Canadian Mining Stocks

Kirkland Lake Gold Ltd Valuation – August 2018 $TSE-KL

Company Profile (excerpt from Reuters): Kirkland Lake Gold Ltd, formerly Newmarket Gold Inc, is a Canada-based mid tier gold mining, development and exploration company. It has a diversified portfolio of assets located in the stable mining jurisdictions of Canada and Australia. The Company’s main gold mines are: the Macassa Mine located in northeastern Ontario and the Fosterville Gold Mine located in the State of Victoria, Australia. In addition, the Company owns the Holt Mine and the Taylor Mine, which are situated along the Porcupine-Destor Fault Zone, in northeastern Ontario, the Cosmo Gold Mine located in the Northern Territory, Australia and the Stawell Gold Mine located in the State of Victoria, Australia. The Company’s subsidiaries are: Crocodile Gold Inc and Franc-Or Resources Peru SA, among others.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-KL – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,090,684,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.74 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2731.68% Fail
6. Moderate PEmg Ratio PEmg < 20 36.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.88 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.80
MG Growth Estimate 15.00%
MG Value $30.73
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $11.57
MG Value based on 0% Growth $6.79
Market Implied Growth Rate 13.82%
Current Price $28.85
% of Intrinsic Value 93.87%

Kirkland Lake Gold Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.07 in 2014 to an estimated $0.8 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 13.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Kirkland Lake Gold Ltd revealed the company was trading above its Graham Number of $14.86. The company pays a dividend of $0.04 per share, for a yield of 0.1% Its PEmg (price over earnings per share – ModernGraham) was 36.14, which was below the industry average of 53.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.14.

Kirkland Lake Gold Ltd receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.14
Graham Number $14.86
PEmg 36.14
Current Ratio 2.74
PB Ratio 3.88
Current Dividend $0.04
Dividend Yield 0.14%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $485,883,000
Total Current Liabilities $177,044,000
Long-Term Debt $0
Total Assets $2,038,858,000
Intangible Assets $0
Total Liabilities $456,244,000
Shares Outstanding (Diluted Average) 212,998,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.40
Dec2017 $0.80
Dec2016 $0.45
Apr2015 $0.28
Apr2014 -$0.16
Apr2013 -$0.05
Apr2012 $0.58
Apr2011 $0.29
Apr2010 -$0.20
Apr2009 -$0.20
Apr2008 -$0.06
Apr2007 -$0.16
Apr2006 -$0.13
Apr2005 -$0.67
Apr2004 -$0.74
Apr2003 -$0.25
Apr2002 -$0.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.80
Dec2017 $0.42
Dec2016 $0.23
Apr2015 $0.14
Apr2014 $0.07
Apr2013 $0.16
Apr2012 $0.20
Apr2011 -$0.01
Apr2010 -$0.16
Apr2009 -$0.18
Apr2008 -$0.23
Apr2007 -$0.34
Apr2006 -$0.42
Apr2005 -$0.49
Apr2004 -$0.35
Apr2003 -$0.13
Apr2002 -$0.05

Recommended Reading:

Other ModernGraham posts about the company

Kirkland Lakes Gold Ltd Valuation – Initial Coverage $TSE:KL

Other ModernGraham posts about related companies

Natural Resource Partners LP Valuation – August 2018 $NRP
Kaiser Aluminum Corp Valuation – August 2018 $KALU
Semafo Inc Valuation – August 2018 $TSE-SMF
US Silica Holdings Inc Valuation – August 2018 $SLCA
Ivanhoe Mines Ltd Valuation – August 2018 $TSE-IVN
Cleveland-Cliffs Inc Valuation – July 2018 $CLF
Cloud Peak Energy Inc Valuation – July 2018 $CLD
Wheaton Precious Metals Corp Valuation – July 2018 $TSE-WPM
IAMGOLD Corp Valuation – July 2018 $TSE:IMG
Centerra Gold Inc Valuation – July 2018 $TSE:CG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top