KIRKLAND LAKE GOLD INC.
FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
PricewaterhouseCoopers LLP
Chartered Accountants
North American Centre
5700 Yonge Street, Suite 1900
North York, Ontario
Canada M2M 4K7
Telephone +1 416 218 1500
Facsimile +1 416 218 1499
July 17, 2009
Auditors’ Report
To the Shareholders of
Kirkland Lake Gold Inc.
We have audited the balance sheets of Kirkland Lake Gold Inc. as at April 30, 2009 and 2008
and the statements of operations, comprehensive loss and deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial
position of the Company as at April 30, 2009 and 2008 and the results of its operations and its
cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Accountants, Licensed Public Accountants
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
KIRKLAND LAKE GOLD INC.
BALANCE SHEETS
AS AT APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Assets
Current assets
Cash and cash equivalents
Short-term investments (Note 4)
Accounts receivable
Inventories (Note 5)
Prepaid expenses and deposits
Security deposits
Restricted cash (Note 3)
Mineral properties (Note 6)
Property, plant and equipment (Note 7)
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Asset retirement obligation (Note 8)
Shareholders' Equity
Capital stock (Note 9)
Authorized
Unlimited common shares without par value
Issued
58,548,898 (2008 - 55,703,312) common shares
Options (Note 10)
Warrants (Note 11)
Contributed surplus
Deficit
Operations, going concern, and measurement uncertainty (Note 1)
Commitments (Notes 3 and 16)
2009
2008
$
1,806,199 $
23,638,142
4,162,458
7,388,143
448,946
37,443,888
67,480
4,734,556
43,319,425
15,330,251
$ 100,895,600 $
15,602,593
15,389,118
2,081,795
3,868,211
305,292
37,247,009
65,000
4,677,597
36,947,885
12,583,488
91,520,979
$
11,085,540 $
3,041,434
14,126,974
7,190,679
2,862,508
10,053,187
165,755,459
3,630,924
1,499,541
3,079,066
(87,196,364)
86,768,626
$ 100,895,600 $
153,421,306
1,284,136
677,891
2,797,768
(76,713,309)
81,467,792
91,520,979
The accompanying notes are an integral part of these financial statements.
KIRKLAND LAKE GOLD INC.
STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT
YEARS ENDED APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Revenue
Mining revenue
Expenses
Operating costs
Stock-based compensation for operational personnel
Amortization and depletion
Royalties
Other Expenses
General and administrative
Exploration
Interest and bank charges
Stock-based compensation (Note 10)
Interest and other income
Loss and comprehensive loss for the year
Deficit - Beginning of year
Deficit - End of year
2009
2008
$ 43,542,037 $ 41,436,376
1,266,144
4,275,829
1,750,591
40,243,583 33,993,402
71,687
3,885,635
1,658,674
47,536,147 39,609,398
1,826,978
(3,994,110)
2,107,021
3,652,235
40,222
1,279,669
(590,202)
6,488,945
(10,483,055)
(76,713,309)
2,227,796
3,876,873
74,401
587,466
(1,593,578)
5,172,958
(3,345,980)
(73,367,329)
$ (87,196,364) $ (76,713,309)
Basic and diluted loss per share
Weighted average number of shares outstanding
(0.19) $
(0.06)
$
56,349,826 55,470,107
Operations, going concern, and measurement uncertainty (Note 1)
The accompanying notes are an integral part of these financial statements.
