2007-03-01_KLG_GOLDINVEST by gegeshandong

VIEWS: 9 PAGES: 9

									INVESTMENT CASE
                                                                                       Stuttgart, March 1, 2007


Kirkland Lake Gold Inc.                                                                Target Share Price
                                                                                       (6 Months)
Five years ago Kirkland Lake Gold started up as a redevelopment
project with over 80 years of mining history. Today, the Ontario,
                                                                                       15.00 CAD
Canada-based company is developing the fastest growing underground
gold resource with the highest gold content in North America. Each
month between 60,000 and 80,000 ounces of gold are accrued with an                     ISIN:      CA49740P1062
average concentration of one ounce (31 grams) per ton of ore. This
makes Kirkland Lake a growth story par excellence: The finding costs
                                                                                       Stock Markets: Frankfurt, Toronto
amount to only 3 to 5 CAD per ounce of gold. On top of that, Kirkland
                                                      has recently become a            WKN:       157217
                                                      full-fledged          gold       TSX:       KGI
                                                      producer with 58,000
                                                      ounces production per
                                                                                       Share price (11.07.06) 10.26 CAD
                                                      year, 205 employees and
                                                      a              production        High (52 weeks)         9.91 CAD
                                                      infrastructure      easily       Low (52 weeks)          5.61 CAD
                                                      worth 500 million CAD
                                                      in replacement value
                                                                                       Market Cap.         546.6 m CAD
                                                      (including a mill that can
                                                      triple production from           No. Outstanding Shares      53 m

Kirkland Lake aerial view: The production shaft is
                                                      today’s level) at the
near the right border of the photo, the processing is current price.                   www.klgold.com
located up and to the left, and in between lies the
tailings pond.

                                                                                       Sven Olsson M.A.
                                                                                       +49 (711) 25 35 92 41
Highlights                                                                             sven.olsson@axino.de

    •    Accelerated Exploration: Kirkland Lake Gold Inc. is developing the
         fastest growing and highest grade gold resource in North America              Editing GOLDINVEST.de
         (possibly even on a global level).                                            c/o AXINO AG
    •    Accelerated Resources Growth: Kirkland Lake has eight drills
                                                                                       Königstraße 26
         deployed underground and adds 60,000 to 80,000 ounces per month to
         its resources inventory.                                                      70173 Stuttgart
    •    Secure Political Environment: Kirkland Lake lies in a historical mining       Germany
         camp close to the city of Kirkland (pop. 10,000) in the mining- friendly
         Ontario, Canada.
    •    Environmentally Safe Mines: Environmental legal permit for mining
         operation available for the coming 15 years.
    •    Strong Management: The Kirkland Lake Management holds 26 per
         cent of its shares. Friendly parties hold an additional 40 per cent so that
         a takeover would only be possible with fair conditions.
    •    Next goal is self-funding Exploration: Kirkland Lake plans to be
         profitable already in 2007 and to finance the entire exploration and
         development with its own capital.




                                                         Page 1 of 9
                                                                               Investment Case – Kirkland Lake Gold Inc.


The Rebirth of Kirkland Lake in Three Phases

Phase 1: Acquisition and Restructuring

In December 2001, businessmen Brian Hinchcliffe and Harry Dobson, both
established mining renovators, bought the assumed depleted Kirkland Lake Mine
in Ontario, Canada including infrastructure for 5 million CAD. Strictly speaking,
they purchased five connected mines, which altogether produced more than 22
million ounces of gold in their 80 year history, although they were never operated
by one and the same company. It is very difficult to believe today: 2001, in the
deepest bear market, no one wanted these mines. There were not even
competitors bidding on the mines.


The purchase of the Kirkland Lake Mines was –
in today’s view – an unbelievable bargain. The
owner, Kinross Mining, had paid Barrick Gold 75
million CAD in 1997 after all, and invested a
further 35 million CAD in infrastructure and
exploration. How could Kinross sell it for so little
money? The answer only highlights the
desperate situation of the industry in 2001. No
one, apparently not even Kinross’ CEO, believed
in the future of the gold mining industry. Kinross,
then a typical operator of large open pit
production with low gold concentration, lost
money due to low gold prices. The investment
banks pressured Kinross into freeing its finances
of unnecessary baggage. Under pressure,
Kinross sold the Kirkland Lake Mine, which did
not fit the remainder of its portfolio, and wrote off  A historical photo: One of the five mines in Kirkland Lake Gold
115 million CAD, probably to the approval of the       Camp in 1936. At that time the five mines producted 5 million
                                                       ounces of gold combined.
investment bankers. This is actually a classic
case for all of those who have paid attention to the cycles and to large company
decisions!


