News Column

Final Results

July 8, 2014

FOR: KIRKLAND LAKE GOLD INC. TSX, AIM SYMBOL: KGI July 9, 2014Kirkland Lake Gold Inc.: Fiscal 2014 Full Year Financial and Operational Results KIRKLAND LAKE, ONTARIO--(Marketwired - July 9, 2014) - Kirkland Lake Gold Inc. (the "Company") (TSX:KGI)(AIM:KGI), an operating and exploration gold mining company, today announces operational and financial results for the fourth quarter (February, March, April 2014) and fiscal year 2014. All figures in the release are stated in Canadian dollars unless explicitly stated. Mr. Harry Dobson, Chairman commented, "Fiscal year 2014 was a year of change for the Company. Following the appointment of George Ogilvie, P. Eng into the Chief Executive role, operational changes were made immediately. A new lower tonnage, higher grade mine plan was put in place along with a concurrent cost-cutting program to reduce the rate of cash burn as well as to lower the Company's cost per ounce on a sustainable basis. The effects of these changes were demonstrated in the fourth quarter results, where All-In Sustaining Cash costs (AISC's) were further reduced to CAD$1,776 per ounce, with AISC's for just the month of April lowered to CAD$1,466 per ounce. The average sales price realized in April was CAD$1,422 per ounce, so the Company is now operating at very close to breakeven rate and expects at current gold prices to become consistently profitable and cash flow positive during the second fiscal quarter 2015. Grades have also significantly improved with a calendar year to date grade of 0.39 ounces per ton (opt) (13.3 grams per tonne (gpt), and fiscal year to date grades of 0.42 opt (14.4 gpt) as announced on June 24. The Company is on track to meets its fiscal year 2015 guidance of 140,000 - 155,000 ounces and we are seeing further reductions in the AICC/AISC for the year so far. Fiscal 2015 is poised to be a turnaround year for the Company as production and grades increase, further cost reductions are realized, and as we advance our near surface ounces to a preliminary economic study by the end of the calendar year." KEY HIGHLIGHTS OF THE YEAR /T/ -- Production for the year totalled 385,837 tons at a head grade of 0.33 opt (11.3 gpt) and a recovery rate of 95% to produce 122,309 ounces, an increase of 34% from previous fiscal year. -- Gold sales for the year were 125,273 ounces, an increase of 37% over the previous year (91,771 ounces). Cash operating cost per ton produced(1) increased; however, all-in cash cost (AICC) or all-in sustaining costs (AISC) per ounce produced decreased 18% compared to the previous fiscal year. AICC/AISC for Q4/14 decreased 9% to CAD$1,776, compared to the previous quarter (Q3/14: CAD$1,923) and 22% compared to the same quarter in fiscal 2013 (Q4/13: CAD$2,277. All-in costs for the April, the last month of the 2014 fiscal year were CAD$1,466 per ounce, and costs continue to trend down further in the first 2-months of fiscal year 2014. -- Cash operating costs for the year were CAD$1,078 per ounce. During the fourth quarter when the effects of the mine optimization plan were full realized, operating costs were lowered to CAD$1,000 per ounce with April cash costs being CAD$836 per ounce. -- Cash flow from operating activities for the year was CAD$27.3M. This was mainly due to items not affecting cash and changes in working capital offsetting the reported CAD$11.1M loss. -- Net loss and comprehensive loss for fiscal year 2014 was CAD$11.1M (CAD$0.16 per share). Revenue of CAD$173.3M for the year increased 14% from the previous fiscal year (CAD$151.6M) with 33,503 more ounces being sold compared to the previous year, offset with a 16% (CAD$270 per ounce) decrease in the average sale price of gold year over year. The Company operated at a close to breakeven rate in the last month of Q4/14, and expects to operate at a cash flow positive rate during the second quarter of its current fiscal year 2015 as further improvements from the mine optimization plan and cost cutting programs are realized. -- At the start of Q3/14, following operational management changes, a mine optimization plan was introduced, along with a concurrent cost-cutting program. The new mine plan is focused on a lower tonnage, higher grade strategy, therefore cut off grades were increased from 0.18 opt (6.2 gpt) to 0.22 opt (7.5 gpt). As a result, head grades increased from an average of 0.31 opt (10.6 gpt) in the first and second quarter to 0.34 opt (11.6 gpt) in the third and fourth quarter of fiscal 2014. The full consequences of the new mine plan were realized in Q4/14 with production margins rising 10% from -2% in Q3/14 to 8% in Q4/14. Head grade has continued to significantly improve with 0.42 opt (14.4 gpt) head grade realized during the first 51 days of the current fiscal year 2015. -- Consistent with the new mine plan that shifts away from the lower grade Main Break areas and focuses more heavily on the higher grade South Mine Complex ("SMC"), underground capital development remains focused on new zones in the SMC, in particular the development of new high grade workplaces on the 5,400' and 5,600' levels. Over the course of fiscal year 2014, the ratio of tons being mined in the SMC increased from 53% in Q1/14 to 63% in Q3/14 and 60% in Q4/14. In fiscal 2015, it is planned that 66% of tons will be mined from the SMC. -- The cost-cutting initiatives were introduced to slow the level of cash burn the business was experiencing while the mine optimization plan was being implemented. The Company made a number of policy changes and reduced headcount (from 1,250 to 1,059 employees) to reduce costs and better align the cost structure of the business to the anticipated revenues from the new mine plan. The cost saving initiatives, and estimated go-forward annual savings totalled CAD$24.7M. With the exception of the elimination of non-essential spending in Property Plant & Equipment, these savings will be sustained. -- The CAD$95.0MMine Expansion Project was completed on budget during the fiscal year. Key expansion projects that were completed include the hoist upgrade, mill expansion, plant equipment purchases (including battery powered scoops and trucks) and underground capital development. The final element of the project was the dry commissioning of a new ball mill in February, 2014. -- Following the completion of the Mine Expansion Project spending, together with the adoption of a new mine plan and the cost reductions announced by the Company, total cash resources (including short-term investments) as at April 30, 2014 were CAD$38.9M. -- The Company entered into a 2.5% net smelter return (NSR) royalty with Franco-Nevada Corporation ("FNV") on October 31, 2013 for proceeds of US$50.0M (CAD$51.2M). The Company also made the final payment of $30.0M to Osisko Mining Corp in Q1/14 ('Osisko') for the remaining 50% share in the former joint venture properties acquired in fiscal 2013. The funds have been and will continue to be used for development of the Company's properties. -- Exploration spending was cut by CAD$9.7M to CAD$7.5M during the year to reduce expenses. At year end, eight diamond drills were active including one on surface. Despite the reduction in spending, the Company announced on April 28, 2014 a first-time NI 43-101 calculation on its near-surface ounces (surface to -1,000 feet). The Company plans to add two additional diamond drills to the surface program in the current fiscal year 2015. Two drills will concentrate on delineation and infill drilling while the other will focus on exploration. /T/ (1) The Company has reported non GAAP performance measures: Cash operating cost per ton and per ounce produced and AICC per ounce produced throughout this document. These are common performance measures in the mining industry. Please refer to Appendix B in our MD&A which shows a reconciliation to reported production expenses. /T/ The Company will be hosting a conference call on Thursday July 10 at 10:00 am EST to discuss these results. Please see below dial in formation: Participant Dial-In Number(s): Toll-Free North America: (877) 223-4471 Local and International: (647) 788-4922 Conference ID: 70737057 Replay Dial In: Local and International: (416)-621-4642 Toll Free North America: (800)-585-8367 Conference ID: 70737057 Replay Available Until: July 24, 2014 23:59 ET ---------------------------------------------------------------------------- Financial Highlights (All amounts in 000's of Canadian Dollars, except gold price per ounce, shares and per share Year ended April 30, figures) ------------------------------------------ 2014 2013 2012 ---------------------------------------------------------------------------- Gold Sales (ounces) 125,273 91,771 97,888 Average Gold Price (per ounce) 1,385 1,653 1,633 ---------------------------------------------------------------------------- Revenue 173,258 151,692 159,824 Production Expenses 162,755 124,002 98,328 Exploration Expenditure 7,537 17,097 14,241 Other Expenses 18,593 13,366 4,927 Net (Loss) Income before Income Taxes (15,627) (2,773) 42,328 Net and Comprehensive (Loss) Income (11,077) (3,646) 41,270 Per share (basic and diluted) (0.16) (0.05) 0.58, 0.57 Cash Flow from operating activities 27,258 33,959 51,200 Cash Flow (used in) from financing activities (5,461) 106,235 11,812 Cash Flow used in investing activities (60,650) (106,235) (63,907) Net (decrease) increase in cash (38,853) 51,770 (895) ---------------------------------------------------------------------------- Total cash resources 38,897 76,966 30,172 Other Current Assets 23,732 30,719 22,086 Current Liabilities 45,361 71,565 25,013 Working Capital 17,268 36,120 27,245 Total Assets 409,385 448,782 270,329 Total Liabilities 126,363 201,423 37,674 ---------------------------------------------------------------------------- Weighted average number of shares outstanding 70,150,912 70,150,912 71,528,490 Dividends per share NIL NIL NIL ---------------------------------------------------------------------------- /T/ About the Company Kirkland Lake Gold's corporate goal is to create a self-sustaining and long-lived intermediate gold mining company based in the historic Kirkland Lake Gold Camp. The Company plans to do this by mining to the reserve grade, generating profits and free cash flow for the shareholders. The Company will also look to take advantage of its increased infrastructure capacity in the appropriate gold price environment. At the same time, the Company is committed to maintaining a significant exploration program aimed at developing and maintaining a property wide reserve and resource base sufficient to sustain a mine life of more than ten years. Over the last several years the Company has invested significant capital to improve the infrastructure of the business including upgrading the production hoist, skips, mill, underground mobile equipment and capital development. From initial discovery to present day there have been over 24 million ounces of gold mined from the Kirkland Lake camp while the current reserve and resource provides for more than 10 years of mining with significant exploration upside. Neither the Toronto Stock Exchange nor the AIM Market of the London Stock Exchange has reviewed and neither accepts responsibility for the adequacy or accuracy of this news release. Cautionary Note Regarding Forward Looking Statements This Press Release contains statements which constitute "forward-looking statements", including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to the future business activities and operating performance of the Company. The words "may", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company, are intended to identify such forward-looking statements. Forward-looking statements used in this Press Release include, but may not be limited to, statements regarding the Company's production capacity and its exploration program. Investors are cautioned that forward-looking statements are based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made such as, without limitation, opinion, assumptions and estimates of management regarding the Company's business, its ability to increase its production capacity and decrease its production cost. Such opinions, assumptions and estimates, are inherently subject to a variety of risks and uncertainties and other known and unknown factors that could cause actual events or results to differ materially from those projected in the forward- looking statements. These factors include the Company's expectations in connection with the projects and exploration programs being met, the impact of general business and economic conditions, global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future conditions, fluctuating gold prices, currency exchange rates (such as the Canadian dollar versus the United States Dollar), possible variations in ore grade or recovery rates, changes in accounting policies, changes in the Company's corporate mineral resources, changes in project parameters as plans continue to be refined, changes in project development, construction, production and commissioning time frames, the possibility of project cost overruns or unanticipated costs and expenses, higher prices for fuel, power, labour and other consumables contributing to higher costs and general risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, unexpected changes in mine life, seasonality and unanticipated weather changes, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, and limitations on insurance, as well as those risk factors discussed or referred to in the Company's annual Management's Discussion and Analysis and Annual Information Form for the year ended April 30, 2013 filed with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update these forward-looking statements except as otherwise required by applicable law. -30- FOR FURTHER INFORMATION PLEASE CONTACT: Kirkland Lake Gold Inc.George Ogilvie, P.Eng CEO +1 709 532 5716 +1 705 568 6444 (FAX) gogilvie@klgold.com OR Kirkland Lake Gold Inc.Lindsay Dunlop Director of Investor Relations +1 416-840-7884 +1 705 568 6444 (FAX) ldunlop@klgold.comwww.klgold.com OR NOMAD: Panmure Gordon (UK) Limited Callum Stewart / Adam James +44 (0) 20 7886 2500 OR Blytheweigh Tim Blythe / Halimah Hussain / Camilla Horsfall +44 (0) 20 7138 3204 FINANCIAL STATEMENTS APRIL 30, 2014 AND 2013 (EXPRESSED IN CANADIAN DOLLARS) Management's Responsibility for Financial Reporting The accompanying consolidated financial statements of Kirkland Lake Gold Inc. are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. When alternative accounting methods exist, management has selected those it deems to be most appropriate in the circumstances. The significant accounting policies used are described in Note 3 to the consolidated financial statements. The consolidated financial statements include estimates based on the experience and judgment of management in order to ensure that the consolidated financial statements are presented fairly, in all material respects. The management of the Company developed and continues to maintain systems of internal accounting controls and management practices designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Company's assets are appropriately accounted for and adequately safeguarded. The Board of Directors exercises its responsibilities for ensuring that management fulfils its responsibilities for financial reporting and internal control with the assistance of its Audit Committee. The Audit Committee is appointed by the Board of Directors and all of its members are directors who are not officers or employees of Kirkland Lake Gold Inc. The Committee meets periodically to review financial reports and to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues. The Committee reviews the Company's annual consolidated financial statements and recommends their approval to the Board of Directors. These consolidated financial statements have been audited by KPMG LLP on behalf of the shareholders. KPMG LLP has full and free access to the Audit Committee and may meet with or without the presence of management. ON BEHALF OF THE BOARD: "George O. Ogilvie" "John S. Thomson" Chief Executive Officer Chief Financial Officer Kirkland Lake, OntarioJuly 8, 2014 INDEPENDENT AUDITORS' REPORT To the Shareholders of Kirkland Lake Gold Inc. We have audited the accompanying financial statements of Kirkland Lake Gold Inc., which comprise the balance sheets as at April 30, 2014 and April 30, 2013, the statements of operations and comprehensive loss, cash flows and changes in equity for the years then ended, and notes comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kirkland Lake Gold Inc. as at April 30, 2014 and April 30, 2013, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. /T/ Chartered Professional Accountants, Licensed Public Accountants July 8, 2014Toronto, Canada /T/ KIRKLAND LAKE GOLD INC. BALANCE SHEETS EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS /T/ APRIL 30 APRIL 30 2014 2013 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents (Note 5) $ 38,894$ 76,784 Short-term investments (Note 5) 3 182 Accounts receivable (Note 6) 4,635 14,171 Inventories (Note 7) 16,386 14,978 Prepaid expenses and other current assets 2,711 1,570 -------------------------------------------------------------------------------------------------------- Current assets 62,629 107,685 -------------------------------------------------------------------------------------------------------- Non-current Other long-term assets (Note 8) 2,038 1,838 Restricted cash (Note 4) 7,904 7,716 Mineral properties (Note 11) 214,471 225,760 Property, plant and equipment (Note 11) 122,343 105,783 -------------------------------------------------------------------------------------------------------- Non-current assets 346,756 341,097 -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 409,385$ 448,782 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- LIABILITIES Current Operating loan (Note 21) $ 6,500 $ - Accounts payable and accrued liabilities (Note 9) 28,430 33,495 Promissory notes payable (Note 10) 3,327 31,826 Income taxes payable 226 - Current portion of finance lease (Note 10) 7,131 6,244 ------------------------------------------------------ ------------------------- Current liabilities 45,614 71,565 -------------------------------------------------------------------------------------------------------- Non-current Convertible debentures (Note 10) 106,928 102,667 Provisions (Note 12) 5,749 6,181 Deferred income taxes (Note 19) 1,517 6,183 Finance lease (Note 10) 12,302 14,827 -------------------------------------------------- Non-current liabilities 126,496 129,858 -------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock (Note 13) 255,172 255,423 Authorized Unlimited common shares without par value Issued 70,150,912 (2013 - 70,150,912) common shares Options (Note 14) 8,046 9,770 Contributed surplus (Note 15) 29,230 26,262 Deficit (55,173) (44,096) -------------------------------------------------------------------------------------------------------- Total