KIRKLAND LAKE GOLD INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Cash flows from (used in) operating activities
Loss for the year
Items not affecting cash and cash equivalents
Amortization and depletion
Unrealized losses on investments
Stock-based compensation
Asset retirement obligation
Gain on sale of equipment
Changes in non-cash working capital items
Accounts receivable
Inventories
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Security deposits
Interest on mine closure bond
Cash flows used in investing activities
Purchase of property, plant and equipment
Proceeds from refund of mine closure bond
Proceeds from sale of property, plant and equipment
Purchase of short-term investments
Restricted cash
Additions to mineral properties
Cash flows from financing activities
Net proceeds from issuance of capital stock and warrants
Decrease in cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
Supplemental cash flow information (Note 18)
2009
2008
$ (10,483,055) $ (3,345,980)
4,275,829
125,754
2,545,813
153,030
-
(3,382,629)
(2,080,663)
(3,423,297)
(143,654)
3,894,861
3,885,635
-
659,153
162,028
(28,319)
1,332,517
(473,129)
233,954
(40,702)
748,063
(2,480)
-
(5,137,862)
125,000
231,874
2,157,577
-
-
(5,316,227)
(3,433,642)
2,043,435
196,798
(8,374,778) (15,105,529)
(4,677,597)
(4,194,828)
(21,737,473) (25,171,363)
(56,959)
(7,989,509)
13,078,941 12,341,346
13,078,941 12,341,346
(13,796,394) (10,672,440)
15,602,593 26,275,033
$ 1,806,199 $ 15,602,593
The accompanying notes are an integral part of these financial statements.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
1.
Operations, going concern, and measurement uncertainty
Operations
Kirkland Lake Gold Inc. (the company) owns gold mining and milling operations in Kirkland Lake,
Canada, which were inactive when acquired in December 2001.
Going concern
While the accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and liquidation of liabilities during the normal course
of operations into the foreseeable future, certain historical adverse conditions and events, could
cast significant doubt upon the validity of this assumption and hence the appropriateness of the
use of accounting principles applicable to a going concern.
During the years ended April 30, 2009 and 2008, the company incurred losses of $10.5 million
and $3.3 million, respectively. Cash flow required for operating activities, including exploration
costs charged to operations of $7.5 million, aggregated $3.0 million for the two years in total. The
funds required to continue operations and exploration activities during this period have been
financed primarily from the issue of equity.
At April 30, 2009, the company has working capital of $26.4 million. Management projects that
these funds, together with cash flow from operations, will be sufficient to meet the company's
obligations and capital expenditure plans for the next twelve months. Nevertheless, differences
are likely to occur between actual results and those projected by management, and those
differences may be material. It is possible that the operations will not generate sufficient cash
flow for the company to continue in the normal course without funding being provided from
outside sources.
Management has been successful in obtaining sufficient funding for the company's operating and
capital exploration requirements in the past and will pursue additional funding in the future, if
necessary. There is, however, no assurance that such funding will be available to the company,
or that it will be available on terms which are acceptable to management. If this does not occur,
the company may not be able to continue as a going concern.
These financial statements do not reflect the adjustments to the carrying values of assets and
liabilities and the reported expenses and balance sheet classifications that would be necessary
were the going concern assumption inappropriate, and these adjustments could be material.
Measurement uncertainty
The company's history of operating losses from mining operations indicate at April 30, 2009, that
the recorded costs for mineral properties and related fixed assets may not be recoverable.
Management estimates, using a constant gold price of $1,051 per ounce and operating costs
similar to historical costs incurred over the past year, that annual production of approximately
72,000 to 80,000 ounces for each year would be required to cover costs of operations and
estimated capital expenditures required for mining operations. To date the company has not
been successful in achieving and sustaining this rate of production. In fiscal 2009 production was
48,012 ounces.
There is significant uncertainty associated with the ability of the company to achieve the increase
in production or reduction in costs necessary to recover the carrying value of the mineral property
and related assets. Gold price or Canadian/U.S. dollar exchange rate movements, the success
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
of the company in realizing the benefit of the production improvements noted above, changes in
the costs of labour and the other costs or unforeseen production difficulties all would have an
impact on the ability of the company to achieve its goals from operations. The amount of working
capital currently available for use by the company could mean that a minor adverse development
could have a significant impact on the company's operations and ability to recover costs.
2.
Significant accounting policies
Generally accepted accounting principles
These financial statements are prepared in accordance with Canadian generally accepted
accounting principles (GAAP).
Adoption of new accounting standards
Effective May 1, 2008, the company adopted Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 1400 General Standards of Financial Statement Presentation, CICA
Handbook Section 3031, Inventories and CICA EIC 173 Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities.
The initial adoption of these new standards had no material impact on the company’s financial
statements.
General Standards of Financial Statement Presentation
(a)
The new standard clarifies what constitutes fair presentation in accordance with Canadian
generally accepted accounting standards, going concern assessment and disclosures and
comparative information disclosures. This standard affected the company's disclosures but there
is no effect on the company's financial position or results.