In order to fully understand the sale of Kirkland Lake, one has to know that
Kinross’ only asset was worker’s union shares. Whether it was inexperience or
weariness, Kinross let the mining worker’s strike escalate so far that the pumps
were removed from the shafts in 1999 and the mine – in an act of self
destruction- was flooded. This detail would also explain the bargain price. To be
fair, one should calculate the additional 12 million CAD that it took to drain the
water from the mine. Instead of the estimated six months, the drainage took two
and a half years to complete. Kirkland also needed two years to rid themselves
of the unions, even though from the beginning the crew had unanimously voted
to liberate themselves from an organized union. So, the revival of the Kirkland
Lake Mine was not at all a walk in the park.


Before Kinross Gold sold the mine in 2001, the company did do a number of
sensible deeds from which the current owners have profited enormously. Kinross
consolidated the property relationships in the mining district and had, for the first
time, merged all five mines in the Kirkland Lake Camp under one umbrella.




                                                          Page 2 of 9
                                                                               Investment Case – Kirkland Lake Gold Inc.




         Historical Production of the Kirkland Lake Mines
 Mines in the            Period of    Total produced    Ounces
 Kirkland Lake          production        ounces        per ton
 Camp
 Lake Shore            1918-1965         8,602,791        0.50
 Wright-               1921-1965         4,817,680        0.49
 Hargreaves
 Teck-Hughes           1917-1968         3,709,007        0.38
 Macassa               1933-1999         3,540,451        0.45
 Kirkland Minerals     1919-1960         1,172,955        0.37

                           1917-1999            21,846,500              0.45


The second thing Kinross had done with its exploration expenditure was to pave
the way for today’s exploration successes. With literally the very last drilling
before closing up the mine, the Kinross geologists had made the first high grade
discovery outside of the old quartz ore body. Yet, it was too late to stop the
decision on the corporate level to close the mine.

The same Kinross geologists are successfully working for Kirkland Lake today.
They were the ones who convinced Brian Hinchcliffe and Harry Dobson that
Kirkland Lake was anything but a tired asset without exploration potential.

The geologists were just recently awarded the
„Prospector of the Year Award for 2006“ by
their colleagues in Ontario, for their
exploration success during the last two and a
half years. The geological community
comprehends the significance of the new ore
body discoveries. The financial community
seems to need a little more time.




Phase 2: Exploration             Success       and
(Historical) Production

The historical mine (all five mines in combination)
has produced an average of 22 million ounces in
its 88 year production history, of which an
average concentration of 0.45 ounces of gold
within the ore was extracted. With this, Kirkland Lake Camp was rightfully named
a „high-grade“ camp. One must envision the magnitude: The five mines in
Kirkland Lake have together spawned 15 per cent in Canada’s history of gold
production. Last, but not least, Kirkland Lake is famous, at least in Canada, for its
discoverer, the adventurer Sir Harry Oakes, who came to be known as the
wealthiest man (and the largest tax payer) in Canada in the 1930’s.


Looking at the historical mining operation in a 3-D model, it becomes clear how
specialised the miners pioneered in the old days. On a stretch of more than
seven kilometres, distributed among five competing mines, all followed virtually
the same quartz structure in depth called the 04-Main Brake. Already in the
1930’s of the past century, work was done in a depth of 9,000 feet. In the 3-D
model the old mines seem like a continuous razor thin quartz vein, which is
spread along under the earth. Kirkland Lake calls this part of the mine, from


                                                          Page 3 of 9
                                                                                  Investment Case – Kirkland Lake Gold Inc.


which a current total production of 58,000 ounces is derived the „old mine“, in
order to clearly define the new quality of this spectacular discovery. In 1999,
Kinross did not have access to a three dimensional model when the mining
camps were closed. It was the new owners who had students sitting at terminals
for weeks on end transferring all the historical drilling results into electronic files.