shareholders' equity 237,275 247,359 -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 409,385$ 448,782 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- /T/ Commitments (Notes 4 and 21) ON BEHALF OF THE BOARD: "George O. Ogilvie" "Trevor Gabriel" ------------------- ----------------- Director Director The accompanying notes are an integral part to these condensed interim financial statements. KIRKLAND LAKE GOLD INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED APRIL 30, 2014 AND 2013 EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ REVENUE FROM GOLD SALES $ 173,258$ 151,692 ------------------------------------------------------------------------------------------------------ PRODUCTION EXPENSES (Note 16) 162,755 124,002 ------------------------------------------------------------------------------------------------------ GROSS PROFIT 10,503 27,690 OTHER EXPENSES General and administrative (Note 17) 5,529 5,582 Exploration 7,537 17,097 Finance expense 14,240 8,966 Finance income (1,176) (1,182) ------------------------------------------------------------------------------------------------------ 26,130 30,463 ------------------------------------------------------------------------------------------------------ Loss before income taxes (15,627) (2,773) Income tax (recovery)/expense (Note 19) (4,550) 873 ------------------------------------------------------------------------------------------------------ NET AND COMPREHENSIVE LOSS $ (11,077)$ (3,646) ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Basic and diluted weighted average number of common shares outstanding (Note 13) 70,150,912 70,150,912 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.16)$ (0.05) ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ The accompanying notes are an integral part to these condensed interim financial statements. KIRKLAND LAKE GOLD INC. STATEMENTS OF CASH FLOWS YEARS ENDED APRIL 30, 2014 AND 2013 EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES LOSS $ (11,077)$ (3,646) ADJUSTMENTS FOR THE FOLLOWING ITEMS: Amortization and depletion 26,063 19,803 Deferred income tax recovery (4,962) 757 Stock based compensation 1,289 2,919 Accretion on convertible notes 4,261 2,372 Effect of foreign exchange (963) - Interest expensed 14,093 8,824 Taxes expensed 488 116 Provisions 148 142 CHANGES IN NON-CASH WORKING CAPITAL ITEMS Accounts receivable 9,536 (7,447) Inventories (1,408) (860) Prepaid expenses and deposits (1,141) (326) Accounts payable and accrued liabilities (8,798) 11,421 ------------------------------------------------------------------------------------------------------ Cashflow from operations before interest and taxes 27,529 34,075 ------------------------------------------------------------------------------------------------------ Taxes paid (271) (116) ------------------------------------------------------------------------------------------------------ CASH INFLOWS FROM OPERATIONS 27,258 33,959 ------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchase of property, plant and equipment (26,903) (43,370) Proceeds from sale of short-term investments 179 4,976 Additions to mineral properties (55,673) (67,280) Proceeds from sale of royalty to Franco-Nevada 52,135 - Osisko properties purchased (30,000) (65) Restricted cash (188) - Other long-term assets (200) (496) ------------------------------------------------------------------------------------------------------ CASH OUTFLOWS FROM INVESTING ACTIVITIES (60,650) (106,235) ------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Increase in operating line 6,500 - Proceeds from finance lease facility 5,388 16,325 Repayment of obligation under finance lease (7,026) (4,081) Interest paid on loans and debentures (10,323) (8,824) Proceeds from issue of convertible debentures (net of transaction costs) - 120,626 ------------------------------------------------------------------------------------------------------ CASH INFLOWS FROM FINANCING ACTIVITIES (5,461) 124,046 ------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivalents of continuing operations 963 - ------------------------------------------------------------------------------------------------------ CHANGE IN CASH DURING THE PERIOD (38,853) 51,770 CASH AND CASH EQUIVALENTS, beginning of period 76,784 25,014 ------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, end of period $ 38,894$ 76,784 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ The accompanying notes are an integral part to these condensed interim financial statements. KIRKLAND LAKE GOLD INC. STATEMENTS OF CHANGES IN EQUITY YEARS ENDED APRIL 30, 2014 AND 2013 EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS /T/ Capital Contributed Stock Options Surplus Deficit TOTAL -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- Balance, May 1, 2012 $ 255,703$ 6,954$ 10,448$ (40,450)$ 232,655 Net loss - - - (3,646) (3,646) Cancellation of options - (103) 103 - - Stock based compensation - 2,919 - - 2,919 Equity conversion option of convertible debentures (net of tax) - - 15,711 - 15,711 Deferred tax expense related to share issuance costs (280) - - - (280) -------------------------------------------------------------------------------------------------------- Balance, April 30, 2013 $ 255,423$ 9,770$ 26,262$ (44,096)$ 247,359 ------------------------------------------------------- ------------------------------------------------ Balance, May 1, 2013 $ 255,423$ 9,770$ 26,262$ (44,096)$ 247,359 Net loss - - - (11,077) (11,077) Cancellation of options - (591) 591 - - Expiry of options - (2,422) 2,422 - - Stock based compensation - 1,289 - - 1,289 Deferred tax expense related to share issuance costs (251) - - - (251) Deferred tax expense related to convertible debenture financing costs - - (45) - (45) -------------------------------------------------------------------------------------------------------- Balance, April 30, 2014 $ 255,172$ 8,046$ 29,230$ (55,173)$ 237,275 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- /T/ The accompanying notes are an integral part to these condensed interim financial statements. KIRKLAND LAKE GOLD INC. NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED APRIL 30, 2014 AND 2013 EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS 1. DESCRIPTION OF BUSINESS The Company was incorporated in British Columbia, Canada on June 29, 1983 and continued into the federal jurisdiction on July 27, 1988 to become governed by the Canada Business Corporations Act. Its registered office is in Toronto, Ontario, Canada. The Company's common shares trade on the TSX (Toronto Stock Exchange) and AIM (Alternative Investment Market of the London Stock Exchange). The Company's head office and operating gold mine are located in Kirkland Lake, Ontario, Canada. Its operations consist of the Macassa Mine and Mill and four contiguous formerly producing gold mining properties. The Company does not have any subsidiaries. 2. BASIS OF PRESENTATION (a) Statement of Compliance The financial statements of the Company for the year-ending April 30, 2014 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The financial statements were authorized for issue by the Board of Directors on July 8, 2014. (b) Basis of Presentation These financial statements have been prepared on a historical cost basis except for certain financial assets and liabilities which are measured at fair value. The significant accounting policies are presented in Note 3 and have been consistently applied in each of the periods presented. The financial statements are presented in Canadian dollars, which is also the Company's functional currency, unless otherwise indicated. The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note . Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. (c) Standards issued but not yet effective IFRS 9, Financial Instruments IFRS 9, Financial Instruments ("IFRS 9") covers the classification and measurement of financial assets and financial liabilities and is applicable for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is still assessing the impact of adopting IFRS 9. IFRIC 21, Levies IFRIC 21, Levies ("IFRIC 21") provides guidance on accounting for levies in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The effective date of this new standard is for annual periods beginning on or after January 1, 2014. The extent of the impact of interpretation of the amendments has not yet been determined. IFRS 14, Regulatory Deferral Accounts IFRS 14, Regulatory Deferral Accounts, is not currently applicable to the Company. IFRS 15, Revenue from Contracts IFRS 15, Revenue from Contracts, was issued by the IASB on 28 May 2014. The standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets From Customers and SIC 31 Revenue - Barter Transactions Involving Advertising Services. The standard is effective for annual periods beginning on or after January 1, 2017, with early application permitted. The Company is currently assessing the impact of adopting IFRS 15. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Revenue recognition Sale of Gold The principal product from the mining operations of the Company is the sale of gold dore bars. The dore bars are sent to a refiner that will further purify the dore bars to produce tradable gold bullion. Revenue associated with the sale of the dore bars is recognised when all significant risks and rewards of ownership of the asset sold are transferred to the refiner, which is when the commodity has been received by the refiner (Time of Receipt). At the Time of Receipt, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the gold and the costs incurred or to be incurred in respect of the sale can be reliably measured. Revenue is recognised at fair value of the consideration receivable to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is recognised at the Time of Receipt for the minimum determinable or agreed amount of gold at that time, with any adjustment between the preliminary and final settlement when the latter is determined. (b) Leased Assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Company (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognized as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analyzed between capital and interest. The interest element is charged to the statement of operations and comprehensive loss over the period of the lease and is calculated using the effective interest method. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the Company (an "operating lease"), the total rentals payable under the lease are charged to the statement of operations and comprehensive loss on a straight-line basis over the lease term. (c) Income Taxes Tax expense for the period comprises current and deferred taxes. Tax is recognised in the income statement, except to the extent it relates to items recognized in other comprehensive income or directly in equity. In that case, the related tax impact is also recognized in other comprehensive income, or directly in equity, respectively. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is recognised in the financial statements using the liability method of accounting. Under this method of tax allocation, deferred 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 deferred income tax assets or liabilities are expected to be settled or realized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and where there is the intent to settle the balance on a net basis. (d) Earnings Per Share Basic earnings or loss per share is computed by dividing the net income or loss attributable to common share holders by the weighted average number of common shares outstanding for the relevant period. The Company follows the treasury stock method in the calculation of diluted earnings per share. Diluted income or loss per common share is computed by dividing the net income or loss attributable to common share holders by the sum of the weighted average number of common shares issued and outstanding, for the relevant period, and all additional common shares that would have been outstanding if potentially dilutive instruments were converted. (e) Property, Plant and Equipment Property, plant and equipment, other than land, is carried at cost less accumulated depreciation and accumulated impairment losses. Land is carried at cost less accumulated impairment losses. The cost of property, plant and equipment comprises its purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated close down and restoration costs associated with the asset. Interest is capuitalized to the extent that the Company has outstanding borrowings related to the financing of qualifying assets. Depreciation is recorded over the shorter of the useful life of the asset or the remaining life of the mine based on proven and probable reserves. Depreciation for the major categories of property, plant and equipment is as follows: Not depreciated Land Capital work in progress Straight-line basis Assets within operations for which usage is not expected to fluctuate significantly from one year to another are depreciated on a straight line basis as follows: Buildings 10 years Computer equipment and software 2 to 5 years Vehicles 5 years Mine and mill equipment 2 to 10 years Expenditures on major maintenance or repairs include the cost of the replacement of significant parts of assets and overhaul costs. Where an asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will be available to the Company for more than the reporting period and the cost of the replacement exceeds approximately 25% of the original cost of the asset, the expenditure is capitalised and the carrying amount of the item replaced is derecognised. Similarly, overhaul costs associated with major maintenance are capitalised and depreciated over their useful lives where it is probable that future economic benefits will be available to the Company for more than reporting period and any remaining carrying amounts of the cost of previous overhauls are derecognised. All other costs are expensed as incurred. Where an item of property, plant and equipment is disposed of, it is derecognised and the difference between its carrying value and the net sale proceeds is disclosed as a profit or loss on disposal in the income statement. Any items of property, plant or equipment that cease to have future economic benefits are derecognised with any gain or loss included in the income statement in the financial year in which the item is derecognised. Where significant parts of an asset have different useful lives, depreciation is calculated on each separate part. Remaining useful lives are reviewed and adjusted, if appropriate, annually. Changes to the estimated useful lives are accounted for prospectively. (f) Mineral Properties 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 capitalised if the criteria for recognition as an asset are met and are depreciated on a units of production basis over proven and probable reserves. Near term development costs occur in areas where the Company expects production to occur within the same reporting period. Units of production basis Assets for which the economic benefits are consumed in a pattern which is linked to production are depreciated on a units of production basis based on the proven and probable reserves, which results in a depreciation charge proportional to the depletion of the reserves. Where significant parts of an asset have different useful lives, depreciation is calculated on each separate part. Remaining useful lives are reviewed and adjusted, if appropriate, annually. Changes to the estimated useful lives are accounted for prospectively. (g) Impairment of Non-Financial Assets The carrying amounts of non-current assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amounts may be impaired. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash inflows independent of other assets, in which case the review is undertaken at the cash generating unit level. A cash-generating unit is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Generally, for the Company, this represents the mine. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset's recoverable amount is determined as the higher of its fair value less costs of disposal ('FVLCD') and its value in use. The best evidence of fair value is the value obtained from an active market or from a binding sale agreement. Where neither exists, fair value is based on the best information available to reflect the amount the Company could receive for the cash generating unit in an arm's length transaction. This is often estimated using discounted cash flow techniques. In assessing the value in use, the relevant future cash flows expected to arise from the continuing use of the assets and from their disposal are discounted to their present value using a market-determined pre-tax discount rate which reflects current market assessments of the time value of money and asset-specific risks for which the cash flow estimates have not been adjusted. If the carrying amount of an asset or a cash generating unit exceeds its recoverable amount, an impairment loss is recorded in the income statement to reflect the assets at the lower amount. An impairment loss is reversed in the income statement if there is a change in the estimates used to determine the recoverable amount since the prior impairment loss was recognised. The carrying amount is increased to the recoverable amount but not beyond the carrying amount net of depreciation or amortisation which would have arisen if the prior impairment loss had not been recognised. (h) Financial Assets Financial assets consist of cash and cash equivalents, short-term investments in mutual funds, short term investments in treasury bills and guaranteed investment certificates, accounts receivable, other long-term assets and restricted cash. Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets other than financial assets at fair value through profit or loss are added to the fair value of the financial assets on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Cash and cash equivalents include cash and short-term investments with an initial maturity of 90 days or less at the date of acquisition and are subsequently measured at fair value through profit and loss. Short term investments in mutual funds and restricted cash are subsequently measured at fair value through profit and loss. Accounts receivable are subsequently measured at amortized cost and are carried at the amount of cash expected to be received. Short term investments in treasury bills and guaranteed investment certificates, other long-term assets are subsequently measured at fair value. The effective interest rate is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument to the carrying amount. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument. Income related to financial instruments subsequently measured at amortized cost is recognized in profit or loss and is included in the 'finance income' line item. Financial assets measured at fair value through profit and loss are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in profit or loss. The net gain or loss recognized in profit or loss and the interest income related to financial instruments measured at fair value through profit and loss are included in the 'finance income' or 'finance expense' line item in the statement of loss and comprehensive loss. (i) Impairment of Financial Assets Financial assets that are measured at amortized cost are assessed for impairment at the end of each reporting period. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and the event has a negative impact on the estimated cash flows of the financial asset and the loss can be reliably estimated. The amount of the impairment loss recognised is the difference between the carrying amount of the financial asset and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When an account receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss of a financial asset other than the accounts receivable decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial instrument at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Financial assets are derecognized when the right to receive cash flows from the asset have expired or the Company has transferred its right to receive cash flows from an asset. (j) Inventories Dore bars and gold in process 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 monthly 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. (k) Provisions - Reclamation and Remediation Costs for reclamation and remediation are a normal consequence of mining, and the majority of these costs are incurred at the end of the life of the mine. Provision is made for estimated close down, restoration and environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of the affected areas) in the financial period when the related environmental obligation occurs, based on the estimated future costs using information available at the balance sheet date. The costs are estimated on the basis of a closure plan which represents management's best estimate of the costs. The provision is discounted using a current market-based pre-tax discount rate and the unwinding of the discount is included in interest expense. At the time of establishing the provision, a corresponding asset is capitalised within property, plant and equipment, where it gives rise to a future benefit, and depreciated over future production from the operations to which it relates. The provision is reviewed on an annual basis to reflect known developments, such as revisions to cost estimates and to the estimated lives of operations, and for changes to legislation or discount rates. The cost of the related asset is adjusted for changes in the provision, which is not the result of the current production of inventory, resulting from changes in the estimated cash flows or discount rate and the adjusted cost of the asset is depreciated prospectively. (l) Share-Based Compensation The Company has a share-based compensation plan described in Note 14. Under the plan, the Company can 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. For transactions with directors, senior officers, employees and others providing similar services (collectively referred to hereinafter as Employees), the fair value of the equity-settled awards is measured at the initial grant date and is recognised as an asset for the portion that qualifies for recognition as an asset and the balance as an expense with a corresponding amount credited to equity, on a straight-line basis over the vesting period after adjusting for the estimated number of awards that are expected to vest. For transactions with non-Employees, the fair value of the equity-settled awards is measured at the fair value of the goods or services received, at the date the goods or services are received by the Company. In cases where the fair value of goods or services received cannot be reliably estimated the Company estimates the fair value of the awards at the date of grant. (m) Financial Liabilities Financial liabilities are initially recognized at fair value net of directly attributable transaction costs. The Company's financial liabilities include accounts payable and accrued liabilities and finance leases. After initial recognition, a finance lease is subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any fees or costs related to the finance lease. Interest expense is included in net income within finance expense. Non-interest bearing financial liabilities such as accounts payable and accrued liabilities are carried at fair value owing. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Any gains or losses are recognized in net income when liabilities are derecognized. (n) Foreign Currency Transactions Foreign currency accounts are translated into Canadian dollars as follows: At the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the year-end date, unsettled monetary assets and liabilities are translated into Canadian dollars by using the exchange rate in effect at the year-end date and the related translation differences are recognized in net income. Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. (o) Significant Accounting Estimates Estimated recoverable reserves and resources Estimated proven and probable reserves are used in the calculation of the depreciation of the mineral properties, in performing impairment testing and for forecasting the timing of the payment of rehabilitation costs. Estimates are prepared by appropriately qualified persons, but are impacted by forecast commodity prices, exchange rates, changes in capital, operating, mining, processing and reclamation costs, discount rates and recoveries amongst other factors. Changes in assumptions will impact the carrying value of the mineral properties and the depreciation, amortisation and impairment charges recorded in profit and loss. Provision - reclamation and remediation The Company's mining activities are subject to various laws and regulations governing the protection of the environment. The Company recognises management's best estimate for asset retirement obligations in the period in which they occur. Actual costs incurred in future periods could differ materially from the estimates. The ultimate cost of environmental remediation can vary in response to many factors including future changes to environmental laws and regulations, the emergence of new restoration techniques, changes in the life of mine estimates and in discount rates, which could affect the carrying amount of this provision. Contingencies Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within the control of the Company occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events. Amortization and depletion Amortization and depletion of property, plant and equipment and mineral property assets are dependent upon estimates of useful lives and reserve estimates, both of which are determined with the exercise of judgement. The assessment of any impairment of property, plant and equipment or mineral properties is dependent upon estimates of recoverable amount that take into account factors such as reserves, economic and market conditions and the useful lives of assets. Income tax expense Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. From time to time, there may be disagreement with the taxation authorities over the interpretation of the income tax rules. The final outcome of these disputes could render materially different from the Company's estimated tax liabilities. In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped. (p) Significant Judgements Allocation of Overhead Costs Mining support and general overhead expenses such as maintenance and engineering which cannot be specifically attributed to specific capital or operating workplaces but which are associated with supporting production or capital development activities are allocated to operating costs or mineral properties in proportion to i) hours worked by underground employees in each period and ii) the proportion of tons mined by workplace in each period. 4. RESTRICTED CASH Restricted cash includes: /T/ 2014 2013 -------------------------------------------------- Letters of Credit: Ministry of Northern Development and Mines $ 7,052$ 6,864 Independent Electricity System Operator of Ontario 852 852 -------------------------------------------------- $ 7,904$ 7,716 -------------------------------------------------- -------------------------------------------------- /T/ Letters of credit are secured by the term deposit investments as disclosed in Note 5 below. 5. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash and cash equivalents include: /T/ 2014 2013 -------------------------------------------------- Cash $ 38,894$ 51,823 Short term investments of less than 90 days - 24,961 -------------------------------------------------- $ 38,894$ 76,784 -------------------------------------------------- -------------------------------------------------- /T/ Short-term investments include: /T/ 2014 2013 -------------------------------------------------- Government of Canada Treasury Bill, bears interest at 0.90%, matures May 8, 2014 $ 7,716 $ - Government of Canada Treasury Bill, bears interest at 0.925%, matures May 8, 2014 191 Government of Canada Treasury Bill, bears interest at 0.97%, matured August 29, 2013 - 7,898 Less amounts related to letters of credit (see below) (7,904) (7,716) -------------------------------------------------- $ 3$ 182 -------------------------------------------------- -------------------------------------------------- /T/ 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 (Note 12), for $7,052, and with the Independent Electricity System Operator of Ontario to secure the provision of electricity, for $852. The letters of credit are secured by a portion of the term deposits. 6. ACCOUNTS RECEIVABLE /T/ 2014 2013 -------------------------------------------------- Trade receivables $ 2,968$ 10,075 Statutory receivables 1,557 4,012 Other receivables 110 84 -------------------------------------------------- $ 4,635$ 14,171 -------------------------------------------------- -------------------------------------------------- /T/ 7. INVENTORIES /T/ 2014 2013 -------------------------------------------------- Gold in process $ 8,486$ 7,330 Mine operating supplies 7,668 5,100 Dore bars 71 - Surface stockpile 161 2,548 -------------------------------------------------- $ 16,386$ 14,978 -------------------------------------------------- -------------------------------------------------- /T/ 8. OTHER LONG-TERM ASSETS /T/ 2014 2013 -------------------------------------------------- Security deposits $ 8$ 12 Employee relocation loans receivable 2,030 1,826 -------------------------------------------------- $ 2,038$ 1,838 -------------------------------------------------- -------------------------------------------------- /T/ 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES /T/ 2014 2013 -------------------------------------------------- -------------------------------------------------- Trade payables $ 9,868$ 14,770 Interest payable 3,026 3,582 Payroll and government remittances 15,536 15,143 -------------------------------------------------- $ 28,430$ 33,495 -------------------------------------------------- -------------------------------------------------- /T/ 10. LOANS AND BORROWINGS /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Current liabilities Operating loan 6,500 - Current portion of finance lease liabilities 7,131 6,244 Promissory notes relating to equipment financing 3,327 1,826 Promissory note relating to Osisko purchase (Note 21) - 30,000 ------------------------------------------------------------------------------------------------------ 16,958 38,070 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ The Company has a revolving credit facility of $47,500. This credit agreement currently envisages a combination of an unsecured operating loan ($7,500), a secured operating loan ($7,500) and lease facility ($32,500). The operating loan bears an annual interest rate of 4.0%. On July 2, 2013, the Company settled the promissory note to the company formerly known as Osisko Mining Corp. ("Osisko") in the amount of $30,000. Non-current liabilities Convertible debentures 106,928 102,667 Finance lease liabilities 12,302 14,827 ------------------------------------------------------------------------------------------------------ $ 119,230$ 117,494 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ Terms and conditions of outstanding loans were as follows: /T/ 2014 2013 Nominal interest Year of 2014 Carrying 2013 Carrying Currency rate maturity Face value amount Face value amount -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Finance lease liabilities 2.05 - 8.47% 2015 - 2018 $ 22,893$ 19,433$ 22,854$ 21,071 Operating loan 4.00% 2015 6,500 6,500 - - Promissory notes for equipment financing 3.50% 2014 3,327 3,327 1,826 1,826 Promissory notes for Osisko purchase 6.00% 2013 - - 30,000 30,000 Convertible notes 6.00 - 7.50% 2017 126,500 106,928 126,500 102,667 -------------------------------------------------------------------------------------------------------------------- $ 159,220$ 136,188$ 181,180$ 155,564 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- /T/ The finance lease liabilities are related to various pieces of equipment with a carrying amount of $26,791 (2013 - $23,784). The fair value of the finance liabilites as at April 30, 2014 was $19,408 (2013 - $19,495). The Company has a finance lease facility of $32,500. The terms of the facility are variable depending on when the finance leases are entered into and are described in the table above. The amounts utilized under the facility are payable as follows: /T/ Present value Future of minimum Present value minimum lease lease Future minimum of minimum payments Interest payments lease payments Interest lease 2014 2014 2014 2013 2013 payments 2013 ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Less than one year $ 7,803$ 672$ 7,131$ 7,039$ 795$ 6,244 Between one and five years 13,034 732 12,302 15,815 988 14,827 ------------------------------------------------------------------------------------------------------------------ $ 20,837$ 1,404$ 19,433$ 22,854$ 1,783$ 21,071 ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ /T/ Convertible debentures: On July 19, 2012, the Company completed a $57,500 ($54,800 net of transaction costs) private placement of unsecured subordinated convertible debentures. The debentures bear interest at 6% per annum, payable semi-annually. The Company may elect to satisfy its obligation to pay interest on the debentures by delivering sufficient common shares to satisfy the interest obligation. The debentures are convertible, at the option of the holders, into 3,833,333 common shares ($15.00 per share) until the earlier of the last business day immediately preceding their maturity on June 30, 2017 and the last business day immediately preceding the date specified by the Company for redemption of such debentures. The Company may redeem the debentures from June 30, 2014 until their maturity on June 30, 2017, subject to certain conditions, by providing 30 to 60 day notice when the weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending five trading days prior to such notice is not less than 130% of the conversion price. The conversion rate may be adjusted under certain conditions which include a subdivision or consolidation of shares or a change in control of the Company. On November 7, 2012, the Company completed a bought deal placement of $69,000 ($65,800 net of expenses) in unsecured subordinated convertible debentures. The debentures bear interest at 7.5% per annum, payable semi-annually. The Company may elect to satisfy its obligation to pay interest on the debentures by delivering sufficient common shares to satisfy the interest obligation. The debentures are convertible, at the option of the holders, into 5,036,496 common shares ($13.70 per share) until the earlier of the last business day immediately preceding their maturity on December 31, 2017 and the last business day immediately preceding the date specified by the Company for redemption of such debentures. The Company may redeem the debentures from December 31, 2015 until their maturity on December 31, 2017, subject to certain conditions, by providing 30 to 60 day notice when the weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending five trading days prior to such notice is not less than 130% of the conversion price. The conversion rate may be adjusted under certain conditions which include a subdivision or consolidation of shares or a change in control of the Company. The convertible debentures are compound financial instruments, consisting of the debt instrument and the equity conversion feature. The debt instrument was valued at amortized cost using a rate applicable to a non-compound debt instrument. The excess of the proceeds over the value assigned to the debt instrument was allocated as the fair value of the equity component of the convertible debentures. Transaction costs were netted against the debt instrument and equity component based on the pro-rata allocation of each instrument at initial recognition. /T/ 2014 2013 Proceeds from issue of convertible debentures $ 126,500$ 126,500 Transaction costs (5,875) (5,875) Transaction costs reclassified to equity 990 990 Discount classified as equity (21,320) (21,320) Accreted interest 6,633 2,372 ------------------------------------------------------------------------------------------------------ Carrying amount $ 106,928$ 102,667 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ Convertible debentures are payable as follows: /T/ Carrying Fair Contractual amount Value cash flows One year 2 - 5 years --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- Convertible debentures payable $ 106,928$ 100,625$ (159,275)$ (8,625)$ (150,650) /T/ 11. PROPERTY, PLANT AND EQUIPMENT AND MINERAL PROPERTIES /T/ Vehicles and Mine and Capital Land and Computer Mill Works in Mineral COST Buildings Equipment Equipment Progress Properties Total -------------------------------------------------------------------------------------------------------------- Balance at May 1, 2012 $ 10,839$ 1,050$ 57,035$ 21,996$ 150,888$ 241,808 Additions - - - 45,131 107,280 152,411 Disposals (87) (2) (2,170) - - (2,259) Transfers 9,788 206 31,672 (41,666) - - Reclamation provision adjustment - - - - (208) (208) -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2013 $ 20,540$ 1,254$ 86,537$ 25,461$ 257,960$ 391,752 -------------------------------------------------------------------------------------------------------------- Additions - - - 30,017 55,093 85,110 Disposals - (7) (2,543) - - (2,550) Transfers 6,325 107 43,056 (49,488) - - Royalty - - - - (52,135) (52,135) -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2014 $ 26,865$ 1,354$ 127,050$ 5,990$ 260,918$ 422,177 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ACCUMULATED DEPRECIATION -------------------------------------------------------------------------------------------------------------- Balance at May 1, 2012 $ 2,182$ 870$ 17,219 $ - $ 22,458$ 42,729 Additions 1,420 104 7,468 - 9,742 18,734 Disposals (83) (2) (1,169) - - (1,254) -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2013 $ 3,519$ 972$ 23,518 $ - $ 32,200$ 60,209 -------------------------------------------------------------------------------------------------------------- Additions 1,545 133 9,630 - 14,247 25,555 Disposals - (7) (394) - - (401) -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2014 $ 5,064$ 1,098$ 32,754 $ - $ 46,447$ 85,363 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- CARRYING AMOUNTS -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2013 $ 17,021$ 282$ 63,019$ 25,461$ 225,760$ 331,543 -------------------------------------------------------------------------------------------------------------- Balance at April 30, 2014 $ 21,801$ 256$ 94,296$ 5,990$ 214,471$ 336,814 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- /T/ Depreciation expense for the year amounted to $11,308 (2013 - $8,993). Depletion expense for the year amounted to $14,247 (2013 - $9,741) On October 31, 2013, the Company sold a portion of its mineral property for $52,135 by providing a 2.5% net smelter royalty on the Company's properties, including the Macassa Gold Mine, to Franco-Nevada Corporation ("FNV"); see Note 21. The Company reduced the carrying value of its mineral property assets by $52,135 on the date of the transaction. 