recently completed crosscut to the south, as well as trace HM updip and along strike.
A footwall zone was discovered at South claim when hole 53-2590 cut 442 grams gold over 0.3 metre. Meanwhile, drill hole 53-2496 tested a large inferred resource block at the HM claim and cut 7.8 metres of 42 grams gold. The company expects that this hole will upgrade the resource in the area.
Kirkland Lake is also encouraged by its surface drilling campaign, as it attempts to expand a maiden near-surface resource of 281,000 indicated tonnes at 11.7 grams gold for 104,000 contained oz., and 119,000 inferred tonnes averaging 12.3 grams gold for 48,000 contained oz. A third drill was added for near-surface drilling in August, and the company expects the program will allow it to calculate a reserve by year-end.
Surface drilling identified two gold-mineralization lenses in the footwall of the current resource block on South claim. The company reports that the dip of the new zones “appears to be shallower than the current resource area.” Near-surface assays were highlighted by 0.5 metre of 410 grams gold from a 102-metre depth in hole 14-32.
The surface holes cover an area 123 metres along strike and 52 metres downdip of the new mineralized zones, and extend between 82 metres to 110 metres below surface. The mineralization in these zones is reportedly the same style as that of the current resource blocks and comprises quartz-carbonate veining, generally within sericite-carbonate altered sediments with up to 7% pyrite and visible gold.
“The latest exploration results confirm our belief that ongoing exploration will continue to add to our resource and reserve base,” CEO George Ogilvie said in a release. “The underground exploration has both confirmed additional high-grade mineralization and resulted in the discovery of new footwall zones in the SMC. This bodes well for our long-term future. We look to utilize the SMC as the cornerstone of mine production.”
Kirkland Lake expects to ramp-up its gold production over the next two years as ounces increase due to higher grades from SMC. Though throughput will remain steady at 1,150 tonnes per day, the company expects to increase its overall gold output from 140,000 to 155,000 oz. annually in 2015 to up to 180,000 oz. per year by 2017. Cash costs are expected to decline due to high grades, with all-in sustaining costs pegged at between $1,250 and $1,350 per oz. this year.
BMO Capital Markets analyst Brian Quast has an “underperform” rating on Kirkland Lake stock and a $3.50 share-price target. He noted on Aug. 26 that “in general, the latest drill results at both the SMC and near surface were high grade, but also with limited widths, and a significant portion of the gold is concentrated in a few, ultra-high-grade intersections. Tighter spaced drilling and further interpretation is necessary to confirm the geometry and true width of the [new zones].”
Kirkland Lake shares have traded within a 52-week window of $5.25 to $6.19, and on the discovery news jumped 14%, or 73¢, before closing at $5.95 per share at press time.
The company has 72 million shares outstanding for a $424-million market capitalization, and produced 39,000 oz. gold during the last quarter.