Inventories
(b)
The new standard prescribes inventory measurement and disclosure standards. This standard
affected the company's disclosures but there is no effect on the company's financial position or
results.
(c)
This guidance clarified that an entity's own credit risk and the credit risk of the counterparty
should be taken into account in determining the fair value of financial assets and financial
liabilities including derivative instruments. This guidance did not have any material impact on the
company's financial position or results.
EIC 173
Future changes in significant accounting policies
The following Canadian accounting pronouncements were issued and not yet adopted by the
company:
•
CICA Handbook Section 1582, Business Combinations. The new standard prescribes
how an organization recognizes, measures and discloses a business combination. This
standard is not expected to have a significant impact on the company's financial position
or results. This is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or after January 1,
2011.
CICA Handbook Section 1601, Consolidated Financial Statements. The new section
prescribes consolidation accounting standards. This standard is not expected to have a
significant impact on the company's financial position or results. This is effective for fiscal
years beginning on or after January 2011.
CICA Handbook Section 1602, Non-Controlling Interests. The new section prescribes
standards for the accounting for a non-controlling interest in business combination. This
•
•
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
•
standard is not expected to have a significant impact on the company's financial position
or results. This is effective for fiscal years beginning on or after January 2011.
CICA Handbook Section 3064, Goodwill and Intangible Assets. The new section
prescribes standards for the accounting for goodwill and intangible assets. This standard
is not expected to have a significant impact on the company's financial position or results.
This is effective for fiscal years beginning on or after October 2008.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions, in particular in respect of property, plant and equipment, mineral
properties, and asset retirement obligation, that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year. Actual results
could differ from these estimates and these differences could be material.
Financial instruments
All financial instruments included on the balance sheet are either classified as held for trading,
held-to-maturity, available-for-sale, loans and receivables or other financial liabilities. Financial
instruments classified as held to maturity, loans and receivables, and other financial liabilities are
measured at amortized cost. Instruments classified as held for trading are measured at fair value
with unrealized gains and losses recognized on the statement of operations.
The company's financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable, security deposits, restricted cash and accounts payable and
accrued liabilities, as follows:
Cash and cash equivalents
Short-term investments
Mutual funds
Treasury bills
Accounts receivable
Security deposits
Restricted cash
Accounts payable and accrued liabilities
Comprehensive income
Held for trading
Held for trading
Held to maturity
Loans and receivables
Held to maturity
Held for trading
Other financial liabilities
Comprehensive income is the change in shareholder's equity during a period from transactions
and events from sources other than the company's shareholders. The company reports a
statement of operations, comprehensive income or loss and accumulated other comprehensive
income or loss is added to the shareholders' equity section of the balance sheet when
components to be recognized in the comprehensive income or loss exist. There were no material
components to be recognized in comprehensive income or loss during the year. As a result, net
loss for the period approximates comprehensive loss.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments with an initial maturity of 90
days or less at the date of acquisition.
Investments
The company holds investments in various funds of a fund company and Government of Canada
Treasury Bills with maturity dates greater then 90 days at the date of acquisition but less then 365
days.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Inventories
Dore bars and gold in process, and stockpiled ore are recorded at the lower of average
production cost and net realizable value. Production costs include all direct costs plus an
allocation of fixed costs associated with the mine site. The company uses a rolling period
average cost to value the inventory of gold on hand. Mine operating supplies are valued at the
lower of average cost and net realizable value as measured by replacement cost.
Mineral properties and deferred exploration costs
The company expenses exploration expenditures and near term ore development costs as
incurred. Property acquisition costs and longer term development costs incurred to expand ore
reserves are deferred and depleted on a units - of - production basis over proven and probable
reserves which are currently accessible by the company. Management's estimate of gold price,
recoverability, proven and probable reserves, operating, capital and reclamation costs are subject
to risk and uncertainties affecting the recoverability of the company's investment in mineral
properties. The company assesses capitalized costs for recoverability on an annual basis or
more frequently if changes in circumstances suggest that possible impairment may exist. Where
information is available and conditions suggest impairment, estimated future net cash flows are
calculated using estimated future prices, reserves and operating, capital and reclamation costs on
an undiscounted basis. If the net carrying value of the property exceeds the estimated future net
cash flows, the property will be written down to fair value.
