Kirkland CEO touts Detour deal; market value slides

NEW YORK/TORONTO Kirkland Lake Gold Ltd. chief executive Tony Makuch faces an uphill battle convincing investors and analysts that he made the right decision in buying higher cost producer Detour Gold Corp.

Toronto-based Makuch travelled to New York Tuesday to meet with investors as shares plummeted, wiping about US$2 billion off his company’s market value so far this week. The cost to operate and sustain the Detour Lake mine was more than double that of Kirkland’s projects in the third quarter. Kirkland was the third-best performer on the Bloomberg Americas Mining Index this year through Friday, with shares climbing more than 80 per cent, as the company cut costs and improved margins.

That advantage withered away as the deal with Detour Gold fuelled a sell-off.

“The acquisition adds to the near-term risk profile of the company” CIBC analysts including Cosmos Chiu noted, as they downgraded the Kirkland’s stock to neutral from outperform. Detour “is only about half way through the optimization of its operations (including cost savings), and we see risk of a potential slowdown in progress at the mine.”

Kirkland can cut the project’s all-in sustaining cost down to as low as US$800 an ounce, from US$1,198 in the third quarter, according to the CEO. Output at Detour Lake will rise by half to 900,000 ounces a year, from its current level, Makuch said in an interview at the Bloomberg headquarters in New York Tuesday.

Kirkland shares fell 2.7 per cent in early trading in New York before recovering somewhat, taking the company’s market value to about US$8 billion. That shrank from US$10 billion on Friday, the last trading day before the Detour deal was announced.