This was an enormous improvement
for understanding the deposits
completely.



Phase   3:       Accelerated
Resources Growth

One could claim that the history of
Kirkland Lake started over two and a
half years ago. 500 meters aside
from the old mine, an extreme high-
grade     mineralized    zone     was
discovered about one mile deep.
The significance of the new
discoveries, apart from the historical
„quartz shaft“, becomes clear when
the results of the old and new mine
are compared to one another. In the
old mine the average range of the
                                            This graphic shows a section of work in 1.6 kilometre depth: The old mine (green)
mineralized veins was five feet (1.60
                                            follows the gold along a quartz layer with a length of seven kilometres. The old mine
metres). Out of more than 90,000            discoveries are marked in red, underneath it lies the “Upper D“ Zone. The current
recorded drillings only every fourth        Kirkland Lake production is in that part. The new discovery (in gold) lies approx. 500
drilling identified ore-grade that          meters outside of the old mine. During the 80 year mining history, gold was never
                                            explored in this location. The term White Zone, Lower D and New South stand for the
could be developed. The gold                various sections of mineralization. So far, nine new high grade zones have been
content in the new mine has an              discovered.
average of one ounce and is
therefore twice as high as in the old mine. The width of the ore bodies – an
important economical factor – is twice as large as in the old mine with an average
of 10 feet. After almost 300 drill holes in the new ore body, statistically relevant
conclusions can be made. 85 per cent of all drills contained recoverable ore
concentration.


The underground discovery requires a systematic approach: Up until the summer
of 2006, the high grade zones had to be explored by using long and time
consuming drilling, using the tunnels of the old mine. The spectacular results
justified the building of a tunnel. In September of last year the tunnel for
production was finished so that now 8 drills are available directly at the high-
grade ore body. This way a much shorter range of drillings is possible directly
into the gold-bearing ore. This, in turn, results in much quicker exploration results
in a shorter amount of time.

This accelerated resources growth is the actual catalyst for the overdue
revaluation of the company! To illustrate this, we list only a few
outstanding drilling results: 2.30 ounces with a length of 90.4 feet, 1.43
ounces with a length of 124.5 feet, as well as 5.57 ounces at 50 feet and
lastly 2.70 ounces at 40.6 feet and 2.08 ounces at 61.45 feet. This is world
class discovery data. The ore body is open to all sides. The resource
inventory accrues 60,000 to 80,000 ounces per month. The recovery costs
are the lowest of the entire industry, at 3 to 5 CAD per ounce.



                                                            Page 4 of 9
                                                                                Investment Case – Kirkland Lake Gold Inc.


If you translate these numbers to the actual mining operation you get the
following picture: Per month Kirkland Lake finds more gold than is recovered in
an entire year. During the last business year, Kirkland Lake redeemed 36 million
CAD from the sale of its produced gold and spent 44 million for the operation of
the mine. The loss, or burn rate if you will, was 8 million CAD. This burn rate
equates very closely the yearly budget for exploration and development. Without
exploration the operation would carry itself (which no investor would jump at).
What investors received for the 8 million dollar exploration budget is huge in
comparison: between 700,000 and 900,000 ounces of gold at the above finding
rate.

The high gold concentration explains the enormous rate of acceleration of
Kirkland Lake finding gold. There seems to be no other company – out of
the midsize companies – that has the same accelerated growth.

This spectacular concentration connotates
an economic quantum leap. The example                        ANNUAL PRODUCTION AND FORECAST
makes it clear: Instead of processing
100,000 tons of ore for let say 50,000
                                                             80000
ounces of gold as in the past with the old
                                                             70000
mine, now it’s possible to process 50,000
                                                             60000
tons of ore for the same amount of gold from
                                                              50000
the new mine. This will cut the cost per            GOLD OZ.
extracted ounce of gold immensely.                   (recov.) 40000
                                                              30000
                                                          20000
The planned production increase for the
                                                          10000
year 2008 (see illustration) is already partly
                                                               0
based on the fact that the new high grade
reserves of the new mine can be extracted.
                                                                     Fiscal year Ends April 30th         * Projected
This share of the production is supposed to
increase continuously in the next two years.
Already, by the end of 2007, Kirkland Lake expects to reach their break even.
The entire exploration and development can then be financed from the operation.
The expansion of production can, by the way, be financed without costly
investments in equipment. Kirkland’s processing plant has enough capacity to
triple the daily tonnage.