Property, plant and equipment
Property, plant and equipment costs are recorded at cost and amortized on a straight line basis
over the following terms:
Computer equipment
Vehicles
Mine and mill equipment
Buildings
Capital spares
Asset retirement obligation
3 years
5 years
10 years
10 years
2 years
Future obligations to retire an asset or property are recognized and recorded as a liability at fair
value as at the time the asset is acquired or the event occurs giving rise to such an obligation. At
each reporting period, asset retirement obligations are increased to reflect the interest element
(Accretion expense) considered in the initial fair value of the measurement of the liabilities. In
addition, an asset retirement cost is added to the carrying amount of the related asset and
amortized over the life of the asset. The capitalized asset retirement cost is amortized on the
same basis as the related asset and along with the accretion expense, is included in net income.
Revenue recognition
Revenue is recognized on title transfer of the gold to purchasers which occurs when the gold is
received by the purchaser. Adjustments to accounts receivable, if any, between the date of title
transfer and the settlement date are recorded when determined.
The company from time to time enters into commodity contracts to minimize its exposure to
fluctuations in the price of gold. Any gains or losses are recorded in revenue.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Foreign currency translation
The company generally seeks to sell its gold in Canadian dollars. To the extent these
transactions are denominated in foreign currencies, they are translated into their Canadian dollar
equivalents at exchange rates prevailing at the transaction date. Gains and losses arising from
restatement of foreign currency monetary assets and liabilities and transactions are included in
the statement of operations.
Income taxes
The company uses the liability method of accounting for future income taxes. Under this method
of tax allocation, future income tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are measured using the
substantively enacted tax rates and laws that are expected to be in effect in the periods in which
the future income tax assets or liabilities are expected to be settled or realized. A valuation
allowance is provided to the extent that it is more likely than not that future income tax assets will
not be realized.
Stock based compensation
The company has a stock-based compensation plan which is described in Note 10. The company
accounts for stock options using the fair value method. Under this method, compensation
expense for stock options granted is measured at fair value at the grant date using the
Black-Scholes valuation model and recognized over the vesting period of the options granted.
Consideration paid on the exercise of stock options is credited to capital stock.
Flow-through shares
The company from time to time issues flow through shares to finance a portion of its exploration
program. Pursuant to the terms of flow through share agreements, the tax deductions associated
with the expenditures are renounced to the subscribers. To recognize the foregone tax benefits,
share capital is reduced and a future income tax liability is recognized as the related expenditures
are renounced. This future income tax liability is then reduced by the recognition of previously
unrecorded future income tax assets on unused taxes losses.
Loss per common share
Loss per share is calculated using the weighted average number of common shares issued and
outstanding during the year.
The company follows the treasury stock method in the calculation of diluted earnings per share.
As the company is incurring losses, basic and diluted loss per share are the same since including
the exercise of outstanding stock options and share purchase warrants in the diluted loss per
share calculation would be anti-dilutive.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
3.
Restricted cash
Restricted cash includes:
Letters of Credit:
Ministry of Northern Development and Mines
Independent Electricity System Operator of Ontario
2009
2008
$
$
4,452,597 $ 4,452,597
225,000
4,734,556 $ 4,677,597
281,959
Letters of credit are in place with the Ministry of Northern Development and Mines to cover the
estimated total costs of reclamation and site restoration, as included in the filed reclamation and
site restoration plan (Note 8), and with the Independent Electricity System Operator of Ontario to
secure the provision of electricity.
4.
Investments
Investments include:
Government of Canada Treasury Bill bears interest at 0.65%, matures
May 14, 2009
Government of Canada Treasury Bill bears interest at 0.6%, matures
May 14, 2009
Government of Canada Treasury Bill bears interest at 0.3%, matures
June 11, 2009
Government of Canada Treasury Bill bears interest at 0.3%, matures
June 11, 2009
Government of Canada Treasury Bill bears interest at 0.25%, matures
July 23, 2009
Government of Canada Treasury Bill bears interest at 2.4%, matured
July 24, 2008
Investment in mutual funds
2009
4,999,286 $
2008
-
$
9,999,577
1,504,795
5,003,994
1,998,660
-
-
-
-
-
15,131,534
131,830
257,584
$ 23,638,142 $ 15,389,118
5.
