IKN

Here’s the note that subscribers got, part of IKN644 out last night

Kirkland Lake (KL) is in-play and about to be sold to the highest bidder

The intro to week’s edition expands on the scoop, as published on the blog this Sunday evening (1), that Kirkland Lake (KL) is running a sales process and is about to be sold to the highest bidder. Some background, as there are no links or third party reports: This Saturday evening, I received information from a source that has proven reliable on previous occasions. It was certainly interesting enough to act, so yesterday evening and this Sunday morning I reached out, checked the intel with a few well-placed people and quickly discovered that I should have asked them before. With enough of the original intel corroborated I decided to publish because the core is rock solid, KL is in-play. No doubts.

We’ll do this in bullet point form, to keep the sequence of events as clear as possible:

• The process is being led by BMO and is something of a second bite at the apple, because until very recently KL was under exclusivity with Barrick (GOLD) but at the moment of truth, the deal fell through.

• Regarding that, we now have a clearer picture as to why KL announced its 10.1m oz reserve improvement to Detour Lake in the days leading to the Denver Show (2). The process had been under wraps, but we now hear that Barrick and Kirkland Lake were looking to announce a friendly deal to buy KL at the Denver Show (3), two weeks ago.

• However, when it came to the final price GOLD CEO Bristow insisted on a number KL CEO Makuch couldn’t accept, too low compared to market. but Bristow wouldn’t budge (and I do not know why, but maybe he thought KL leaks were pushing up the PPS) and instead of a deal, KL instead announced the extra 10m oz that would have made Barrick look like smart buyers once they’d announced it, further down the line. And Mark Bristow was left to reflect to the assembled masses that “there was still a long way to go” in sector consolidation.

• That 10.1m oz reserve pop was also the de facto green light for other companies to enter (re-enter?) the process to buy KL. In retrospect it was obvious; with GOLD’s exclusivity gone KL lays out its present-day asset value, accepting bids from all sides.

• We understand there are four large players are still in the official bidding process, namely Newmont (NEM), Agnico (AEM), Newcrest (NCM) and Barrick (GOLD), which is still interested despite the rebuttal. Of the four, we understand that Newcrest (NCM) has now emerged as the most likely winning suitor, though stress that nothing has been decided as yet.

• As well as the intel side of things, NCM would make a suitable and logical purchaser of Kirkland Lake, here are a four reasons though at this point, we leave the world of reliable information from trusted third parties and start to add conjecture and logical probabilities. So read on for fruits of exchanges I’ve had today with “persons close to the story” (as they say).

• First up, there’s sheer size: There aren’t many companies on the world stage with the simple market cap to buy (or merger as equal) with Kirkland Lake. NCM, at roughly U$14Bn is one of them and brings modest superiority to the table against KL’s U$11.5Bn (approx).

• Secondly, NCM has just moved into Canada with its first-foot purchase of Red Chris and, while the merits of that deal can be debated, that single asset is surely just the beginning of NCM’s presence in one of the world’s top mining countries.

• Third point, the Fosterville synergies NCM are obvious and, a Mercator map will suffice. That KL’s jewel in the crown is located on NCMs home patch makes matters a lot easier. We should also note how KL CEO Tony Makuch has managed the Fosterville well recently, bringing the market down from his previously over-ambitious claims and now marketing the asset as a highly profitable, regular, longer life asset. Not only that, but the type of mining at Fosterville is NCM to a tee.

• Finally, the boards of Australian companies are naturally more aggressive, due in part to character, but also to the regulatory framework of Australian listed companies that s conducive to activist shareholders at an insto level. NCM is also in its centenary year as a company, having started operations in 1921. It would be the type of banner deal to cap its year, it would allow it some distance from other major Australian mining companies now snapping at its heels for a place at the top table. Even here, at the high-level corporate level, a deal to buy KL fits and one of my correspondents voiced something I’ve been thinking for a while; that Aussie miners overpay for assets. There may be a vicious (virtuous?) circle at boardroom level, with Aussie shareholders expecting more from their companies, plus execs willing to take one extra risk.

All this certainly does NOT rule out a winning bid from Agnico, or Newmont or even Barrick, but NCM is currently positioned and has plenty of good reason to move, whetever the eventual price might be. That wraps up the exclusive, which can be summed up in one simple sentence: Kirkland Lake (KL) is in-play and is set to go to the highest bidder, with current favourite among four suitors Australia’s Newcrest (NCM). You heard it here first.