(B)(N) KGI Kirkland Lake Gold Incorporated

Drama. Kirkland Lake Gold Incorporated is a valiant but small gold miner with production that has dropped from 25,000 ounces in the third quarter of last year to 22,000 ounces in the third quarter of this year, just completed (The Canadian Press, March 11, 2013, Kirkland Lake Gold Incorporated reports Q3 loss) and the company is expecting to produce about 90,000 ounces for the full year

The current market value of the company is $400 million which is down from $1 billion a year ago and it doesn’t pay a dividend. Investors in the stock are basically buying gold bullion which is being produced at a cost of about $954 per ounce (please see the Company news at Marketwire, March 11, 2013, for a fuller understanding of the “heavy lifting” that is required to be a “gold miner”). 500,000 shares changed hands today and the opening price dropped from $5.70 to $5.40 in a matter of minutes to close at $5.64. However, the real action was several weeks ago (mid-February) in which several million shares or 5% of the equity changed hands at a higher price, $6.50 to $6.00, subject to the company guidance that was publicly available (that is, we’re not suggesting anything unusual in the information that was available to investors over the past month). So, the guys with the “gold finger”, so to speak, and excellent timing, made a few hundred thousand dollars today and possibly a few million over the past month, but we missed all that.

The last time that we bought and held Kirkland Lake Gold (please see Exhibit 1 below) in a Perpetual Bond™ was between $16 and $20 for nine exciting months in 2011 when we were sold out on a short “call” against our long position. (Oh well.) Moreover, we can’t buy it now even at these “low, low prices” no matter how much confidence we have in the management to move nearly 100 tons of gold-bearing ore to extract 2 lbs of gold. The Risk Price (SF) remains firmly at $18 (Black Line in Exhibit 1) and is well-above the ambient stock prices. The company doesn’t pay a dividend and our estimate of the downside volatility in the stock price is minus ($2.50) and the only options that are available for the next six months are puts and calls at $6.

Exhibit 1: (B)(N) KGI Kirkland Lake Gold Incorporated – Risk Price Chart

Kirkland Lake Gold Incorporated is a gold mining company with operations that consist of the Macassa Mine and Mill and four contiguous formerly producing gold mining properties.

(Please Click on the Chart to make it larger if required.)

Postscript

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Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.