Inventories
Gold in process
Mine operating supplies
Surface stockpile
6.
Mineral properties
2009
2008
$
$
5,457,505 $
1,559,459
371,179
7,388,143 $
2,672,260
1,195,951
-
3,868,211
The company's mineral properties comprise five contiguous mining properties in and around
Kirkland Lake, Ontario.
Balance - Beginning of year
Development and rehabilitation costs
Depletion
Balance - End of year
2009
$
$
36,947,885 $
8,077,906
(1,706,366)
43,319,425 $
2008
34,364,062
4,322,324
(1,738,501)
36,947,885
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Acquisition allocation
Underground development
Underground pumping
Mill and surface facilities
Lakeshore property
Acquisition allocation
Underground development
Underground pumping
Mill and surface facilities
Lakeshore property
7.
Property, plant and equipment
Computer equipment
Mine and mill equipment
Vehicles
Buildings
Computer equipment
Mine and mill equipment
Vehicles
Buildings
8.
Asset retirement obligation
COST
ACCUMULATED
DEPLETION
2,042,523 $
46,568,756
2,050,942
149,371
1,000,411
51,812,003 $
263,886 $
7,416,747
517,543
38,426
255,976
8,492,578 $
COST
ACCUMULATED
DEPLETION
1,765,523 $
38,767,850
2,050,942
149,371
1,000,411
43,734,097 $
195,149 $
5,895,405
443,087
32,991
219,580
6,786,212 $
2009
1,778,637
39,152,009
1,533,399
110,945
744,435
43,319,425
2008
1,570,374
32,872,445
1,607,855
116,380
780,831
36,947,885
COST
ACCUMULATED
AMORTIZATION
2009
780,226 $
25,202,263
129,493
591,822
26,703,804 $
695,722 $
10,245,820
108,912
323,099
11,373,553 $
84,504
14,956,443
20,581
268,723
15,330,251
COST
ACCUMULATED
AMORTIZATION
2008
707,228 $
19,959,033
129,493
591,822
21,387,576 $
578,070 $
7,854,616
102,483
268,919
8,804,088 $
129,158
12,104,417
27,010
322,903
12,583,488
$
$
$
$
$
$
$
$
The company has filed a reclamation and site restoration plan in connection with the Kirkland
Lake properties and these plans are currently being discussed with the Ontario Ministry of
Northern Development and Mining (MNDM). The company's best estimate of the total costs of
reclamation and site restoration at April 30, 2009 are $5,415,814 (2008 - $4,452,597) and
financial assurance has been provided to the MNDM by way of a letter of credit in the amount of
$4,452,597 (Note 3).
A reconciliation for asset retirement obligation is as follows:
Balance - Beginning of year
Accretion
Revisions in estimated cash flows
Balance - End of year
2009
2,862,508 $
153,030
25,896
3,041,434 $
2008
2,700,480
162,028
-
2,862,508
$
$
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
During 2009, the company reviewed total proven and probable reserves, which resulted in the
extension of the remaining life of the mine and, consequently, the extension of the cash flow
projection and reduction of the asset retirement obligations and mineral properties. Furthermore,
the company's estimate of reclamation and site restoration costs increased in the year. The
required financial assurance related to the increase in the cost estimate has not yet been
provided to MNDM.
The company continues to correspond with the MNDM regarding the Wright Hargreaves property.
The company has retained a consultant to assist in the identification of, if any, potential hazards
and related obligations to the company. This process is currently ongoing, the outcome of which
is currently indeterminable at this time.
The provision for asset retirement obligations is based on the following key assumptions.
•
•
•
•
The total undiscounted cash flow as at April 30, 2009 is $5,415,814.
The expected settlement to be in 2024.
A credit adjusted risk free rate at which the estimated payments have been discounted of
6%.
An inflation rate of 2%.
9.