12. PROVISIONS - RECLAMATION AND REMEDIATION The Company has filed a reclamation and site restoration plan in connection with the Kirkland Lake properties and this plan was accepted by the Ontario Ministry of Northern Development and Mines (MNDM) in June 2012. Financial assurance has been provided to the MNDM by way of a letter of credit in the amount of $7,052 (Note 4). A reconciliation for asset retirement obligations is as follows: /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Balance, beginning of year $ 6,181$ 6,247 Accretion expense for the period 148 142 Revisions in estimated cash flows (580) (208) ------------------------------------------------------------------------------------------------------ Balance, end of the year $ 5,749$ 6,181 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ The Wright Hargreaves Property is not included in the closure plan nor are there any requirements to submit financial assurance for this property. Progressive rehabilitation plans for the Macassa, Kirkland Minerals, Teck-Hughes, Lakeshore and Joint Venture properties were also submitted at the same time. The provision for asset retirement obligations is based on the following key assumptions. /T/ -- The total undiscounted cash flow as at April 30, 2014 is $10,674. -- The expected settlement to be in 2030. -- The credit adjusted risk free rates at which the estimated payments have been discounted at 2.8 - 3%. -- An inflation rate of 2%. /T/ 13. CAPITAL STOCK /T/ The following is a summary of changes in common share capital. Number of Shares Amount ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- Balance - May 1, 2012 70,150,912 $ 255,703 Benefit of share issuance costs tax assets not previously recognized - (280) -------------------------------------------------- Balance - April 30, 2013 70,150,912 $ 255,423 -------------------------------------------------- Benefit of share issuance costs tax assets not previously recognized - (251) -------------------------------------------------- Balance, April 30, 2014 70,150,912 $ 255,172 -------------------------------------------------- -------------------------------------------------- /T/ Diluted weighted average number of shares outstanding /T/ 2014 2013 -------------------------------------------------- Basic and diluted weighted average shares outstanding: 70,150,912 70,150,912 -------------------------------------------------- /T/ For 2013 all potentially dilutive stock options were excluded from the dilutive calculation as these options would have been anti-dilutive due to the loss for the year. 14. OPTIONS The Company has adopted a stock option plan which allows the Company to grant options to directors, senior officers and employees of, and consultants to, the Company and 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 10% of the outstanding 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; 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. The options issued vest over 2 to 4 years, except for the options granted to board members which vest immediately upon grant. The changes in stock options issued during the period ended April 30, 2014 are as follows: /T/ 2014 2013 Weighted Weighted Number of average Number of average shares exercise price shares exercise price --------------------------------------------------------------- --------------------------------------------------------------- Options outstanding - beginning of period 2,139,500 $ 11.43 1,631,500 $ 12.93 Granted 60,000 3.49 521,000 6.83 Cancelled/forfeited (170,800) 15.06 - - Expired (698,700) 7.09 (13,000) 14.94 ---------------- ---------------- Options outstanding - end of period 1,330,000 12.89 2,139,500 11.43 ---------------- ---------------- ---------------- ---------------- Options exercisable - end of period 967,875 $ 15.19 1,277,350 $ 11.58 ---------------- ---------------- ---------------- ---------------- /T/ No options were exercised in the 2014 fiscal year. The following table summarizes, at April 30, 2014, information about stock options outstanding and exercisable: /T/ Outstanding options Exercisable options weighted average weighted average remaining life remaining life Exercise price Options outstanding Options exercisable (years) (years) -------------------------------------------------------------------------------------------------------- $ 3.49 60,000 50,000 4.21 4.21 6.66 10,000 5,000 3.71 3.71 6.83 464,500 117,375 8.78 8.78 8.20 35,000 35,000 1.39 1.39 9.02 20,000 20,000 0.54 0.54 9.11 7,500 7,500 0.68 0.68 17.30 355,700 355,700 2.29 2.29 17.40 2,300 2,300 2.47 2.47 17.83 50,000 50,000 2.76 2.76 18.69 325,000 325,000 2.31 2.31 -------------------------------------------------------------------------------------------------------- 1,330,000 967,875 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- /T/ The fair value of each stock option at the date of grant was estimated using the Black-Scholes option-pricing model. /T/ 2014 2013 Expected life of stock options 2.67 years 4.83 years Risk-free interest rate 1.22% 1.40% Expected stock price volatility 56.40% 66.99% Expected dividend yield 0% 0% Weighted-average fair value of options granted $ 1.27$ 3.75 /T/ 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. Expected stock price volatility was calculated based on historic share prices. The value ascribed to unexercised stock options recorded as a component of shareholders' equity is as follows: /T/ 2014 2013 -------------------------------------------------- Balance - Beginning of period $ 9,770$ 6,954 Stock based compensation 1,289 2,919 Forfeiture/cancellation of options (591) (103) Expiry of options (2,422) - -------------------------------------------------- Balance - End of period $ 8,046$ 9,770 -------------------------------------------------- -------------------------------------------------- /T/ 15. CONTRIBUTED SURPLUS /T/ 2014 2013 -------------------------------------------------- Balance - Beginning of period $ 26,262$ 10,448 Forfeiture/cancellation of options 591 Expiry of options 2,422 103 Deferred tax expense related to convertible debenture financing costs (45) - Issue of convertible debentures (net of tax) - 15,711 -------------------------------------------------- Balance - End of period $ 29,230$ 26,262 -------------------------------------------------- -------------------------------------------------- /T/ 16. PRODUCTION EXPENSES /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Operating costs $ 133,285$ 102,400 Stock based compensation for operational personnel 976 1,687 Amortization and depletion 26,064 19,803 Royalties 2,430 112 ------------------------------------------------------------------------------------------------------ $ 162,755$ 124,002 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ 17. GENERAL AND ADMINISTRATIVE /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Stock based compensation for administrative personnel $ 313$ 1,232 General corporate and administrative costs 5,216 4,350 ------------------------------------------------------------------------------------------------------ $ 5,529$ 5,582 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ 18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS The Company's financial instruments consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, security deposits, accounts payable, accrued liabilities, promissory notes, finance leases and convertible debentures. At April 30, 2014, the carrying values of these instruments (except for the convertible debentures and finance lease liabilities) approximate their fair values based on the nature of these instruments. Fair Value Measurements of Financial Assets and Liabilities Recognized in the Balance Sheet Financial assets and liabilities are characterised using a fair value hierarchy as follows: Level 1 - quoted prices in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e.: as prices) or indirectly (i.e.: derived from prices); and Level 3 - inputs for the asset or liability that are not based on observable market data. The levels in the fair value hierarchy into which the Company's financial assets and liabilities measured and recognized in the balance sheet at fair value are categorized are as follows: Cash and cash equivalents Level 1 Short-term investments Mutual funds Level 1 Treasury bills Level 1 Security deposits Level 2 Restricted cash Level 1 Financial Assets and Liabilities Recognized in the Balance Sheet Carried at Amortized Cost Operating loan (Note 10) Finance lease liabilities (Note 10) Convertible debentures (Note 10) Promissory notes (Note 10) Accounts payable and accrued liabilities (Note 9) 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, 2014 and 2013, there were no receivables past due. The finance leases and convertible debentures are at fixed rates. There are no floating rate or interest free financial liabilities by way of borrowing. A change of 1% in interest rates would have decreased equity by approximately $1,362. 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, 2014, the Company had enough short term assets to cover all short term liabilities. The Company's contractual maturities on outstanding loans are disclosed in Note 10. Currency Risk As at April 30, 2014, the Company held US$10,000 received from its royalty transaction with Franco-Nevada Corporation, which is exposed to foreign exchange fluctuations based on movements in the foreign exchange rate. A 10% depreciation or appreciation of the Canadian dollar against the American dollar would result in an increase or decrease of approximately $1,112 on the balance sheet and income statement of these financial statements. 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 other than through its temporary US cash balance. 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 have no material impact on the value of those items. 19. INCOME TAXES The components of income tax expense (recovery) are as follows: /T/ April 30, 2014 April 30, 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Current income tax: $ 412$ 116 Deferred income tax: (4,962) 757 ------------------------------------------------------------------------------------------------------ $ (4,550)$ 873 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ A reconciliation of income tax expense (recovery) and the product of accounting income before income tax multiplied by the combined Canadian federal and provincial statutory income tax rate is as follows: /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Loss before income taxes $ (15,627)$ (2,773) ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Combined federal and provincial tax rate 22.50% 22.50% Expected income tax recovery (3,516) (624) Non-deductible items 296 657 Derecognition of benefit on deferred tax assets 1,510 (92) Current and deferred Ontario mining tax (3,000) (36) Adjustments in respect of prior years 160 968 ------------------------------------------------------------------------------------------------------ Income tax expense (recovery) (4,550) 873 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Deferred income tax recognized in equity 296 4,899 Less: current tax expense (412) (116) ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Change in deferred income tax liabilities $ (4,666)$ 5,656 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ The significant components of the Company's deferred income tax assets (liabilities) are as follows: /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Provisions reclamation - remediation $ - $ 1,391 Property, plant and equipment and mineral properties 3,611 1,250 Share issuance and deferred finance costs (directly recognized in equity) 133 429 Deferred Ontario Mining Tax (1,517) (4,770) Discount on convertible notes (3,744) (4,483) ------------------------------------------------------------------------------------------------------ Deferred income tax liabilities $ (1,517)$ (6,183) ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ Unrecognized Deferred Tax Assets Deferred tax assets have not been recognized in respect of the following items: /T/ April 30, 2014 April 30, 2013 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Capital loss carryforwards $ 1,065$ 1,055 Investment tax credits 16,790 16,790 Timing differences on assets and liabilities 7,380 - /T/ At April 30, 2014 and 2013, the Company did not recognize the benefit related to the deferred tax assets for the above items in the financial statements as management did not consider it probable that the Company will be able to realize these deferred tax assets in the future. The capital loss carryforwards and the deductible temporary differences do not expire under the current tax legislation. The investment tax credits expire as outlined below. Income Tax Attributes /T/ $ Expiry -------------------------------------------------- Capital losses 1,065 Indefinite Tax basis of mineral interest 200,233 Indefinite Capital cost allowance 154,210 Indefinite Investment tax credits 16,790 2017 - 2030 /T/ 20. RELATED PARTY TRANSACTIONS Key management personnel compensation comprised: /T/ 2014 2013 ------------------------------------------------------------------------------------------------------ Short term employee benefits $ 2,068$ 1,022 Directors fees 327 148 ------------------------------------------------------------------------------------------------------ $ 2,395$ 1,170 ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ /T/ Key management personnel are comprised of members of the board and officers of the Company. 21. COMMITMENTS As at April 30, 2014, capital commitments included: /T/ ---------------------------------------------------------------------- Capital Commitments (All commitments in 000s of Canadian Dollars) $000 ---------------------------------------------------------------------- Property, Plant and Equipment 1,930 ---------------------------------------------------------------------- Underground Development 96 ---------------------------------------------------------------------- Total 2,026 ---------------------------------------------------------------------- /T/ /T/ i. Capital commitments include the final payments for the completion of the Mine Expansion Project and ongoing capital project commitments. ii. The Company has a revolving credit facility of $47,500. This credit agreement currently includes a combination of an unsecured operating loan ($7,500), a secured operating loan ($7,500) and lease facility ($32,500). As at April 30, 2014, $6,500 of the operating loan had been drawn down and $19,400 of the lease facility had been utilised. The operating loan bears an annual interest rate of 4.0%. The finance lease liabilities have maturity dates until 2018, a weighted average nominal interest rate of 4.4% and are payable as outlined in Note 10. iii.A 2.5% NSR royalty is payable quarterly to FNV on production from the Company's properties. The Company has the option to buy back 1% of the NSR for total US$36,000 less an amount equal to the aggregrate Royalty payments made from the date of the agreement until the buy back date, multiplied by 40%. At April 30, 2014, $2,200 had been paid and accrued under this royalty agreement. iv. The Company has outstanding commodity contracts with counterparties totalling 8,974 ounces of gold at an average price of $1,397 per ounce which will be settled with the Company's own production. Two of the counterparties have a right to make a margin call if the price of outstanding gold contracts falls below the market price of the commodity. At April 30, 2014, $500 was on deposit for such calls. v. The Ministry of Northern Development and Mines (MNDM) received a Closure Plan Amendment (CPA), along with the required financial assurance, in June 2012 for the Macassa, Kirkland Minerals, Teck Hughes, Lakeshore and former Joint Venture Properties. A progressive rehabilitation program for the five areas was included in the Closure Plan. The Wright Hargreaves property is not part of the Closure Plan, but the Company has committed to and continues to carry out a progressive rehabilitation program on that property. The associated costs to complete the work required for both ongoing Closure Plan activities and ongoing progressive rehabilitation work have been included in the 2014 financial year budget. The MNDM and the Company continue to liaise constructively on rehabilitation requirements for the Company's properties. /T/ The mill expansion necessitated the submission of a Notice of Material Change to the MNDM to: i) increase the hoisting rate to 3,000 tonnes per day, ii) add offices and a dry room, iii) modify No. 2 shaft to hoist men and materials, iv) increase the mill capacity to 2,000 tonnes per day, and v) install additional environmental equipment to service the mill expansion. A confirmation letter dated November 13, 2012 regarding the Notice of Material Change was received by the Company. This letter required the Company to submit a Certified Amendment to the Macassa Mine and Lakeshore Tailings Closure Plan, including any appropriate change to Financial Assurance. A CPA was submitted to the MDNM as required on March 28, 2013. On February 4, 2014 the Company was advised from the MNDM that one item was not addressed in the addendum, namely removal of fixed equipment on site. This was addressed to the MNDM by follow up letter and supporting documentation April 25, 2014. The addition of removal of fixed equipment increased the Financial Assurance requirement to $7,052. An Environmental Compliance Approvals (ECA) Application - 'Air' was submitted to the Ministry of Environment (MOE) for the mill expansion in March 2013. An ECA application - 'Water' will be submitted to allow the mill to produce more than 1,588 tonnes per day. On November 14, 2013 an ECA Application - 'Water' was submitted to the MOE for modifications planned to 'G' Tailings Dam. As required by the Lakes and Rivers Improvement Act, documents are also being submitted to the Ministry of Natural Resources for the same work. 22. SEGMENTED INFORMATION The Company has one operating segment consisting of a mining and milling operation located in Kirkland Lake, Ontario Canada. During the periods ended April 30, 2014 and 2013 all of the Company's property, plant and equipment, revenues earned and operations were in Canada. 