Where exactly does Kirkland Lake stand?

Beim When looking at the published resources, it’s worth taking a look into the
technical details for a moment. According to the strict reporting standards subject
to the 43-101 of the National Instrument, Kirkland Lake has approximately 2.7
million ounces of total gold reserves (in all categories). About two million ounces
of these resources are contained in the old
mine came from the old mine and 0.7 million
have already been found in the new mine,                1.200.000
with an accelerated trend.
                                                        1.000.000
                                                                                .             .
                                                              .43
Just as with other mines, Kirkland Lake also            800.000
has a so-called cut-factor. The cut-factor is           600.000
a simple corrective to cut down those drilling                                                     .
                                                        400.000
results that fall outside of the curve                                                 .
automatically to a statistical peak. In the old         200.000
mine this cut-factor was at 3.5 ounces per
                                                                        .
                                                                0
ton. This means that all drilling results                             FY 2005       FY 2006   0CT 2006
above that amount were sized down to 3.5
ounces. Only about 10 per cent of the
                                                                      P +P      M+I           INFERRED
                                                        Page 5 of 9
                                                                            Investment Case – Kirkland Lake Gold Inc.


historical assays were above the cut-factor. Yet, in the new mine approx. 60 per
cent of the drill assays were over the old cut-factor of 3.5 ounces. These means
that the predominant share of excellent results was statistically downgraded and
was not included in the 43-101 compliant calculation. In plain language this
equates to: The resource is systematically undervalued in the official statements
(which is what the author of the 43-101 had in mind). Kirkland hired independent
experts to calculate a new cut-factor for the new mine. This new factor could lie
between 6 and 9 ounces.

We assume that the previously published compliant resource numbers do
not fully reflect the improved status quo. There will be a new official
resource calculation planned for the summer with a new cut-factor, which
will reflect a more accurate state of things.



Risks: Scarce Manpower

A continuous challenge for Kirkland Lake, as well as the entire industry, is the
scarce resource of well trained personnel. Whereas five years ago, hardly any
miner (in Kirkland Lake or elsewhere) could find work, today there is aggressive
competition for the best personnel. Not only in the mining industry, but also the
oilsand projects in Alberta are harboring labor from all over the country. That is
the reason why Kirkland will have marginal production in the business year 2007
(year ends on April 30, 2007) as compared to the previous year. Kirkland Lake
has developed a comprehensive training program that gives newcomers the
opportunity to acquire Miner 1 status after only three years.


Takeover Candidate Kirkland Lake

Of course Kirkland Lake’s a turnover candidate. This has been part of the
business plan of the founders from the beginning. It wouldn’t be the first company
that Brian Hinchcliffe (CEO) and Harry Dobson (Chairman), have sold with a
successful profit. Both have made a name for themselves in this industry by
purchasing, renovating and selling. Their first joint company was „American
Pacific Mining“ during the late 80’s. The approach they used back then looks like
a blueprint for Kirkland Lake: 1987, with a cyclical low in the zinc market, Pan
American Mining purchased the ElMochito zinc mine in Honduras for 12 million
CAD. The mine was said to be depleted and a tired asset. Pan American freed
the operation of its unions and invested successfully in the exploration. In the
middle of the strengthening zinc market the mine made a 50 million CAD profit in
the following three years and was then sold for 120 million. By the way, the El
Mochito mine is still very profitable and holds enough reserves for the next 15
years. Kirkland’s strategy is following the same pattern: Many milestones have
already been successfully accomplished: Acquisition at the lowest time in the
market, restructuring and successful exploration. The only thing missing is the
sale.