Capital stock
Number of
shares
Amount
Balance - April 30, 2007
54,504,019 $ 140,926,034
Exercise of options
Exercise of warrants
Private placements
Shares issued to purchase mining claims
Share issuance costs
Share proceeds allocated to warrants
60,500
670,924
450,000
17,869
-
-
333,004
7,639,865
5,130,000
187,500
(117,206)
(677,891)
Balance - April 30, 2008
55,703,312
153,421,306
Exercise of options
Private placements
Shares issued to purchase mining claims
Share issuance costs
Share proceeds allocated to warrants
10,000
2,820,000
15,586
-
-
42,362
13,677,000
62,500
(626,059)
(821,650)
Balance - April 30, 2009
58,548,898 $ 165,755,459
(a)
On May 10, 2007, the company issued 12,940 common shares valued at $125,000 for the first
tranche related to the purchase of the South Claims. On January 8, 2008 the company issued
4,929 shares valued at $62,500 for the second tranche related to the purchase of the South
Claims.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
(b)
On September 25, 2007 the company closed a brokered private placement of 450,000 units at a
price of $11.40 per unit for gross proceeds of $5,130,000. Each unit consisted of one common
share and one half of a share purchase warrant. Each whole warrant is exercisable to purchase a
further common share at a price of $13.00 until September 25, 2009. The company incurred
commissions, fees and legal costs totaling $117,206 in connection with this placement. The share
purchase warrants issued as part of this placement have been recorded at a fair value of
$677,891.
(c)
In February 2009 the company closed a non-brokered private placement in two tranches:
(i) On February 4, 2009 the company closed the first tranche of the private placement of
2,200,000 units at a price of $4.85 per unit for gross proceeds of $10,670,000. Each unit
consisted of one common share and one quarter of a share purchase warrant. Each whole
warrant is exercisable to purchase a further common share at a price of $5.50 until February 4,
2010. The company incurred commissions, fees and legal costs totaling $475,249 in connection
with this tranche. The share purchase warrants issued as part of this tranche have been recorded
at a fair value of $613,729 less allocated issuance costs.
(ii) On February 17, 2009 the company closed the second tranche of the private placement of
620,000 units at a price of $4.85 per unit for gross proceeds of $3,007,000. Each unit consisted of
one common share and one quarter of a share purchase warrant. Each whole warrant is
exercisable to purchase a further common share at a price of $5.50 until February 17, 2010. The
company incurred commissions, fees and legal costs totaling $150,810 in connection with this
tranche. The share purchase warrants issued as part of this tranche have been recorded at a fair
value of $310,976 less allocated issuance costs.
10.
Options
The company has adopted a stock option plan which allows the company to grant options to
directors, senior officers and employees of or consultants to the company or employees of a
corporation providing management services to the company. The aggregate number of shares
which may be subject to issuance pursuant to options granted under this plan is 3,500,000
shares.
The plan provides that the exercise price of an option granted under the plan shall not be less
than the market price at the time of granting the option. Options have a maximum term of 10
years and terminate on the 90th day after the optionee ceased to be any of a director, officer,
consultant or employee; on the 30th day after the optionee ceased to be an employee or
consultant if the optionee was engaged in providing investor relations services for the company;
or the earlier of the 90th day and the third month after the optionee ceased to be an employee or
officer if the optionee is subject to the tax laws of the United States of America.