23. CAPITAL MANAGEMENT The Company's capital under management includes shareholders' equity of $237,275. The Company's objectives when managing capital are to: (a) safeguard the Company's ability to continue as a going concern, (b) provide an adequate return to shareholders, (c) raise sufficient proceeds from share issuances to meet any deficiencies in operations, and (d) 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. 24. SUBSEQUENT EVENTS The Company announced on June 12, 2014 that it will issue 1,795,000 flow-through common shares ("Flow-Through Shares") at a price of $3.90 per Flow-Through Share for total proceeds of approximately CAD$7,000 (the "Offering"). The Company has also granted to the Underwriters an option (the "Underwriter's Option"), exercisable at any time up to 48 hours prior to the time set for the closing of the Offering, to purchase up to 128,205 additional flow-through of the Company (the "Option Flow-Through Shares") at a price of $3.90 per Option Share for additional gross proceeds to the Company of up to $500. The Offering closed on July 3, 2014 and an aggregate of 1,923,205 common shares (the "Offered Shares") were issued. The Flow-Through Shares will be subject to a four-month hold period in Canada. Management's Discussion & Analysis ('MD&A') For the Quarter and Year Ended April 30, 2014 /T/ ---------------------------------------------------------------------------- This MD&A, including appendices, is intended to help the reader understand Kirkland Lake Gold Inc. ('us', 'KGI' or 'the Company'), our operations and our present business environment. It has been prepared as of July 8, 2014 and covers the results of operations for the quarter and year ended April 30, 2014. It is intended to supplement the audited Financial Statements and notes thereto which are expressed in Canadian Dollars and prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Additional information relating to the Company is available from the Company's current Annual Information Form ("AIF") filed on SEDAR at www.sedar.com. ---------------------------------------------------------------------------- /T/ Kirkland Lake Gold Inc. P.O. Box 370 Kirkland Lake, ON P2N 3J1 CONTENTS CONTENTS............................................................ 1 COMPANY OVERVIEW.................................................... 2 HIGHLIGHTS OF THE YEAR ENDED APRIL 30, 2014......................... 2 OPERATIONAL IMPROVEMENTS............................................ 4 OUTLOOK............................................................. 5 ANNUAL COMPARATIVES................................................. 6 OPERATIONS....................................................... 6 FINANCIAL........................................................ 7 CAPITAL PROJECTS REVIEW............................................ 8 SUMMARY OF QUARTERLY RESULTS....................................... 9 QUARTERLY COMPARATIVES............................................ 11 OPERATIONS...................................................... 11 FINANCIAL....................................................... 12 LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION............... 14 FINANCIAL INSTRUMENTS............................................. 15 SUBSEQUENT EVENT.................................................. 17 APPENDIX A........................................................ 18 SELECTED FINANCIAL INFORMATION & REVIEW OF OVERALL PERFORMANCE... 18 APPENDIX B........................................................ 19 NON-GAAP FINANCIAL MEASURES...................................... 19 APPENDIX C........................................................ 21 CRITICAL ACCOUNTING POLICIES AND ESTIMATES....................... 21 NATIONAL INSTRUMENTS 52-109 AND 43-101........................... 25 APPENDIX D........................................................ 26 OTHER MATTERS.................................................... 26 COMPANY OVERVIEW KGI is an operating gold mining company located in Kirkland Lake, Ontario, Canada that owns the Macassa Mine and Mill and four contiguous formerly producing gold mining properties. The Company's common shares trade on the TSX (Toronto Stock Exchange) and AIM, a market operated by the London Stock Exchange. Disclosure regarding the Company's outstanding securities is provided in Appendix D. KGI's current goal is to expand gold production in order to become a successful and sustainable intermediate gold producer. The Company's new strategy, adopted in November 2013, is to mine closer to historic reserve grade in order to become profitable and cash flow positive. HIGHLIGHTS OF THE YEAR ENDED APRIL 30, 2014 /T/ -- The $95.0 millionMine Expansion Project was completed on budget in Q3/14. Key expansion projects that were completed include the hoist upgrade, mill expansion, plant equipment purchases (including battery powered scoops and trucks) and underground capital development. The final element of the project was the dry commissioning of a new ball mill in February, 2014. -- The upgrade of the No. 3 Shaft hoist was designed to increase the mine hoisting capacity to 3,200 tons per day of ore and waste when the project was completed. In January, 2014, a record 3,118 tons were hoisted in a 24-hour period consisting of 1,738 tons of ore and 1,380 tons of waste, demonstrating that the increase in hoisting capacity was successful. -- At the start of Q3/14, following the resignation of the CEO and the COO, a new CEO was appointed to the Company. An increase in cut-off grades to improve operating margins necessitated the development of a new mine plan and cost reduction measures were concurrently introduced to reduce the level of cash burn the business was experiencing. In addition, a strategic review process was undertaken January and March 2014 which ultimately did not result in a transaction. -- The cut-off grade was increased to 0.22 ounces per ton (opt) from 0.18 opt to improve production margins in Q3/14. The consequences of this decision were realized in Q4/14 with production margins rising 10% from -2% in Q3/14 to 8% in Q4/14. --------------------------------------------------------------------------------------------------------- FY2014 vs Q4/14 vs FY2014 FY2013 FY2013 Production Q1/14 Q2/14 Q3/14 Q4/14 Q3/14 1,057 833 +27% Tons per day 1,062 1,148 1,064 918 -14% 385,836 304,062 +27% Tons Produced 97,788 105,670 97,916 84,462 -14% 0.32 0.30 +5% Produced Grade 0.31 0.31 0.32 0.35 +11% 122,309 91,786 +34% Ounces Produced 30,178 31,388 31,022 29,721 -4% --------------------------------------------------------------------------------------------------------- -- The Company began the year focussed on increasing tonnages therefore requiring increased manpower. To coincide with the higher planned tonnages manpower was increased from 1,059 to 1,215 employees in the first half of the fiscal year. In November 2013, the Company introduced a hiring freeze and began a review of go-forward strategies and labour requirements. As a result of this review, together with natural attrition, manpower was reduced by 155 in the second half of the fiscal year to 1,060 employees as at April 30, 2014. The reduction in manpower was in-line with the Company's new mining strategy and production plans. Manpower as at the date of this MD&A was 1,040. -- Exploration spending was cut by $9.7 million to $7.5 million during the year to reduce expenses. At year end, eight diamond drills were active including one on surface. -- Gold sales for the year were 125,273 ounces, an increase of 37% over the previous year (91,771 ounces). Sales in Q4/14 were 30,771 ounces, a decrease of 9% compared to the previous quarter primarily due to fewer tons mined. Cash operating cost per ton produced(1) increased; however, all-in cash cost (AICC) per ounce produced decreased 18% compared to the previous fiscal year. AICC for Q4/14 decreased 9% compared to the previous quarter (Q3/14: $1,923) and 22% compared to the same quarter in fiscal 2013 (Q4/13: $2,277). ---------------------------------------------------------------------------------------------------------- FY2014 vs Q4/14 vs FY2014 FY2013 FY2013 Financial Q1/14 Q2/14 Q3/14 Q4/14 Q3/14 125,273 Gold Sales 91,771 +37% (ounces) 30,253 30,530 33,719 30,771 -9% 1,383 Average Price 1,653 -16% ($) (per ounce) 1,435 1,353 1,369 1,376 +1% 173,258 151,692 +14% Revenue (000's) 43,421 41,316 46,165 42,356 -8% 343 Cash Operating Cost per Ton 335 +2% Produced 344 328 347 352 +2% 1,078 Cash Operating Cost per Ounce 1,109 -3% Produced 1,113 1,105 1,094 1,000 -9% 1,986 AICC per Ounce 2,432 -18% Produced 2,094 2,072 1,923 1,774 -9% ---------------------------------------------------------------------------------------------------------- -- The Company made the final payment of $30.0 million to Osisko Mining Corp in Q1/14 ('Osisko') for the remaining 50% share in the former joint venture properties acquired in fiscal 2013. -- The Company entered into a 2.5% net smelter return (NSR) royalty with Franco-Nevada Corporation ("FNV") on October 31, 2013 for proceeds of US$50.0 million ($52.1 million). The funds have been and will continue to be used for development of the Company's properties. -- Following the completion of the Mine Expansion Project spending, together with the adoption of a new mine plan and the cost reductions announced by the Company, total cash resources (including short-term investments) as at April 30, 2014 were $38.9 million. /T/ (1) The Company has included non-GAAP performance measures: cash operating cost per ton and per ounce produced and AICC per gold ounce produced, throughout this document. This is a common performance measure in the mining industry but does not have any standardized meaning. Refer to Appendix B for a reconciliation of these measures to reported production expenses. OPERATIONAL IMPROVEMENTS The Company initiated a mine plan optimisation program and cost savings initiatives on December 5, 2013, and initiated a strategic review in early January, 2014. Mine Plan Optimisation /T/ -- The development ore grade cut-off was adjusted up to 0.22 opt resulting in a mine plan that shifts away from the lower grade Main Break areas and focuses more heavily on the higher grade South Mine Complex (SMC) areas. In Q4/14, 60% of the tons and 66% of the ounces produced were generated from the SMC. -- Underground capital development remains focused on new zones in the SMC, with emphasis on the development of new high grade workplaces on the 5,400' and 5,600' levels. The graph below shows a breakdown of tons generated from each area by quarter for fiscal 2014 as well as planned for fiscal 2015. /T/ To view the first graph associated with this release, please visit the following link: http://media3.marketwire.com/docs/KLGmdaG1.pdf. Cost Saving Initiatives /T/ -- The Company made a number of policy changes and reduced headcount to reduce costs and better align the cost structure of the business to the anticipated revenues from the new mine plan. The cost saving initiatives, actual savings in Q4/14 and estimated go-forward annual savings (in millions) are: ---------------------------------------------------------------------------------------------------- Realized Annualized Savings Saving Cost Saving Initiative Q4/14 (estimated) ---------------------------------------------------------------------------------------------------- Elimination of company travel allowance policy $0.5$2.0 Reduction in manpower $4.2$15.0 Elimination of non-essential spending in PP&E $1.1$6.0 Retiring of older, inefficient equipment $0.3$0.3 ---------------------------------------------------------------------------------------------------- Total projected savings $6.2$23.3 ---------------------------------------------------------------------------------------------------- Coming Q1/15: Cessation of home buying loans $- $1.4 ---------------------------------------------------------------------------------------------------- Total $6.2$24.7 ---------------------------------------------------------------------------------------------------- /T/ With the exception of the elimination of non-essential spending in PP&E, these savings should be sustained. Strategic Review /T/ -- A strategic review process to identify, examine and consider a range of strategic options available to the Company took place between January and March, 2014. Although there were several expressions of interest, a transaction did not materialize and the process was brought to a close by the Board of Directors on March 31, 2014. Direct and incremental non- recurring costs associated with this process totalled $0.8 million. /T/ OUTLOOK During the final quarter of the year, the new management team implemented a number of changes to improve the financial performance of the Company by increasing cut-off grades and implementing a number of cost reduction measures to align the cost base with the mine plan for the coming 12-18 months. As a result, the Company operated at cash flow break-even in the final month of fiscal 2014. Despite ongoing improvements and the adoption of more detailed and rigorous mine plans, it is likely the business will not be consistently cash flow positive on a monthly basis until the Q2/15 (using a gold price of $1,350 per ounce). After a period of very intense expansion activity, solid progress has been made towards turning mining operations at the Kirkland Lake Gold mine into a stable, profitable and long-term business capable of generating consistent positive cash flows and returns for shareholders. The Company has announced production guidance for fiscal 2015 of between 140,000 - 155,000 ounces. This indicates a production increase over fiscal 2014 consistent with the year on year average production growth demonstrated by the Company over the last 3 - 4 fiscal years. Supported by a good mine plan and with all major capital projects now completed, management is confident that this plan can be met. Guidance for fiscal 2016 and 2017 was recently announced by the Company at 150,000 - 170,000 and 160,000 - 180,000 ounces respectively. The Company's exploration program focussed on developing high-grade reserves and resources in the SMC as well as our new near-surface ore deposit remain key strategic priorities for the Company. See the Company's current AIF filed with certain securities regulatory authorities in Canada and available on SEDAR at www.sedar.com for a description of risk factors affecting the Company and 'Forward Looking Information' in Appendix C for a description of other factors that may cause actual results to differ from those anticipated. ANNUAL COMPARATIVES OPERATIONS /T/ ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ Fiscal 2014 Results Commentary Comparative Fiscal 2013 Results I / (D)(i) ------------------------------------------------------------------------------------------------ 122,309 Ounces Ounces of gold produced increased 34% from 91,518 34% previous fiscal year. Additional manpower, service Ounces cage and additional stopes contributed to the increase in production. More waste development is also a contributing factor to the increase of production allowing more stopes to generate ore. ------------------------------------------------------------------------------------------------ 0.32 Opt The recovered ore grade for the year increased 0.30 7% essentially at the end of the year due to an Opt increase in the cut-off grade from 0.18 opt to 0.22 opt. ------------------------------------------------------------------------------------------------ 12,991 Tons The waste tonnagemilled continued to decrease 19,944 (35)% caused by a waste pass in service on 53 Level late Tons in Q2 of the previous year. Going forward waste tons will be separated, assayed, and if economically viable, milled. ------------------------------------------------------------------------------------------------ 9,296 Feet Operating development increased due to the fact 3,277 183% that excavations used to access the ore zones on Feet each subsequent cut in a cut and fill stope are now categorized as operating development rather than stoping waste mined. ------------------------------------------------------------------------------------------------ 225,294 Tons Ore generated from production, development, and 161,408 40% exploratory mining in the SMC was 225,294 tons Tons grading 0.38 opt containing 85,067 (feed) ounces. Mill recovery was 95.39% resulting in production grading 0.36 opt containing 81,146 ounces. SMC ore contributed 59% of the produced tons and 66% of the produced ounces. ------------------------------------------------------------------------------------------------ 159,643 Tons Ore generated from production, development, and 142,654 12% exploratory mining in the Main Break area was Tons 159,643 tons at a grade of 0.27 opt containing 42,977 (feed) ounces. Mill recovery was 95.39% resulting in production grading 0.26 opt containing 40,995 ounces. Main Break ore contributed 41% of the produced tons and 34% of the produced ounces. ------------------------------------------------------------------------------------------------ 22,252 Feet Capital development increased 72% due to a higher 12,909 72% waste hoisting capacity. The development of the Feet main haulage ramp resumed during the third quarter to establish the new 5450' level in the SMC. ------------------------------------------------------------------------------------------------ 385,837 Tons Tons of ore produced increased 27% compared to the 304,062 27% previous fiscal year due to the increase in the Tons number of available ore mining workplaces. Tons increased more in the higher grade SMC area than in the lower grade Main Break area with the higher hoisting capacity generated by the service cage. ------------------------------------------------------------------------------------------------ /T/ (i) I / (D) = Increase / (Decrease) FINANCIAL /T/ ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ Fiscal 2014 Commentary Results ($000s) Comparative Fiscal 2013 I / (D)(i) ($000s) ------------------------------------------------------------------------------------------------ 173,258 Revenue increased with 33,503 more ounces being 151,692 14% sold compared to the previous year, offset with a 16% ($270 per ounce) decrease in the average sale price of gold year over year. ------------------------------------------------------------------------------------------------ 162,755 Production Expenses increased by $38.8 million 124,002 31% compared to the previous fiscal year as a result of increased manpower and related materials expenses in preparation for the planned increases in future production. These increases were in operating costs ($30.1 million), non-cash inventory adjustments ($0.7 million), royalties ($2.3 million) and amortization and depletion ($6.3 million). These costs were partially offset by a decrease of $0.7 million in stock based compensation expense. - Operating costs increased by $30.1 million (30%) due to the overall increase in site-wide activities. These activities include mining, milling, maintenance and general support services which rose for the first half of the year commensurate with the increased manpower in preparation for the production ramp up, then decreased in the second half of the year for reflecting the change in strategy. Cash operating costs per ton rose from $335 to $342 year on year for these reasons. - Net inventory valuation adjustments were $0.7 million between years due to the timing between processing and selling gold combined with the costs associated with said production. At April 30, 2014, 8,216 ounces of gold were in inventory, a decrease of 2,965 ounces compared to the previous year end; however, the cost of these ounces increased by $178 per ounce which lowered the change in total value. - Amortization and depletion increased $6.3 million commensurate with the additional investments made in property, plant and equipment as well as underground capital development. In Q3/14 the Expansion Project was completed so these non-cash expenses are expected to remain relatively consistent going forward. - Royalty expenses increased year on year due to the FNV 2.5% NSR Royalty agreement signed in Q2/14. - Stock based compensation expense for operational personnel dropped year over year as a result of the expense related to the employee stock option issuance which occurred in Q4/13 decreasing. There were fewer options granted in fiscal 2014. ------------------------------------------------------------------------------------------------ 5,529 General and administrative expenses remained 5,582 (1)% relatively consistent compared to the previous year mainly due to lower stock options expense ($0.9 million) offset by increased consultancy charges relating to the strategic review ($0.8 million). ------------------------------------------------------------------------------------------------ 7,537 Exploration costs decreased over the previous 17,097 (56)% fiscal year as a result decreasing the number of drills from 14 to 8 throughout the year (1 dedicated to the new surface exploration initiative). The exploration activities were slowed to conserve cash until production increases as planned. ------------------------------------------------------------------------------------------------ 55,673 Capital spending on mine development increased as 47,083 18% a consequence of bringing additional headings online in the SMC and investments made to refurbish existing drifts throughout the year. ------------------------------------------------------------------------------------------------ 26,903 Capital spending on equipment decreased 43,370 (38)% significantly over the previous year as project spending wound down and was completed in Q3/14. ------------------------------------------------------------------------------------------------ 242,865 The increase in AICC compared to the previous year 223,255 9% was due primarily to the increases in production costs which were offset by decreased spending in exploration and equipment. ------------------------------------------------------------------------------------------------ 14,240 Finance Expense increased substantially year over 8,966 59% year as a direct result of interest expense associated with the issue of convertible debentures which closed in Q2/13 and Q3/13. Other contributing factors include increased interest expense from new finance leases and other one-off finance fees. ------------------------------------------------------------------------------------------------ 1,176 Finance Income remained consistent year on year 1,182 -% due to lower cash balances that were held in short-term investments offset with slightly higher interest rates than the previous year combined with foreign exchange gains. ------------------------------------------------------------------------------------------------ (4,550) Provision for Income Taxes (recovery) is comprised 873 (621)% of current and deferred taxes. It fluctuates between periods primarily as a result of changes in reported net income as well as the utilization and absorption of carry-forward tax pools, changes in the Ontario Mining Tax accounting treatment of costs incurred in the acquisition of the property from Osisko and the tax treatment of the NSR sale to FNV. ------------------------------------------------------------------------------------------------ /T/ (i) I / (D) = Increase / (Decrease) An operations and financial review for the quarter as compared to Q3/14 and Q4/13 is provided on pages 11-13. CAPITAL PROJECTS REVIEW A total of $81.4 million was invested into the Company during fiscal year 2014 (details below). During Q4/14, the Company spent $13.1 million on underground infrastructure development and $2.5 million on property and equipment for a total of $15.6 million invested into the operation. The Mine Expansion Project spending was completed during Q3/14 on budget with a total of $95.0 million being spent over the past 5 fiscal years. The new ball mill was commissioned in Q4/14 and was operational in May 2014 shortly after year end. The major components of the $95.0 millionMine Expansion Project were: /T/ -- The Hoist Upgrade $12.3 -- Underground Development$20.4 -- The Mill Expansion $21.0 -- Other plant and equipment $41.3 --------------------------------------------------------------------------------------=================== Capital Spending by Quarter fiscal 2014 3rd 2nd 1st Expansion Project (All amounts in millions of CDN Dollars) YTD Total 4th Quarter Quarter Quarter Quarter (Q3/09 - Q4/14) --------------------------------------------------------------------------------------------------------- Ongoing Development 55.7 13.1 15.5 13.5 13.6 185.5 Expansion Project Development 0.0 0.0 0.0 0.0 0.0 20.4 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Total Development 55.7 13.1 15.5 13.5 13.6 205.9 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Ongoing Equipment 15.9 2.5 1.4 5.5 6.5 63.6 Expansion Project Equipment and Projects 9.8 0.0 2.2 3.6 4.0 74.6 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Total Equipment and Projects 25.7 2.5 3.6 9.1 10.5 138.2 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- TOTAL CAPITAL 81.4 15.6 19.1 22.5 24.1 344.1 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- /T/ Ongoing capital is the capital required to maintain the mine and sustain production, while Mine Expansion Project capital was utilized to upgrade the mine and increase the production rate. With the Mine Expansion Project completed, all future expenditure will be classified and reported as ongoing capital (which includes refurbishment work required to improve the condition of the existing infrastructure). Sustaining capital expenditure is expected to track between $45.0 - $55.0 million annually under new plans being developed by management. This is consistent with guidance issued previously by the Company. SUMMARY OF QUARTERLY RESULTS The quarterly results for the Company for the last eight fiscal quarters are set out in the following table. /T/ ------------------------------------------------------------------------------------------------------------------- Quarterly Results Fiscal 2013 Fiscal 2014 (All amounts in 000's of CDN Dollars, except per share & ounce 1st 2nd 3rd 4th 1st 2nd 3rd 4th figures) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------------------------------------------------------------------------------------------------------------------- Revenue 32,648 37,101 29,474 52,468 43,421 41,316 46,165 42,356 Loss before Income Taxes (295) (826) (5,667) 4,014 (843) (6,098) (6,153) (2,533) Net Income (Loss) and Comprehensive Income (Loss) 413 (783) (9,710) 6,434 (1,759) (3,915) (4,221) (1,182) Earnings (Loss) per Share (Basic & Diluted) 0.01 (0.01) (0.14) 0.09 (0.03) (0.06) (0.06) (0.01) ------------------------------------------------------------------------------------------------------------------- AICCper Ounce Produced 2,492 2,861 2,575 1,998 2,145 2,072 1,923 1,774 ------------------------------------------------------------------------------------------------------------------- /T/ The timing of gold pours and sales, gold price fluctuations, ore grade and gold inventory balances influence quarterly results. Trends observed or averaged over a longer time period may be more representative of the true underlying performance improvements taking place within the business. Q1/13, Q2/13, and Q3/13 were affected by lower ore grades caused by the development of lower grade areas of the mine outpacing the development of higher grade areas of the mine. This was caused by ongoing delays with the Service Cage Project impacting hoisting capacity. The delays in the timeline for the hoisting capacity increase also directly affected production tonnages in Q2/13 and Q3/13. Q1/13 was also affected by an eleven day forest fire production shutdown. Q3/13 was also affected by a delayed gold shipment related to inclement weather. Improved results in Q4/13 reflect the service cage coming on line, and an increase in production volume and grade as development in some higher grade areas resumed. Lower revenues due to slightly lower production and the decrease in the gold price were not completely offset by lower spending in Q1/14 and Q2/14. In Q3/14, a change in Management together with the announcement of a new strategy focussing more on grade than tons resulted in the adoption of a new mine plan. The consequences of these changes were realized in Q4/14 and resulted in the Company mining closer to historic reserve grades. Finance expense and depreciation charges have increased since Q2/13 due to leasing and other financing activities. Depletion charges steadily increased since Q2/13 due to heavy investments in mineral properties combined with increased production; however, in Q2/14 the carrying value of mineral properties was offset by the proceeds from the 2.5% NSR royalty sale to FNV which lowered the depletion expense for the quarter and on a go-forward basis. The Company's provision for income taxes (recovery) from quarter to quarter has a material impact on net and comprehensive income and consists of movements in deferred tax balances as a result of changes in deferred tax attributes during a given period. In Q1/13, Q2/13 and Q3/13 the Company recognized a tax expense that was offset by an adjustment resulting from the convertible debenture financings and movements in timing differences between accounting and tax carrying values of assets. A summary of the Company's AICC per ounce produced for the past fiscal year quarters is shown below. The completion of the Mine Expansion Project combined with the new mine plan and cost saving initiatives are expected to have a significant and sustainable effect on unit costs going forward. To view the second graph associated with this release, please visit the following link: http://media3.marketwire.com/docs/KLGmdaG2.pdf. QUARTERLY COMPARATIVES OPERATIONS /T/ ------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ Q4/14 Results Commentary Comparatives Q3/14 I / (D)(i) Q4/13 I / (D) ------------------------------------------------------------------------------------------------------------------------ 29,721 Ounces Produced ounces decreased over the previous 31,022 Ounces (4)% 31,503 Ounces (6)% quarter due to fewer, more select tons being mined. ------------------------------------------------------------------------------------------------------------------------ 0.35 Opt Recovered grade continue to increase over the 0.32 9% 0.35 Opt -% previous quarter as measures were taken to reduce Opt the quantity of marginal grade material delivered to the Mill. The development ore grade cut-off was adjusted to 0.22 opt during the third quarter. ------------------------------------------------------------------------------------------------------------------------ 2,532 Tons The amount of waste tons milled increased compared 2,160 Tons 17% 4,647 Tons (46)% to the previous quarter. A limited amount of waste tons are milled to recover ounces that may become mixed with waste material when switching between ore and waste in the #3 Shaft surface bin. Going forward waste tons will be separated, assayed, and only if economically viable will they be milled. ------------------------------------------------------------------------------------------------------------------------ 4,744 Feet Operating development footage continued to 2,117 124% 931 410% increase over the previous quarter due to the fact Feet Feet that the excavations used to access the ore zones on each subsequent cut in a cut and fill stope are now categorized as operating development rather than stoping waste mined. ------------------------------------------------------------------------------------------------------------------------ 48,567 Tons Ore generated from production, development, and 62,175 Tons (22)% 49,306 Tons (1)% exploratory mining in the SMC throughout Q4 was 48,567 tons grading 0.40 opt containing 20,860 (feed) ounces. Mill recovery for Q3 was 96.07% resulting in production grading 0.39 opt containing 20,040 ounces. SMC ore contributed 60% of the produced tons and 66% of the produced ounces. ------------------------------------------------------------------------------------------------------------------------ 33,370 Tons Ore generated from production, development, and 35,742 Tons (7)% 40,077 Tons (17)% exploratory mining in the Main Break area for Q3 was 33,370 tons at a grade of 0.31 opt containing 10,731 (feed) ounces. Mill recovery for Q3 was 96.07% resulting in production grading 0.30 opt containing 10,310 ounces. Main Break ore contributed 40% of the produced tons and 34% of the produced ounces. ------------------------------------------------------------------------------------------------------------------------ 6,722 Feet Capital development footage increased over the 6,151 9% 4,220 59% previous quarter as advance on the main haulage Feet Feet ramp resumed with the focus on establishing the new 5450' Level on the SMC. Raises were added to reduce the distances for mucking in the SMC. ------------------------------------------------------------------------------------------------------------------------ 81,937 Tons Tons of ore produced decreased over the previous 97,917 Tons (16)% 89,338 Tons (8)% period as a result of a focus on increasing the head grade of ore being delivered to the mill. ------------------------------------------------------------------------------------------------------------------------ /T/ (i) I / (D) = Increase / (Decrease) FINANCIAL /T/ ------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ Q4/14 Results Commentary Comparatives ($000's) Q3/14 I/ (D)(i) Q4/13 I/ (D) ------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ 42,356 Revenue decreased with 2,948 fewer ounces being 46,165 (8)% 52,468 (19)% sold at $7 more per ounce compared to the previous quarter and decreased compared to the same quarter in the previous fiscal year with 1,351 fewer ounces being sold at a16% lower price of gold. Slight grade and inventory fluctuations between periods, and the timing of gold pours contributed to the decrease in ounces sold compared to the previous year. ------------------------------------------------------------------------------------------------------------------------ 38,855 Production Expenses 46,987 (17)% 40,955 (5)% Compared to the third quarter of fiscal 2014: - Operating costs decreased by $8.6 million between quarters due in part to changes in inventory valuation ($4.4 million) and also due to management's costs savings initiatives and the mine optimization strategy which lowered manpower and associated expenses. - The fluctuations in gold inventory levels and valuation occur directly as a result of the timing of processing ore versus pouring and selling ounces. In Q4/14 the net change in inventory valuation was a decrease (cost) of $0.9 million whereas in Q3/14 the value of inventory decreased $5.3 million creating a net difference between periods of $4.4 million in costs. - Royalty expenses, depletion, depreciation and stock based compensation expense all remained relatively consistent between quarters. Compared to the fourth quarter of fiscal 2013: - Operating costs decreased by $2.8 million year over year due to a $3.4 million net difference in inventory valuation which was partially offset by slight increases in milling costs. The increased milling costs related to one-off contractor and rental charges associated with mill upgrade projects. Mining, maintenance and general site costs were relatively consistent between years with similar manpower and associated expenses as well as similar tonnages. - Royalty expenses increased year over year as a result of the 2.5% NSR sold to FNV in Q2/14. - Stock based compensation expense decreased slightly as past issuances became fully vested and no additional issuance occurred. ------------------------------------------------------------------------------------------------------------------------ 1,388 General and administrative expenses increased 1,027 35% 1,013 37% compared to the previous quarter and the same quarter in the previous year mainly due to one- time costs associated with the strategic review which took place between January 2014 and March 2014. ------------------------------------------------------------------------------------------------------------------------ 1,058 Exploration expenses decreased compared to the 1,521 (30)% 3,973 (73)% previous quarter and the same quarter in the previous fiscal year as exploration activities were reduced to preserve cash. ------------------------------------------------------------------------------------------------------------------------ 13,053 Capital spending on mine development decreased 15,531 (16)% 14,036 (7)% compared to the previous quarter and year on year despite an increase in capital development footages. This was due in part to the reduction in manpower; however, more so on the switch to less expensive development methods as the large