I’m not going to trawl over the basics just to add word count to this, if you don’t know about the deal and what it’s done to the price of Kirkland Lake (KL) shares it’d be strange to find you reading this blog, frankly. Here’s a 10 day price chart to get it out the way.
It only takes a minute of memory on the Denver Gold Show 2019 to recall the very clear message handed down from the money people to the mining people, that the mining companies must work to improve their balance sheets and not blow their treasury cash on expansive M&A. At the time, I wrote that while understandable and correct of the money people it wouldn’t stop paper M&As from happening. Sure enough, it took just two months for an large (just under $5Bn ticket price is big enough for me) all-paper takeover to show up.
Problem is, this deal has been forced upon KL by Paulson and his Gold Pressure Group to one side (who truly do not give a single fuck about the mining industry and just want their print) and Eric Sprott OBO* on the other, who dreams of size size size as gold rockets through $10,000/oz and he gets to sit at the Davos Top Table at last. This DGC deal is shit, it explodes the myth and mystery of KL as the new and acceptable face of mining. Generalists look on with sinking hearts as Makuch does exactly the same as every CEO before him, bends to pressure and turns his lean company into a sprawling, inefficient mess that prefers quantity over quality. What we have witnessed yesterday and today is the destruction of goodwill at KL, over $2Bn in bets that “this time is different” and KL would remain a low cost, high margin producer have all lost. Money, by the way, that only ever existed in the imagination of KL longs who fell for the ruse. Welcome to reality people, KL yesterday stated for the record that its future is the same mediocrity as every Tier 1 mining company.
However, the worst aspect of this ill-conceived debacle of a deal is that it will now send a massive chilling effect over the entire sector. Your ambitious mining company was told in September that it cannot use its cash to buy assets. It has now been told (screamed at, in fact) that it can’t use paper to do deals, either. Those of you expecting a raft of M&A in 1q20 are going to be left sorely wanting.
*Our Benign Overlord