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 KIRKLAND LAKE GOLD INC.

P.O. Box 370

Kirkland Lake, ON, P2N 3J7

September 15, 2009                                                                                                                   Symbol - TSX & AIM: KGI

KIRKLAND LAKE GOLD REPORTS AN OPERATIONS UPDATE

& FINANCIAL RESULTS FISCAL Q1 2009

Kirkland Lake Gold Inc. ('Kirkland Lake' or the 'Company'), an operating and exploration gold mining company located in Ontario, Canada, has announced and operations update and its first quarter results for the three months ended July 31st, 2009.   

Financial highlights for fiscal Q1 2010

• Gold revenues achieved were $22.5 million, a 24% increase compared to last quarter (Q4 2009: $18.2 million) and a 183% increase compared to fiscal Q1 2009 (Q1 2009: $8.0m) as a result of more ounces being sold.

• Income for the quarter ended July 31, 2009 of $1,617,859 or $0.03 per share, which compares with a net income of $2,349,177 or $0.04 per share for the previous quarter and a loss of $3,353,500 or $0.06 per share for the same quarter in fiscal 2009.

• Cash flows generated from operations were $7,001,299 for the quarter, which compared to cash flows of $1,853,960 in the previous quarter.

• Cash resources (including short-term investments) as at July 31, 2009 were $28.6 million and as at September 14, 2009 increased to $59.6 million which is expected to be sufficient to fund the Company's planned exploration and development activities for the next 12-18 months.

Operational highlights for fiscal 2009

• Gold production for the quarter was 17,135 ounces (oz), 16% lower than in the previous quarter (20,411 oz) due to a paste fill blockage that occurred on June 23, 2009 and mining of less high grade ore than expected.

• Drilling of a new four inch paste borehole to 3400 level has now been completed and the contractor is now starting to drill a second back up hole. These two new holes should be easier to maintain and operate than the old twelve inch hole. 

• During the quarter approximately 44,000 feet of exploration drilling was completed. Exploration results during the quarter included intersections on the New South Zone of the SMC. Drill hole 53-1279 assayed 23.75 ounces per ton of gold (opt) uncut (3.60 opt cut) over a true width of 14 feet and included 192.50 opt over a true width 1.3 feet. Drill hole 53-1277 assayed 0.90 opt uncut (0.63 opt cut) over a true width of 26.3 feet and drill hole 53-1223 assayed 3.35 opt uncut (2.25 opt cut) over a true width 7.7 feet including 14.52 opt over a true width of 1.1 feet.

 

Harry Dobson, Kirkland Lake's Chairman, commented;

'Kirkland Lake has had a strong first quarter generating cash flows from operations of $7.0 million due to new productivity improvements and an increase in ounces sold. The set back due to the borehole blockage has effectively reduced our annual forecast by up to one quarter.'

'We are also pleased with the successful C$37 million private placement that took place on August 19, 2009 and believe this demonstrates the confidence investors have in the Company.' 

 

SELECTED FINANCIAL INFORMATION & REVIEW OF OVERALL PERFORMANCE

Financial Highlights (All amounts in 000s of Canadian Dollars, except shares and per share figures)	Three months ended,
	July 31, 2009	April 30, 2009	July 31, 2008
Gold Sales (ounces) Average Price (per ounce)	20,994 $1,072	16,067 $1,133	8,813 $902
Revenue Operating Expenses Exploration Expenditure Net Income (loss) Per share (basic and diluted) Cash Flow from (used) operating activities Cash Flow from financing activities Cash Flow (used) for investing activities Net increase (decrease) in cash Cash at end of period Short-term investments Total cash resources	22,499 19,216 1,092 1,617 0.03 7,001 210 4,203 11,413 13,220 15,143 28,363	18,210 14,289 1,043 2,349 0.04 1,854 13,051 (16,296) (1,393) 1,806 23,638 25,444	7,952 10,062   814 (3,354)   (0.06)   (1,081) 0 (2,402)  (3,482) 12,120 15,475 27,595
Total Assets Total Liabilities Working Capital	103,233 14,122 25,856	100,896 14,127 26,358	88,819 10,368 25,670
Weighted average number of shares outstanding Dividends per share	58,557,132 NIL	56,349,826 NIL	55,703,312 NIL

About Kirkland Lake Gold Inc.

Kirkland Lake Gold Inc. is an operating and exploration gold mining company located in Ontario, Canada. Kirkland Lake Gold Inc. purchased the Macassa Mine and the 1,500 ton per day mill along with four former producing gold properties - Kirkland Lake, Teck-Hughes, Lake Shore and Wright Hargreaves - in December 2001. These properties, which have historically produced some 22 million ounces of gold, extend over seven kilometres between the Macassa Mine on the west and Wright Hargreaves on the east and, for the first time, are being developed and explored under one owner. This camp is located in the Southern Abitibi Greenstone Belt of Kirkland Lake, Ontario, Canada. The Company's corporate goal is to expand its gold reserves and reduce its operating costs to become a profitable gold producer. 

The results of the Company's diamond drilling program have been reviewed, verified (including sampling, analytical and test data) and compiled by the Company's geological staff (which includes a 'qualified person', 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). Mr. Carmichael also supervised the preparation of the information that forms the basis of the technical disclosure regarding the exploration results in this release.

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 one half of the core samples shipped to the Swastika Laboratories in Swastika, Ontario, Polymet Resources Inc. in Cobalt, Ontario. 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 and rejects at alternate certified labs. 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.

