In the precious metal space, Kirkland Lake Gold (TSX:KL) has remained one of my top value picks in the sector for some time, for a number of reasons. For those looking to initiate a position in gold, Kirkland Lake is a great option to consider. This is particularly true for those with a conservative risk profile or long term investing time horizon. One of the key pillars of the value proposition is the company’s relatively low cost operating model, compared to its peers.
Kirkland’s peers have all-in, sustaining costs (AISC), of around $1,400 to $1,500 U.S. per ounce. On the other hand, Kirkland Lake’s AISC comes in around $1,000 U.S. per ounce. This allows for extremely high margins in good times when gold prices are rising (such as now). It also offers downside protection for adverse scenarios in which gold does not perform well as a commodity class.
Many valuation models also appear to be leaving a lot of upside on the table. Some analysts have indicated that many gold producers are still seeing cash flows discounted on a long-term, average price of gold between $1,400-1,500 U.S. per ounce. If you’re a believer in much higher long-term gold prices as I am, it can be easy to make the case that low cost producers such as Kirkland Lake, that can continue to sustain production at U.S.$1,000 per ounce are being severely discounted by financial markets at these levels.
Invest wisely, my friends.