ramp work slowed. The main focus of capital development activities in the quarter was the development of additional working areas in the SMC off of the ramp. ------------------------------------------------------------------------------------------------------------------------ 2,526 Capital spending on equipment decreased compared 3,621 (30)% 12,728 (80)% to the previous quarter and same quarter last year as a result of the Mine Expansion Project coming to completion in Q3/14. The decrease in capital equipment and infrastructure investments were planned and in line with management's strategy. ------------------------------------------------------------------------------------------------------------------------ 52,722 The decrease in total cash costs (operating, 60,380 (13)% 63,491 (17)% capital, corporate, exploration and royalties) compared to the previous quarter was largely a result of decreasing the manpower and expenses to align with the new mine strategy as well as lower capital equipment purchases since project spending was completed. The decrease in total spending compared to the previous year was mainly attributable to significantly lower capital project and equipment costs. ------------------------------------------------------------------------------------------------------------------------ 3,553 Finance expense remained consistent year over year 2,938 21% 3,274 9% and quarter over quarter as a result of interest expense associated with the issuance of convertible debentures which closed in Q2/13 and Q3/13 now being present across all periods. Finance expense in Q3/14 includes a $0.7 million accrual reversal to true-up an expense relating to the strategic review that was overestimated, otherwise costs would have been static. ------------------------------------------------------------------------------------------------------------------------ 143 Finance income decreased marginally between 155 (8)% 301 (53)% quarters as the cash position decreased during the quarter. Year on year the increase reflects much higher cash balances and a slight increase in interest rates received on short term investments. These comparative amounts do not include foreign exchange gains and losses. ------------------------------------------------------------------------------------------------------------------------ (1,350) Provision for Income Taxes (recovery) decreased (1,932) (30)% (2,421) (44)% previous quarter and previous year as a result of changes in reported net income as well as the utilization and absorption of carry-forward tax pools. ------------------------------------------------------------------------------------------------------------------------ /T/ (i)I / (D) = Increase / (Decrease) LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Since the start of the Mine Expansion Project, the Company has relied on internally generated cash flow, supported by a $52.1 million royalty sale and $120.6 million (net of transaction costs) of convertible debenture financing, to finance its operational, development and expansion requirements. By virtue of the gold price and increases in production, the Company generated $27.3 million and $34.0 million of cash from operations in fiscal years 2014 and 2013, respectively. The level of cash generation is expected to grow as production increases and spending on capital expansion projects is now complete; however, the Company's liquidity position continues to be dependent on the price of gold, which continues to experience volatility. In addition, realization of lower than anticipated ore grades and production in the future may also have a detrimental impact on cash balances. Management, however, continue to carefully monitor the timing of commitments, costs and cash balances as the new mine strategy and turn-round in the business continues towards generating consistent positive cash flows. The Company's principal exchange rate risk relates to movements between the Canadian dollar and the US dollar. The US$50.0 million received from the royalty sale has now been substantially converted into Canadian dollars. Sales of gold dore bars are made and the majority of the Company's expenses are incurred in Canadian dollars. The Company's cash balances are monitored constantly and surplus funds are held on deposit. The Company takes a very risk averse approach to managing cash resources by investing in Government of Canada Treasury Bills and Term Deposits of varying denominations and maturity dates. Cash and short-term investment resources (cash, cash equivalents and short-term investments) were as follows: /T/ ---------------------------------------------------------------------------------------------------- Resource (All amounts in 000s of Canadian Dollars) At April 30, -------------------------------------------------- 2014 2013 ---------------------------------------------------------------------------------------------------- Cash 38,894 76,784 ---------------------------------------------------------------------------------------------------- Short-term Investments 3 182 ---------------------------------------------------------------------------------------------------- Total 38,897 76,966 ---------------------------------------------------------------------------------------------------- /T/ The reported cash balance above includes the Canadian equivalent of US$10.0 million held in the Company's bank account converted as at April 30, 2014. Interest received on Canadian dollar deposits during the quarter ranged from 0.65 - 1.29% per year. Interest received on US dollar holdings during the quarter was 0.0%. The Company generated $27.3 million in cash flows from operations during fiscal 2014. This was mainly due to items not affecting cash and changes in working capital offsetting the reported $11.1 million loss. Net outflows associated with financing activities during fiscal 2014 were $5.5 million as a consequence of interest paid on debentures and repayments made on finance leases offset by a short-term operating loan facility which the Company used through year end. Cash flows used in investing activities during the year were $60.6 million. Investments included $26.9 million in mine equipment and surface infrastructure, $55.7 million in capital development and mine refurbishment and $30.0 million paid to Osisko as the final payment of the remaining 50% share in the former joint venture properties. These costs were offset by the NSR royalty proceeds of $52.1 million and $0.2 million in net purchase and sale of short-term investments. Following the completion of the Mine Expansion Project spending in Q4/14, together with the adoption of a new mine plan and the cost reductions announced by the Company, existing cash balances and cash flows from operations, supplemented by funds received from the recent flow-through financing which will be used on exploration activities, are expected to be sufficient to fund operations for the next 12 months. Any significant negative variance to the 2015 mine plan or the gold price may necessitate additional funding to support the Company's operations. FINANCIAL INSTRUMENTS The Company's financial instruments as at April 30, 2014 consist of cash and cash equivalents, short-term investments, restricted cash, accounts receivable, security deposits, accounts payable, accrued liabilities, an operating loan, finance leases and convertible debentures. At April 30, 2014, the carrying values of these instruments (except for the convertible debentures and finance leases) approximate their fair values based on the nature of these instruments. It is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. Commitments - Convertible Debentures /T/ -- On July 19, 2012, the Company completed a $57.5 million ($54.8 million net of transaction costs) private placement of convertible unsecured subordinated debentures ("Debentures"). The Debentures bear interest at 6% per annum, payable semi-annually. The Company may elect to satisfy its obligation to pay interest on the Debentures by delivering sufficient common shares to satisfy the interest obligation. The Debentures are convertible, at the option of the holders, into 3,833,333 common shares ($15.00 per share) until the earlier of the last business day immediately preceding their maturity on June 30, 2017 and the last business day immediately preceding the date specified by the Company for redemption of such Debentures. The Company may redeem the Debentures from June 30, 2014 until their maturity on June 30, 2017, subject to certain conditions, by providing 30 to 60 day notice when the weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending five trading days prior to such notice is not less than 130% of the conversion price. The conversion rate may be adjusted under certain conditions which include a subdivision or consolidation of shares or a change in control of the Company. -- On November 7, 2012, the Company completed a bought deal placement of $69.0 million ($65.8 million net of transaction costs) in Debentures. The Debentures bear interest at 7.5% per annum, payable semi-annually. The Company may elect to satisfy its obligation to pay interest on the Debentures by delivering sufficient common shares to satisfy the interest obligation. The Debentures are convertible, at the option of the holders, into 5,036,496 common shares ($13.70 per share) until the earlier of the last business day immediately preceding their maturity on December 31, 2017 and the last business day immediately preceding the date specified by the Company for redemption of such Debentures. All other terms and conditions associated with this financing are consistent with the terms and conditions of the financing completed in July 2012. /T/ The Debentures have been listed on the TSX under the stock symbols KGI.DB and KGI.DB.A, respectively. The combined carrying amount of the Debentures is $106.9 million. These Debentures are payable as follows: /T/ ---------------------------------------------------------------------------------------------------------- Contractual Cash Convertible Debentures ($000's) Carrying Amount Flows One Year 2 - 3 Years 4 - 5 Years ---------------------------------------------------------------------------------------------------------- Debentures Payable 106,928 (159,275) (8,625) (17,250) (133,400) ---------------------------------------------------------------------------------------------------------- -- A 2.5% NSR royalty is payable quarterly to FNV on production from the Company's properties. The Company has the option to buy back 1% of the NSR for total US$36.0 million less an amount equal to the aggregate Royalty payments made from the date of the agreement until the buyback date, multiplied by 40%. At April 30, 2014, $2.2 million had been paid and/ or accrued under this royalty agreement. -- As at April 30, 2014, capital commitments made to third parties included: --------------------------------------------------------------------------- Capital Commitments $000 --------------------------------------------------------------------------- Property, Plant and Equipment 1,930 --------------------------------------------------------------------------- Underground Development 96 --------------------------------------------------------------------------- TOTAL 2,026 --------------------------------------------------------------------------- /T/ Capital commitments relate to underground capital equipment and ongoing surface investments. /T/ -- The Company has a revolving credit facility of $47.5 million. This credit agreement currently envisages a combination of an unsecured operating loan ($7.5 million), a secured operating loan ($7.5 million) and lease facility ($32.5 million). As at April 30, 2014, the $6.5 million operating loan had been drawn down and $19.4 million of the lease facility had been utilised. The operating loan bears an annual interest rate of 4.0%. /T/ The finance lease liabilities have maturity dates until 2018, a weighted average nominal interest rate of 4.4% and are payable as follows: /T/ -------------------------------------------------------------------------------------------------------------------- Present Value Present Value Future Minimum Minimum Lease Future Minimum Minimum Lease Finance Lease Lease Payments Interest Payments Apr Lease Payments Interest April Payments April Liabilities ($000s) Apr 30, 2014 Apr 30, 2014 30, 2014 April 30, 2013 30, 2013 30, 2012 -------------------------------------------------------------------------------------------------------------------- Less than one year 7,803 672 7,131 7,039 795 6,244 -------------------------------------------------------------------------------------------------------------------- From one to five years 13,033 732 12,302 15,815 988 14,827 -------------------------------------------------------------------------------------------------------------------- TOTAL 20,836 1,404 19,433 22,854 1,783 21,071 -------------------------------------------------------------------------------------------------------------------- -- The Company has outstanding commodity contracts with counterparties totalling 8,974 ounces of gold at an average price of $1,397 per ounce. Two of the counterparties have a right to make a margin call if the price of outstanding gold contracts falls below the market price of the commodity. At April 30, 2014, $0.5 million was on deposit for such calls. -- The Ministry of Northern Development and Mines (MNDM) received a Closure Plan Amendment (CPA), along with the required financial assurance, in June 2012 for the Macassa, Kirkland Minerals, Teck Hughes, Lakeshore and former Joint Venture Properties. A progressive rehabilitation program for the five areas was included in the Closure Plan. The Wright Hargreaves property is not part of the Closure Plan, but the Company has committed to and continues to carry out a progressive rehabilitation program on that property. The associated costs to complete the work required for both ongoing Closure Plan activities and ongoing progressive rehabilitation work have been included in the 2014 financial year budget. The MNDM and the Company continue to liaise constructively on rehabilitation requirements for the Company's properties. /T/ The mill expansion necessitated the submission of a Notice of Material Change to the MNDM to: i) increase the hoisting rate to 3,000 tonnes per day, ii) add offices and a dry room, iii) modify No. 2 shaft to hoist men and materials, iv) increase the mill capacity to 2,000 tonnes per day, and v) install additional environmental equipment to service the mill expansion. A confirmation letter dated November 13, 2012 regarding the Notice of Material Change was received by the Company. This letter required the Company to submit a Certified Amendment to the Macassa Mine and Lakeshore Tailings Closure Plan, including any appropriate change to Financial Assurance. A CPA was submitted to the MDNM as required on March 28, 2013. The financial assurance was adjusted up by $65,535 to account for the demolition costs for the additional mill, crusher, dry room, office and other buildings added since December 2011, less credits for the completion of progressive rehabilitation work. On February 4, 2014 the Company was advised from the MNDM that one item was not addressed in the addendum, namely removal of fixed equipment on site. This was addressed to the MNDM by follow up letter and supporting documentation April 25, 2014. The addition of removal of fixed equipment increased the Financial Assurance requirement and as such the amount was increased to $7,052. An Environmental Compliance Approvals (ECA) Application - 'Air' was submitted to the Ministry of Environment (MOE) for the mill expansion in March 2013. An ECA application - 'Water' will be submitted to allow the mill to produce more than 1,588 tonnes per day. On November 14, 2013 an ECA Application - 'Water' was submitted to the MOE for modifications planned to 'G' Tailings Dam. As required by the Lakes and Rivers Improvement Act, documents are also being submitted to the Ministry of Natural Resources for the same work. RELATED PARTY TRANSACTIONS /T/ --------------------------------------------------------------------------- Key management personnel compensation (000s): 2014 2013 --------------------------------------------------------------------------- Short term employee benefits 2,068 1,022 --------------------------------------------------------------------------- Directors fees 327 148 --------------------------------------------------------------------------- TOTAL 2,395 1,170 --------------------------------------------------------------------------- /T/ Key management personnel are comprised of members of the board of directors and officers of the Company. Compensation doubled year over year due to severance costs associated with departing officers. Director's fees also increased during the year primarily as a consequence of the strategic review process and the creation of a Special Committee. SUBSEQUENT EVENT The Company announced on June 12, 2014 that it will issue 1,795,000 flow-through common shares ("Flow-Through Shares") at a price of $3.90 per Flow-Through Share for total proceeds of approximately $7,0 million (the "Offering"). The Company has also granted to the Underwriters an option (the "Underwriter's Option"), exercisable at any time up to 48 hours prior to the time set for the closing of the Offering, to purchase up to 128,205 additional flow-through of the Company (the "Option Flow-Through Shares") at a price of $3.90 per Option Share for additional gross proceeds to the Company of up to $0.5 million. The Offering closed on July 3, 2014 and an aggregate of 1,923,205 common shares (the "Offered Shares") were issued. The Flow-Through Shares will be subject to a four-month hold period in Canada. APPENDIX A SELECTED FINANCIAL INFORMATION & REVIEW OF OVERALL PERFORMANCE /T/ --------------------------------------------------------------------------------------------------------- Financial Highlights (All amounts in 000's of Canadian Dollars, except gold price per ounce, shares and per share figures) Year ended April 30, 2014 2013 2012 --------------------------------------------------------------------------------------------------------- Gold Sales (ounces) 125,273 91,771 97,888 Average Gold Price (per ounce) 1,385 1,653 1,633 --------------------------------------------------------------------------------------------------------- Revenue 173,258 151,692 159,824 Production Expenses 162,755 124,002 98,328 Exploration Expenditure 7,537 17,097 14,241 Other Expenses 18,593 13,366 4,927 Net (Loss) Income before Income Taxes (15,627) (2,773) 42,328 Net and Comprehensive (Loss) Income (11,077) (3,646) 41,270 Per share (basic and diluted) (0.16) (0.05) 0.58, 0.57 Cash Flow from operating activities 27,258 33,959 51,200 Cash Flow (used in) from financing activities (5,461) 106,235 11,812 Cash Flow used in investing activities (60,650) (106,235) (63,907) Net (decrease) increase in cash (38,853) 51,770 (895) --------------------------------------------------------------------------------------------------------- Total cash resources 38,897 76,966 30,172 Other Current Assets 23,732 30,719 22,086 Current Liabilities 45,361 71,565 25,013 Working Capital 17,268 36,120 27,245 Total Assets 409,385 448,782 270,329 Total Liabilities 126,363 201,423 37,674 --------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 70,150,912 70,150,912 71,528,490 Dividends per share NIL NIL NIL --------------------------------------------------------------------------------------------------------- /T/ APPENDIX B NON-GAAP FINANCIAL MEASURES The Company has included non-GAAP performance measures throughout this document. These include: cash operating costs per ton of ore produced, cash operating costs per ounce of gold produced and all-in cash costs per ounce of gold produced. Cash operating costs per ton of ore and ounce of gold produced and all-in cash costs per ounce of gold produced are common performance measures in the mining industry but do not have any standardized meaning. The guidance provided by the World Gold Council for calculating all-in costs was followed; however, the Company adjusts for non-cash items and includes financing fees within the total cash costs. Total cash operating costs include mine site operating costs (mining, processing and refining, in-mine drilling expenditures, administration, and production taxes), but are exclusive of other costs (royalties, depreciation and depletion, non-cash inventory valuation adjustments, off-site corporate costs, reclamation, capital, long-term development and exploration). All-in cash costs include all cash costs incurred during the period with the exception of the one-off Osisko 50% JV purchase in Fiscal 2013. These measures, along with sales, are considered to be key indicators of the Company's ability to generate operating earnings and free cash flows from its mining operations. The Company believes that certain investors use this information to evaluate the Company's performance and ability to generate cash flows. These should not be considered in isolation as a substitute for measures of performance prepared in accordance with IFRS and are not necessarily indicative of production costs presented under IFRS. The following tables provide reconciliation of said costs to the Company's financial statements for the quarter and year ended April 30, 2014: /T/ -------------------------------------------------------------------------------------------------------------- Cash Operating Cost per Ton Produced All amounts in 000s of Canadian Dollars except tons ore produced Three months ended Year Ended Apr 30, Apr 30, 2014 Jan 31, 2014 Apr 30, 2013 2014 2013 -------------------------------------------------------------------------------------------------------------- Production Expense per Financial Statements $ 38,855$ 46,987$ 40,955$ 162,755$ 124,002 Gold Inventory Valuation Adjustment (929) (5,353) (4,374) (1,338) (648) Amortization and Depletion (6,833) (6,355) (6,994) (26,064) (19,803) Stock-based compensation (90) (210) (435) (976) (1,687) Cash Production Costs $ 31,003$ 35,069$ 29,153$ 131,947$ 101,684 Royalties (1,274) (1,128) (68) (2,430) (112) Cash Operating Costs $ 29,729$ 33,940$ 29,085$ 131,947$ 101,752 -------------------------------------------------------------------------------------------------------------- Tons of Ore Produced 84,462 97,916 89,384 385,837 304,062 Ounce of Gold Produced 29,721 31,022 27,884 122,309 91,786 -------------------------------------------------------------------------------------------------------------- Cash Operating Cost per Ton Produced $ 352 $ 347 $ 325 $ 342 $ 335 Cash Operating Cost per Ounce Produced $ 1,000$ 1,094$ 1,043$ 1,079$ 1,109 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- AICC per Ounce Produced All amounts in 000s of Canadian Dollars except ounces produced Three months ended Year Ended Apr 30, Apr 30, 2014 Jan 31, 2014 Apr 30, 2013 2014 2013 ------------------------------------------------------------------------------------------------------------------- Cash Operating Costs (see above) $ 29,729$ 33,940$ 29,085$ 131,947$ 101,752 Royalties Expense 1,274 1,128 68 2,430 112 Exploration Expense 1,058 1,521 3,972 7,537 17,097 Corporate Cash Expense 5,082 3,927 3,602 18,777 13,174 Mineral Property Additions 13,053 15,531 14,036 55,673 47,083 Property, Plant & Equipment Purchases 2,526 3,621 12,728 26,501 44,037 ------------------------------------------------------------------------------------------------------------------- AICC $ 52,722$ 59,688$ 63,491$ 242,865$ 223,255 Ounces of Gold Produced 29,721 31,022 27,884 122,309 91,786 ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- AICC per Ounce Produced $ 1,774$ 1,923$ 2,277$ 1,986$ 2,432 ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- /T/ APPENDIX C CRITICAL ACCOUNTING POLICIES AND ESTIMATES (a) Income Taxes Tax expense for the period comprises current and deferred taxes. Tax is recognised in the income statement, except to the extent it relates to items recognized in other comprehensive income or directly in equity. In that case, the related tax impact is also recognized in other comprehensive income, or directly in equity, respectively. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is recognised in the financial statements using the liability method of accounting. Under this method of tax allocation, deferred 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 deferred income tax assets or liabilities are expected to be settled or realized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and where there is the intent to settle the balance on a net basis. (b) Mineral Properties 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 capitalised if the criteria for recognition as an asset are met and are depreciated on a units of production basis over proven and probable reserves. Near term development costs occur in areas where the Company expects production to occur within 18 months. Units of production basis Assets for which the economic benefits are consumed in a pattern which is linked to production are depreciated on a units of production basis based on the proven and probable reserves, which results in a depreciation charge proportional to the depletion of the reserves. Where significant parts of an asset have different useful lives, depreciation is calculated on each separate part. Remaining useful lives are reviewed and adjusted, if appropriate, annually. Changes to the estimated useful lives are accounted for prospectively. In applying the units of production method, depreciation is normally calculated using the quantity of material produced in the period as a percentage of the total quantity of material to be extracted from the mine in current and future periods based on proven and probable reserves. (c) Impairment of non financial assets The carrying amounts of noncurrent assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amounts may be impaired. Such reviews are undertaken on an asset by asset basis, except where assets do not generate cash inflows independent of other assets, in which case the review is undertaken at the cash generating unit level. A cash generating unit is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Generally, for the Company, this represents the mine. If there are indicators of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset's recoverable amount is determined as the higher of its fair value less costs to sell ('fvlcs') and its value in use. The best evidence of fair value is the value obtained from an active market or from a binding sale agreement. Where neither exists, fair value is based on the best information available to reflect the amount the Company could receive for the cash generating unit in an arm's length transaction. This is often estimated using discounted cash flow techniques. In assessing the value in use, the relevant future cash flows expected to arise from the continuing use of the assets and from their disposal are discounted to their present value using a market determined pre tax discount rate which reflects current market assessments of the time value of money and asset specific risks for which the cash flow estimates have not been adjusted. If the carrying amount of an asset or a cash generating unit exceeds its recoverable amount, an impairment loss is recorded in the income statement to reflect the assets at the lower amount. An impairment loss is reversed in the income statement if there is a change in the estimates used to determine the recoverable amount since the prior impairment loss was recognised. The carrying amount is increased to the recoverable amount but not beyond the carrying amount net of depreciation or amortisation which would have arisen if the prior impairment loss had not been recognised. (d) Impairment of Financial Assets Financial assets that are measured at amortized cost are assessed for impairment at the end of each reporting period. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and the event has a negative impact on the estimated cash flows of the financial asset and the loss can be reliably estimated. The amount of the impairment loss recognised is the difference between the carrying amount of the financial asset and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When an account receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss of a financial asset other than the accounts receivable decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial instrument at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Financial assets are derecognized when the right to receive cash flows from the asset have expired or the Company has transferred its right to receive cash flows from an asset. (e) Share Based Compensation The Company has a share based compensation plan described in Note 15. Under the plan, the Company can 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. For transactions with directors, senior officers, employees and others providing similar services (collectively referred to hereinafter as Employees), the fair value of the equity settled awards is measured at the initial grant date and is recognised as an asset for the portion that qualifies for recognition as an asset and the balance as an expense with a corresponding amount credited to equity, on a straight line basis over the vesting period after adjusting for the estimated number of awards that are expected to vest. For transactions with non Employees, the fair value of the equity settled awards is measured at the fair value of the goods or services received, at the date the goods or services are received by the Company. In cases where the fair value of goods or services received cannot be reliably estimated the Company estimates the fair value of the awards at the date of grant. (f) Financial Liabilities Financial liabilities are initially recognized at fair value net of directly attributable transaction costs. The Company's financial liabilities include accounts payable and accrued liabilities and finance leases. After initial recognition, a finance lease is subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any fees or costs related to the finance lease. Interest expense is included in net income within finance expense. Non-interest bearing financial liabilities such as accounts payable and accrued liabilities are carried at the amount owing. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Any gains or losses are recognized in net income when liabilities are derecognized. (g) Foreign Currency Transactions Foreign currency accounts are translated into Canadian dollars as follows: At the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the year end date, unsettled monetary assets and liabilities are translated into Canadian dollars by using the exchange rate in effect at the year end date and the related translation differences are recognized in net income. Non monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. NEW STANDARDS ADOPTED In October 2010, the IASB issued IFRS 9 "Financial Instruments" ("IFRS 9") which proposes to replace IAS 39 "Financial Instruments: recognition and measurement". The replacement standard has the following significant components: establishes two primary measurement categories for financial assets - amortized cost and fair value; establishes criteria for classification of financial assets within the measurement category based on business model and cash flow characteristics; and eliminates existing held to maturity, available-for-sale, and loans and receivable categories. In November 2013, the IASB issued an amendment to IFRS 9 which includes a new hedge model that aligns accounting more closely with risk management, as well as enhancements to the disclosures about hedge accounting and risk management. Additionally as the impairment guidance in IFRS 9, as well as certain limited amendments to the classification and measurement requirements of IFRS 9 are not yet complete, the previously mandated effective date of IFRS 9 of January 1, 2015, has been removed. Entities may apply IFRS 9 before the IASB completes the amendments, but are not required to. The Company will evaluate the impact of the change to its financial statements based on the characteristics of its financial instruments at the time of adoption. NATIONAL INSTRUMENTS 52-109 AND 43-101 Disclosure Controls and Procedures The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated the effectiveness of the Company's disclosure controls and procedures as at the financial year ended April 30, 2014. Based on that evaluation, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures were effective as at April 30, 2014 to provide reasonable assurance that material information relating to the Company would be made known to them by others within the Company. Internal Control over Financial Reporting As at the financial year ended April 30, 2014, the CEO and CFO evaluated the design and operating effectiveness of the Company's internal control over financial reporting. Based on that evaluation, the CEO and the CFO concluded that the design and operating effectiveness of internal control over financial reporting was effective as at April 30, 2014 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. During the quarter ended April 30, 2014, there has been no change in the Company's internal control over financial reporting that has materially affected the Company's internal control over financial reporting. Qualified Persons The scientific and technical results of the Company's exploration programs disclosed in this MD&A have been reviewed, verified (including sampling, analytical and test data) and compiled by the Company's geological and production staff (which includes a 'qualified person' in, Stewart Carmichael P. Geo., the Company's Chief Exploration Geologist, for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators). He also supervised the preparation of the information that forms the basis of the technical disclosure in this MD&A. The reserves and resources amounts disclosed in this MD&A have been prepared and verified by Glenn R. Clark, P. Eng., an independent 'qualified person' for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators. Quality Assurance & Control The Company has implemented a quality assurance and control (QA/QC) program to ensure sampling and analysis of all exploration work is conducted in accordance with the best possible practices. The drill core is sawn in half with half of the core samples shipped to the Swastika Laboratories in Swastika, Ontario or to the Macassa mine laboratory for analysis. The other half of the core is retained for future assay verification. Other QA/QC includes the insertion of blanks, and the regular re-assaying of pulps/rejects at alternate certified labs (Polymet, Accurassay). Gold analysis is conducted by fire assay using atomic absorption or gravimetric finish. The laboratory re-assays at least 10% of all samples and additional checks may be run on anomalous values. APPENDIX D OTHER MATTERS Outstanding Share, Option & Debentures Data as at the date of this MD&A: /T/ -------------------------------------------------------------------------------------------- Security Shares issued or Issuable Weighted Average Exercise Price -------------------------------------------------------------------------------------------- Common Shares 72,074,117 -- -------------------------------------------------------------------------------------------- Options 4,016,000(i) $6.22 -------------------------------------------------------------------------------------------- 6% Debentures 3,833,333 $15.00 -------------------------------------------------------------------------------------------- 7.5% Debentures 5,036,496 $13.70 -------------------------------------------------------------------------------------------- /T/ (i)if all options are fully vested Forward Looking Information Certain statements in this MD&A constitute 'forward looking statements', including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to the future business activities and operating performance of the Company. The words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company, are intended to identify such forward- looking statements. Investors are cautioned that forward-looking statements are based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made, and are inherently subject to a variety of risks and uncertainties and other known and unknown factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, among others, the Company's expectations in connection with the projects and exploration programs being met, the impact of general business and economic conditions, global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future conditions, fluctuating gold prices, currency exchange rates (such as the Canadian dollar versus the United States dollar), possible variations in ore grade or recovery rates, changes in accounting policies, changes in the Company's corporate mineral resources, changes in project parameters as plans continue to be refined, changes in project development, construction, production and commissioning time frames, the possibility of project cost overruns or unanticipated costs and expenses, higher prices for fuel, power, labour and other consumables contributing to higher costs and general risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, unexpected changes in mine life, seasonality and unanticipated weather changes, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, and limitations on insurance, as well as those risk factors discussed or referred to in the Company's AIF for the year ended April 30, 2014 filed with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update these forward-looking statements except as otherwise required by applicable law.


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