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I’m Chris Mancini, analyst with Gabelli Gold Fund. There are two stocks that I’d like to talk about today: Kirkland Lake Gold and Alamos Gold. Both stocks currently benefit from currency declines in Canadian dollar and the Australian dollar. Both also benefit from weaker energy prices as energy is an input into their costs, as well as the price of gold being relatively flat year-to-date, versus the stock market which is down considerably.
Kirkland Lake Gold produces 1.6 million ounces of gold per year, it has three mines – two in Ontario and one in Detour Lake which produces approximately 600,000 ounces per year – the other is Macassa Mine, which produces around 400,000 ounces per year. They also have the Fosterville mine, which is a large, low cost mine in Australia and produces around 600,000 ounces of gold per year. All-in-costs at Kirkland Lake are about $700 per ounce, a very low cost operation and net cash position. I estimate that at current gold prices it should generate about a 9% free cash flow yield in 2020 and is benefiting from costs that are declining.
Alamos has two mines in Ontario and a mine in Mexico and produces about 500,000 gold per year. All-in-sustaining costs are approximately $900 per ounce and this year it is completing an expansion in its Young-Davidson mine, which is the biggest mine it has in Ontario. If that expansion goes well its free cash flow this year should go from $70 million to $300 million in 2022 as Young-Davidson ramps up to its full capacity.
Both companies have net cash balances and are stocks that should be able to weather a downturn and generate lots of free cash flow. Both could even take advantage of the current downturn given their strong cash balances. Both operate in good jurisdictions. I believe these stocks will do well going forward.
