January 6, 2014 / 4:24 PM / 4 years ago

UPDATE 1-Kirkland Lake Gold eyes sale of assets, shares

(Adds investor comment, context on company's performance and Kirkland Lake, Ontario)

Jan 6 (Reuters) - Canadian gold producer and explorer Kirkland Lake Gold Inc said on Monday it has started a strategic review and is considering selling assets or shares, sending its stock down more than 8 percent in early trading.

Gold miners are under pressure after the gold price posted its biggest annual decline in 32 years in 2013, falling 28 percent.

The dive in the gold price came as Kirkland was boosting production and hiring and training workers at its operation in Kirkland Lake in northern Ontario. That effort could eventually cut costs per ounce, but in recent quarters expenses have been above long-term targets.

The company said in December that it would focus on preserving cash and reducing costs, in part by mining higher-quality ore and boosting productivity. It froze hiring, but as of Oct. 31 about 100 of the company's 1,215 workers were still in training.

"I think that they have, potentially, a really good asset," said Chris Mancini, analyst at the Gabelli Gold Fund. "The issue for Kirkland Lake is getting from here to there, especially considering that the gold price works against them."

Gabelli holds a small stake in the company.

Once training and related expenses drop, costs per ounce could improve significantly, Mancini said. He praised the high grades at the company's Kirkland Lake mine, and its good access to infrastructure and the company's exploration potential. He added that acquiring Kirkland Lake Gold could make sense for mid-tier miner.

FEW DEALS IN GOLD SECTOR

Few miners have shown themselves willing to buy assets in recent months, however. Stung by big writedowns on pricey resources they bought during boom times, they are under pressure from investors to make existing mines more profitable instead.

The company's review could signal tough times ahead for the town of Kirkland Lake. The historic mining town's fortunes waned in the 1960s, but it had a revival in the last decade as the price of gold soared.

Kirkland Lake Gold was one of the first companies to move in, buying up a strip of five shuttered mines in 2001 and restarting production in 2005.

Cash operating costs were $1,105 per ounce in the fiscal quarter to Oct. 31. Gold was trading at about $1,245 per ounce on Monday, after dropping below $1,200 in late December.

The company also said on Monday that Deputy Chairman Brian Hinchcliffe has resigned, effective immediately, after taking the job in November. But he has agreed to support the review in the capacity of consultant, the company said.

National Bank Financial and Stikeman Elliott LLP will advise Kirkland Lake during the review.

Its shares fell 8.3 percent to C$2.75 in early trading on the Toronto Stock Exchange on Monday. ($1=$1.06 Canadian) (Reporting by Silvia Antonioli in London and Allison Martell in Toronto; Editing by Jason Neely, Jeffrey Hodgson and Peter Galloway)

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