Notwithstanding that options can have a maximum term of 10 years it is presently the policy of
the company to issue options for terms of five years.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
The change in stock options during the years ended April 30 is as follows:
Options outstanding - Beginning of year
Granted
Exercised
Forfeited
Expired
Options outstanding - End of year
Number of
shares
2009
Weighted
average
exercise
price
Number of
shares
2008
Weighted
average
exercise
price
420,500 $
1,179,500
(10,000)
(16,000)
(106,000)
1,468,000 $
7.51
7.30
2.80
7.90
4.55
7.62
561,000 $
40,000
(60,500
(120,000
-
420,500
7.09
12.50
4.69
8.65
-
7.51
Options exercisable - End of year
284,500 $
8.65
258,000 $
6.19
The following table summarizes information about stock options outstanding and exercisable at
April 30, 2009:
$
Exercise price
4.70
8.65
12.50
7.90
9.25
6.99
6.99
5.05
$4.70 - $12.50
Options
outstanding
19,500
245,000
40,000
301,000
75,000
250,000
487,500
50,000
1,468,000
Options
exercisable
19,500
245,000
20,000
-
-
-
-
-
284,500
Outstanding
options
weighted
average
remaining life
(years)
0.40
2.75
3.49
4.04
4.06
4.31
4.39
4.44
3.94
Exercisable
options
weighted
average
remaining life
(years)
0.40
2.75
3.49
-
-
-
-
-
2.64
The fair value of each option at the date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions:
Expected life of options
Risk-free interest rate
Expected stock price volatility
Expected dividend yield
2009
3 - 5 years
3.58 - 3.98%
53.3 - 64%
0%
2008
5 years
4.18%
50%
0%
Option pricing models require the input of highly subjective assumptions including the expected
price volatility. Changes in the subjective input assumptions can materially affect the fair value
estimate.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
The value ascribed to unexercised options recorded as a component of shareholders' equity is as
follows:
Balance - Beginning of year
Accretion of options granted
Exercise of options
Options expired
Options forfeited
Balance - End of year
2009
2008
$
1,284,136 $
2,642,448
(14,362)
(281,298)
-
$
3,630,924 $
674,137
815,759
(49,154)
-
(156,606)
1,284,136
11.
Warrants
The changes in warrants outstanding are as follows:
Warrants outstanding - Beginning of year
Issued
Exercised
Warrants outstanding - End of year
Number of
warrants
2009
Weighted
average
exercise
price
Number of
warrants
2008
Weighted
average
exercise
price
225,00$
705,00
-
13.00
5.50
-
670,92$
225,00
(670,92
10.50
13.00
10.50
930,00$
7.31
225,00$
13.00
The value ascribed to unexercised warrants recorded as a component of equity is as follows:
Balance - Beginning of year
Warrants issued in private placements
Exercise of warrants
Balance - End of year
$
2009
677,891 $
821,650
-
$
1,499,541 $
2008
595,163
677,891
(595,163)
677,891
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
12.
Financial instruments
The company’s financial instruments consist of cash and cash equivalents, restricted cash,
short-term investments, accounts receivable, security deposits, accounts payable and accrued
liabilities. At April 30, 2009, the carrying values of these instruments approximate their fair values
based on the nature of these instruments.
Interest Rate and Credit Risk
The company has significant cash and short-term investment balances. The company currently
invests excess cash in fixed rate Government of Canada Treasury Bills with maturity dates of
approximately 90 days. Generally, these deposits may be redeemed upon demand and are
maintained with financial institutions of reputable credit and therefore bear minimal risk.
An allowance for doubtful accounts is established based upon factors surrounding the credit risk
of specific accounts, historical trends and other information when necessary. As at April 30, 2009,
there were no receivables past due.
There are no fixed, floating rate or interest free financial liabilities by way of borrowing. Deposits
held with banks may exceed the amount of insurance provided on such deposits.
Liquidity Risk
The company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. As at April 30, 2009, the company had a cash and cash equivalents
and short term investments balance of $25,444,341 to settle financial liabilities of $11,085,540. All
of the company's financial liabilities are current liabilities which will mature within one year of the
balance sheet date.
Currency Risk
Sales of gold dore bars and the majority of the company’s expenses are incurred in Canadian
Dollars therefore the company is substantially protected against movements in foreign exchange.
The company’s principal exchange rate risk relates to movements between the Canadian Dollar
and US Dollar on the price of gold.
Sensitivity Analysis
The carrying amount of financial instruments approximates their fair market value. The movement
on cash and cash equivalents and short-term investments interest rates by a plus or minus 1%
change would affect net loss by approximately $250,000.
As at April 30, 2009, the company had an outstanding commodity contract with Johnson Matthey
Plc. to fix the price of 727 ounces of gold at an average price of $1,103 per ounce to be delivered
under this contract. Fair value was not significantly different from stated value when the gold was
delivered on May 12, 2009.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
13.
Capital disclosures
The company's capital under management includes shareholders' equity of $86,768,626. The
company's objectives when managing capital are:
(a)
(b)
(c)
(d)
to safeguard the company's ability to continue as a going concern.
provide an adequate return to shareholders.
to raise sufficient proceeds from share issuances to meet any deficiencies in operations.
to provide sufficient funding to support on-going exploration and capital development
plans.