The questions that frequently come up in many investor meetings is: „Why hasn’t
Kirkland Lake been taken over if the assets are really that great?“ The answer
has two parts: Yes, management’s goal is to be taken over, but not for any old
price. The two company founders still own 26 per cent of the company and
have proportionately participated in all capital increases themselves (the
last one at 9,30 CAD). A further 40 per cent of the company is in the hands
of credible general funds, that do not have pressure to sell and are close to
management. We see this as a high quality attribute that management has not
made so-called „brokered financings“ that are first, expensive and second, do not
establish a credible shareholder basis. This background is also known


                                                        Page 6 of 9
                                                                              Investment Case – Kirkland Lake Gold Inc.


throughout the potential interested parties, for instance: Agnico-Eagle Mines,
GoldCorp or Goldfields. The named companies, who regularly send observers to
Kirkland, know that Kirkland Lake cannot be bought cheap. Hostile takeover
bids with a bonus of 20 per cent over the market price, as tried with weak
positioned management, are impossible at Kirkland. Moreover: The
management emphasizes the fact that they will only sell to a company whos
shares they would be most likely hold to on to.

The second part of the answer is: Kirkland Lake is not quite large enough to be
interesting to a major company. Kirkland Lake strives to reach this critical size of
5 million ounces total reserves. This goal should be met by 2009 if the
accelerated rate of growth remains the same. Five million ounces seem to be the
magic threshold of the industry. This seems to be a size which the market – i.e.
the rest of the resource hungry majors – cannot pass up. What might a possible
takeover scenario look like? What would an interested takeover party have to pay
for 5 million ounces total reserves in a profitable mine in Ontario? Even in the
worst times of the industry – between 1995 and 2001 – an average of 150 CAD
per ounce of resources (all categories) for producing mines.

In the meantime, not only the price of gold has doubled. Recent takeover
examples show that the price per resource ounce in the ground has increased
considerably. One of the most spectacular acquisitions during the past year was
Virginia Gold bought by Goldcorp. Goldcorp paid approx. 100 USD per ounce for
the Greenfield Project, which didn’t even have official resource estimates.

Just a few days ago Agnico-Eagle Mines paid
710 million CAD in shares and cash in a
takeover       of    Cumberland      Resources.
Cumberland has over four million ounces of total
resources of which 2.9 million ounces are in the
reserves category. The project is in possession
of a feasibility study. Agnico wants to go into
production by 2010 and is estimating approx.
300 million USD in construction costs. Including
the costs of construction, Agnico will have
invested more than one billion CAD, a calculated
250 USD (290 CAD) per ounce of total
resources.

So, from our point of view, it is not too far
fetched if (in two years) we calculate a factor    Die Aufbereitungsanlage hat eine Kapazität von 1400 Tonnen
                                                   Erz pro Tag. Kirland Lake nutzt heute nur ein Drittel der
of 300 CAD per ounce of total resources for
                                                   möglichen Leistung.
the Kirkland Lake producer. At 5 million
ounces we’re talking about a possible
purchase price of 1.5 billion CAD. That is more than triple the current
market cap. The good news for the shareholders is that this added value
should be directly reflected in the the stock price. No big plans of dilution
at Kirkland Lake are in sight.

The infrastructure is steadfast and the mill – often the bottle neck for expansion –
needs no further upgrade. As main shareholders the two founders themselves
hold the largest interest to keep the dilution as minimal as possible.




                                                         Page 7 of 9
                                                                                 Investment Case – Kirkland Lake Gold Inc.


Management
Brian Hinchcliffe (51) has decades of experience in the development of mining
projects and mine financing. Hinchcliffe spent the first ten years of his career
working at the J. Aron trading arm of Goldman Sachs, where he was responsible
for the mining industry sector, working in both New York and London. Following
this, Hinchcliffe was the founder of American Pacific Mining with Harry Dobson,
and then Jordex Resources. Jordex acquired the previously explored Loma de
Hierro nickel laterite deposit in Venezuela, which is located, with excellent
infrastructure, 65 kilometres southwest of Caracas. Jordex re-verified the
reserves and the overall commercial viability of the project, and sold 85% of the
deposit to Anglo American Corporation for $65 million with Anglo assuming the
responsibility for project financing, development and management. The Loma de
Hierro mine was built at a cost of US500 million and commenced commercial
production as a low cost, long-term producer early in 2001.


