SPOTLIGHT SHINES ON KIRKLAND LAKE GOLD CEO

Anthony Makuch has Kirkland Lake on a winning streak he hopes will continue

If asked, Tony Makuch, Kirkland Lake Gold Ltd.’s CEO, will quickly concede that he’s a micro-manager. “Definitely, you have to know what’s going on in your business,” he says. “You always have to remember the devils in the details. People can say, ‘He’s a micro-manager,’ but you can’t be afraid to get involved in your company.” Perhaps that management style is the secret to how Kirkland Lake managed to post a 351.9% gain in share price during the past two years in the midst of middling gold prices. Its performance certainly stands out, not just in comparison to other gold mining companies, many of which have inched along, but as the best on the annual CEO 100 ranking.

Perhaps, as Makuch told the Melbourne Mining Club in the summer of 2018, some might attribute the company’s success to luck, having bought and turned two so-so mines into winners. Perhaps it’s just a lot of hard work. “My father told me luck comes from 100% effort,” he said back then. “That’s what we’ve done.”

Makuch, 61, often quotes his father, a Polish immigrant to Canada whose world view was informed in part by the currency devaluations that swept across Europe in the years between the First and Second World Wars. His father advised him that only two things can be trusted to hold their value over time: real estate and gold. Even so, the elder Makuch pushed his son to pursue a career like dentistry, though the younger clearly gravitated to mining.

Starting as a teenager in Timmins, Ont., a mining town 10 hours north of Toronto, Makuch found entry level jobs in the mines. Slowly, he worked his way up the ladder, collecting degrees along the way, including an undergraduate diploma in earth science, a masters in engineering and an MBA in business finance. Despite a long history in the industry, or perhaps because of it, he’s not one of the gold bugs who think gold will hit US$5,000 per ounce anytime soon. (It’s currently at US$1,500 per ounce, the highest in six years.) But in his characteristically understated manner — a rarity in a sector that’s overflowing with CEOs who sound more like carnival barkers and salesman — he does have a lot of faith in gold. “Basically, my wife’s father and my father were underground gold miners. Everything I’ve had in my life is all about underground gold mining,” he says. “I’m a gold bug in that I recognize it will always have value.”

Speaking to the Melbourne Mining Club last summer, Makuch said that anywhere he goes around the world, he can’t help feeling that miners are “the good guys.” The reality, however, is that with the rare exceptions such as Kirkland Lake, investors have been fed up with the mining sector, abandoning it in droves. On the TSX and TSX Venture Exchange, home to about a third of the world’s mining companies, the sector raised just $1.6 billion through June of this year. That’s a 63% decline from the previous year and a 70% decline from five years ago.

For Kirkland Lake and Makuch, who took over as CEO in July 2016,

it’s been a different story as his company has emerged as the darling of the industry, consistently winning recognition for its outstanding performance. At the start of 2016, the company expected to produce 525,000 ounces of gold. It topped that, producing 542,000 ounces, and then went on to increase its production in the following years. It’s now on track to produce one million ounces of gold in 2019 at some of the lowest costs in the sector.

By most accounts, the company’s success can be summed up by its turnaround of two underground mines, Fosterville and Macassa, which have consistently produced record amounts of gold. Neither the company nor Makuch discovered either mine, both of which had been marginal producers before being acquired by Kirkland Lake.

Some people credit billionaire gold bug Eric Sprott, who joined Kirkland Lake as chairman in 2015 and spent more than four years at the top of the company, with supplying some of the capital and vision to put together the company in its current form. Others credit Makuch, and his attention to the operational details, while some say the previous CEO, George Ogilvie, was the one who got the ball rolling at Macassa, where a rich vein was discovered on his watch.

In any case, in November 2016, about four months after Makuch officially took over as chief executive, the company obtained the Fosterville mine in Australia through a roughly $1-billion acquisition of Newmarket Gold Inc. It was a controversial deal, in part because Sprott owned stakes in both companies, including about 17.9 per cent of Newmarket, and Kirkland Lake had other takeover offers from some shareholders.

Neither Fosterville nor Macassa looked like obvious winners to the rest of the sector. Nolan Watson, CEO of Sandstorm Gold Royalties Ltd., which owns a 2% royalty on part of Macassa, says the mine had always been a “hand-to-mouth operation” in which profits were slim at best. “It was always believed to have a lot of gold,” he says, “But I remember thinking when they bought it, what are they doing? They knew what they were doing.” In 2016, both Fosterville and Macassa produced their highest-ever recovery rate, highest-ever grade ore and highest-ever amount of gold. Makuch says the transformation at Fosterville is all about grade, since the mineralization changed as the miners descended deeper underground. The ore went to 29 grams of gold per ton in the first quarter of this year from 7.55 grams in 2016, while the recovery rate shot up to 98% from 90%. Similarly, the mined ore at Macassa had 29.6 grams of gold per ton this year, compared to 16.5 in 2016. Makuch acknowledged that discoveries made before he arrived account for a lot of the success at that mine. But, like Fosterville, its efficiency has improved on his watch. Macassa is one of the first mines that uses electric rather than diesel-powered vehicles to haul ore, which isn’t just a political statement. Diesel trucks generate more heat and spew noxious gases into the air, which create higher ventilation costs.

Even though Kirkland Lake acquired Macassa long before Makuch arrived, he knows it well, having managed the mine for Kinross Gold Corp. in the 1990s. At one point, he says, he received a letter in the mail that had somehow bungled his name to Tony Macassa. Even though he says he used to sit around back then and talk about what Macassa could be, he never imagined exactly what it has actually become. By the time Kinross sold the mine in 2001 for around $5 million, he was long gone and was harbouring his own doubts about its value. “Most people thought they paid too much,” he says about the buyer then. “I even looked at it and thought, oh, would I pay $5 million?”

At the time, gold was trading under US$300 per ounce compared to its current price above US$1,500. It has hit record values in 2019 in many countries’ currencies including in Canada and Australia.

Not all of Kirkland’s bets have paid off. In May 2018, for instance, it pumped $20 million into Novo Resources Inc., a gold explorer in Australia’s Pilbarra region, paying $5 for each share. The price has since declined 55% to $2.30. But the big question is figuring out where future growth will come from. Philip Ker, an analyst at PI Financial Corp., says one key to the company’s success is its willingness to devote large amounts of the free cash flows it generates toward exploration and mine expansion. “By the time the three or four years’ worth of high grade at Fosterville runs out, they’re going to be ready to make up for that production with the new shaft they’re sinking at Macassa,” he says.

Parts of Makuch’s stated formula — focus on costs, spend money on exploration, work with rather than against regulators and hire smart people — aren’t all that different from what others in the industry say they’re doing. But he emphasizes parts of his strategy that others may be missing: the company tries its best to hire from the local community and makes sure the people who don’t have any connection to its mines appreciate the company’s presence. He has also advocated for the value of social licence, working in cooperation with regulators and recognizing the importance of his workers. “We all sit here today and we prosper and we do well,” he told the Melbourne Mining Club at the end of his speech. “But really, we prosper from the hard work of others, and those people are the people currently on shift at our mines and our mills, the people that are at home and resting to come on shift tonight ... you can replace all of us, but you need those people.”

Took Office 2016 2-Year Return 352% 2-Year Avg Compensation $4 million Bang for the Buck 1.75