The company manages its capital structure and makes adjustments to it to meet the above
objectives. To date management has used primarily equity issuances in order to raise funds as
required. Excess funds are then invested in highly liquid, interest bearing instruments until
required.
14.
Related party transactions
The following related party transactions occurred during the year:
(a)
(2008 - $42,000) to a company related by directors in common.
The company paid office facilities and administration services in the amount of $42,000
(b)
At April 30, 2009, accounts payable included $nil (2008 - $3,947) owing to companies
with directors in common. Amounts due to related parties are non-interest bearing and have no
fixed terms of repayment.
These transactions were in the normal course of operations and were measured at the exchange
value which represented the amount of consideration established and agreed to by the related
parties.
15.
Income taxes
(a)
Income taxes expenses vary from the amount that would be computed by applying the
combined federal and provincial income tax rate of 31.33% (2008 - 33.20%) to loss before
income taxes as follows:
Loss before income taxes
Expected income taxes
Income tax benefit not recognized
Non-deductible items
2009
$ (10,483,055) $
(3,284,341) $
$
2,453,916
830,425
-
$
$
2008
(3,345,980)
(1,110,865)
891,005
219,860
-
(b)
Future income taxes reflect the net tax effects of non-capital loss carry-forwards and
temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant components
of the company’s future tax assets are as follows:
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
Future income tax assets
Net operating loss carry-forwards
Mineral properties
Asset retirement obligation
Property, plant and equipment
Share issuance costs
Less: Valuation allowance
Net future tax assets
2009
2008
$
12,820,684 $
1,689,380
821,187
2,949,239
415,245
18,695,735
(18,695,735)
12,265,193
614,349
772,877
2,265,152
597,211
16,514,782
(16,514,782)
$
-
$
-
(c)
taxable income in future years. These losses expire during the following years:
The company has non-capital losses, which may be carried forward and applied against
2010
2014
2015
2026
2027
2028
$
$
3,208,110
17,920,438
18,207,964
1,870,252
4,032,443
2,244,809
47,484,016
16.
Commitments
As at April 30, 2009, capital commitments included:
Capital Commitments
(All commitments in 000s of Canadian Dollars)
Property, Plant and Equipment
Underground Development
Total
$000
883
496
1,379
A net smelter royalty is payable on a sliding scale commencing at 2% if the price of gold sold is
equal to or greater than US$300 per ounce and increasing to 4% if the price of gold sold is equal
to or greater than US$500 per ounce. The royalty amount due is payable quarterly commencing
on the third month anniversary of the commencement of commercial production from any of the
properties and terminates upon a maximum aggregate payment of $15 million. During the year
ended April 30, 2009, royalties under this agreement amounted to $1,737,346 (2008 -
$1,651,354). Of the $15 million the company has paid $5,785,521.
An agreement between Queenston Mining Inc. and the company was formed in April 2007 to
explore the Morgan property. The company has agreed to spend $770,000 on exploration for the
fiscal year 2010.
With regard to the Morgan purchase agreement, the company has completed the issuance of the
third tranche of shares and made the third cash payment to the vendor of the South claims. The
company issued 15,586 shares valued at $62,500 ($4.01 per share) and paid $62,500. To
complete its purchase obligations, the company must issue a further $50,000 worth of shares and
pay a further $50,000 to the vendor by January 15, 2010.
KIRKLAND LAKE GOLD INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 AND 2008
(EXPRESSED IN CANADIAN DOLLARS)
17.
Segmented information
The company has one operating segment consisting of a mining and milling operation located in
Kirkland Lake, Canada. During the years ended April 30, 2009 and 2008 all of the company's
capital assets, revenues earned and operations were in Canada, and all mining revenue was
earned from one customer.
18. Supplemental cash flow information
Cash and cash equivalents comprise cash on deposit with Canadian chartered banks, lines of
credit and treasury bills.
During the years ended April 30, 2009 and 2008, the company conducted non-cash financing and
investing activities as follows:
Value assigned to options/warrant exercised
Issuance of shares for purchase of mineral properties
$
$
14,362 $
62,500 $
644,317
125,000
2009
2008