Harry Dobson (59) is one of the wealthiest men in Scotland and a multi-investor.
His public prominence was gained through his successful share involvement in
Manchester United. In the mining sector, Dobson owns shares in a nickel mine
in Finland, a copper mine in Newfoundland and is part of a joint venture with De
Beers in the Canadian diamond industry. Dobson has been working closely with
Brian Hinchcliffe for more than 20 years.




Conclusion

We have divided the development of Kirkland Lake into three phases. Phase 1
was the restructuring of the operation including the drainage of the mine and the
removal of the unions. Phase 2 was the time of extensive exploration.
Periodically more than 16 drills were in operation on the grounds. Ever since
September of last year the company has been in Phase 3, which we labelled
“Accelerated Resources Growth”. We are estimating that the resources in all
categories will increase much more quickly in the next two years than it
has in the past. The market honours growth and efficient production.
Kirkland already offers resources growth. The efficiency of production will
also increase as soon as the new mine is ready to be included in
production. As of the summer of 2007 that should be the case. For this
reason, Kirkland Lake has a good chance at reaching their breakeven point
in this calendar year. That would mean that the entire exploration and the
development would be covered by the proceeds. The new mine will probably
make it to productivity at the earliest in 2009. Until then, three production tunnels
on three different levels facing the ore body will be constructed.

If one should measure another company in comparison to Kirkland Lake, it
would be the development of Goldcorp in the year 1996. In its day,
Goldcorp was a 50,000 ounce producer with a new high grade discovery
underground. In 2002, Goldcorp was already a two billion dollar stock. We
will not go forward with further comparison to Goldcorp at this point. Unlike
Goldcorp, Kirkland does not plan to grow through acquisition.

Kirkland’s goal is to be taken over. We believe it is highly unlikely that the interest
in takeovers will increase as soon as Kirkland comes close to the magical
number of five million ounces of resources. If (against expectations) no adequate
takeover bid should come along, Kirkland Lake would still have all the conditions
fulfilled in order to increase production from 250,000 to 300,000 ounces on its
own. Although this would not be management’s first choice, it would be a realistic


                                                           Page 8 of 9
                                                                                Investment Case – Kirkland Lake Gold Inc.


option. From the view of the investors, the attainment of profitability in this year
would be an important buy signal. For investment purposes, Kirkland Lake has
the leverage of a successful exploration company and at the same time offers
security of a producer. In our view, the advantage as compared to bare
exploration projects, is not yet honoured enough by the “exploration-charged”
market. The best things shareholders of Kirkland Lake should do is figure in an
outlook of two to three years and then they should fly good with that.


You may find further information on the company at http://www.klgold.com.




Disclaimer
Disclaimer of Liability: This publication was created by AXINO AG. It constitutes
a non-binding estimate of developments in the capital markets as well as publicly
traded companies. The purpose of the publication is the provision of information
for personal opinion. It does not constitute investment advice or the request to
closure of specific trading deals and cannot replace investment counselling.
Readers are encouraged to seek investment advice before considering the
purchase or sale of one or more of the described stocks. The data and facts in
this publication have not been audited in the legal sense of Due-Diligence
procedures by AXINO AG nor does AXINO AG take any responsibility and is not
liable for the contents of this publication even with careful analysis. Should there
be future-based statements made, especially in respect to share price
development of stocks or business developments of companies, these are
considered estimates only. The probability that the estimated circumstances go
into effect is subject to considerable risk and cannot be guaranteed in any way.
The estimates made by AXINO AG in this publication are only valid for the time
of publication (publication date) and can change at any time without prior notice.

Neither AXINO AG nor any persons connected to AXINO AG who have
contributed to this publication and its distribution, are in possession of significant
shares as listed in terms of §5 para. 3 No.1 FinAnV, nor have they other
considerable financial interests according to §5 para.3 No.2e FinAnV in respect
to Kirkland Lake Gold Inc.

This publication was created in the scope of a paid investor relations mandate.
All estimates and forecasts originate from the composer and not from Kirkland
Lake Gold Inc.

All reproduction, amendments, or use of this publication without express written
consent of AXINO AG is not permitted. AXINO AG is controlled by the BaFin in
respect to the conformity of regulations for companies working in the area of
financial analysis according to §34b, 34c of the Securities Trading Act as well as
the German Financial Analysis Act.




                                                          Page 9 of 9

								
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