Beleaguered Kirkland Lake Gold Inc., which has launched a strategic review that could include the potential sale of shares or assets, will likely have trouble selling its key asset if it decides on that option, says one analyst.
Toronto-based Kirkland said on Monday that its board has appointed a special committee of independent directors to assess possible scenarios including a sale of the company.
The company also said that former chief executive officer Brian Hinchcliffe has stepped down as deputy chairman and as a member of the board.
"While we continue to work on our plan to improve the company's margins, the Board has approved a process to review and evaluate potential alternatives that may further maximize value for our shareholders," Kirkland CEO George Ogilvie said in a statement.
Kirkland's main asset is the Macassa mine in the Kirkland Lake gold area in northeastern Ontario.
"With regard to an asset sale, we see the likelihood that a potential acquirer can be found for Macassa to be low, given the asset's history of underperformance and high capital intensity," Desjardins Securities analyst Adam Melnyk said in a research note Monday.
"Based on our forecasts, the current gold price environment also imposes significant constraints on the company's balance sheet due to Macassa's high cost profile, suggesting potential downside risk from above-average sensitivity to spot gold."
Kirkland's decision to go with a full strategic review is also partly due to the company's "tight balance sheet, which may result in an equity offering," said Mr. Melnyk.
"We expect the market to view negatively the implication in today's release that [Kirkland] is evaluating an equity offering but may react positively to the implication of an asset sale."
At the end of October, the company had working capital of $51-million and long-term debt of $120-million; Mr. Melnyk forecasts that working capital will fall to $47-million at the end of fiscal 2014.
The market may also take a positive view to the resignation of Mr. Hinchcliffe given his role as CEO when Kirkland was struggling to make its operational guidance targets, he added.
Mr. Hinchcliffe was replaced by Mr. Ogilvie in November.