The Company's common shares trade on the TSX (Toronto Stock Exchange) and on the AIM (Alternative Investment Market) of the London Stock Exchange. 

The Company's senior management and Board of Directors have extensive experience in the natural resource and mining sectors that include exploration, mining and marketing, as well as experience in the legal and corporate finance areas.

For further information, please contact:  

 

Brian Hinchcliffe  President Phone: 1 705 567 5208 Fax: 1 705 568 6444  E-mail: bhinchcliffe@klgold.com	Scott Koyich Investor Relations Phone: 1 403 215 5979 E-mail: info@klgold.com
Chelsea Hayes  Pelham Public Relations Phone: +44 (0) 20 7377 1524 E-mail: chelsea.hayes@pelhampr.com Guy Wilkes Ocean Equities Ltd. Phone: +44 207 786 4370 E-mail:  guy.wilkes@oceanequities.co.uk	NOMAD: Panmure Gordon (UK) Limited Katherine Roe / Ashton Clanfield Phone: +44 20 7459 5744 Email: katherine.roe@panmure.com
Website- www.klgold.com

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 may contain statements which constitute 'forward-looking, including statements regarding the plans, intentions, beliefs and current expectations of the Company, its directors, or its officers 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, or its management, are intended to identify such forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future business activities or performance and involve risks and uncertainties, and that the Company's future business activities may differ materially from those in the forward-looking statements as a result of various factors. Such risks, uncertainties and factors are described in the periodic filings with the Canadian securities regulatory authorities, including the Company's Annual Information Form and quarterly and annual Management's Discussion & Analysis, which may be viewed on SEDAR 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.

KIRKLAND LAKE GOLD INC.

UNAUDITED FINANCIAL STATEMENTS

THREE MONTH PERIOD ENDED JULY 31, 2009 

(EXPRESSED IN CANADIAN DOLLARS)

The accompanying unaudited financial statements of Kirkland Lake Gold Inc. (the 'Company') have been prepared by and are the responsibility of the Company's management.

These statements have been approved by the Audit Committee and the Board of Directors of the Company.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by The Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

 

 

 

KIRKLAND LAKE GOLD INC.

Balance Sheets
(Unaudited)
As at July 31, 2009 and April 30, 2009

(expressed in Canadian dollars, except share amounts)

	July 31 2009	April 30 2009
Assets
Current assets
Cash and cash equivalents	$13,219,660	$1,806,199
Short-term investments (Note 4)	15,142,864	23,638,142
Accounts receivable	2,000,245	4,162,458
Inventories (Note 5)	5,869,619	7,388,143
Prepaid expenses and deposits	612,395	448,946
	36,844,783	37,443,888
Security deposits	67,480	67,480
Restricted cash (Note 3)	4,952,597	4,734,556
Mineral properties (Note 6)	45,455,415	43,319,425
Property, plant and equipment (Note 7)	15,913,150	15,330,251
	$103,233,425	$100,895,600
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 13(b))	$10,897,735	$11,085,540
Current portion of capital lease (Note 8)	91,440	-
	10,989,175	11,085,540
Obligations under capital lease (Note 8)	45,720	-
Asset retirement obligation (Note 9)	3,087,056	3,041,434
	14,121,951	14,126,974
Shareholders' equity
Capital stock (Note 10)
Authorized Unlimited common shares, without par value Issued 58,563,898 (2009 - 58,548,898) common shares	165,868,585	165,755,459
Options (Note 11)	4,245,515	3,630,924
Warrants (Note 12)	1,496,813	1,499,541
Contributed surplus	3,079,066	3,079,066
Deficit	(85,578,505)	(87,196,364)
	89,111,474	86,768,626
	$103,233,425	$100,895,600

Operations, going concern and measurement uncertainty (Note 1)

Commitments (Notes 3 and 14)

Subsequent events (Note 17)

Approved by the Board of Directors:

(signed) 'Brian E. Bayley' Director(signed) 'Brian Hinchcliffe' Director

 

KIRKLAND LAKE GOLD INC.

Statements of Operations, Comprehensive Income (Loss) and Deficit
(Unaudited)
For the three months ended July 31, 2009 and 2008

(expressed in Canadian dollars, except share amounts)

	Three Month Period Ended July 31 2009	Three Month  Period Ended July 31 2008
Revenue
Mining revenue	$22,499,009	$7,952,045
Expenses
Operating costs	16,413,589	8,716,616
Stock-based compensation for operational personnel	521,991	131,709
Amortization and depletion	1,380,331	896,112
Royalties	899,724	317,277
	19,215,635	10,061,714
	3,283,374	(2,109,669)
Other expenses
General and administrative	515,342	526,120
Exploration	1,092,261	813,616
Interest and bank charges	4,255	2,719
Stock-based compensation for administrative personnel	130,498	205,459
Interest and other income	(76,841)	(304,083)
	1,665,515	1,243,831
Net income (loss) and comprehensive income (loss) for the period	1,617,859	(3,353,500)
Deficit - beginning of period	(87,196,364)	(76,713,309)
Deficit - end of period	$(85,578,505)	$(80,066,809)
Basic and diluted earnings (loss) per share	$0.03	$(0.06)
Weighted average number of shares outstanding	58,557,132	55,703,312

Operations, going concern and measurement uncertainty (Note 1)

 

KIRKLAND LAKE GOLD INC.

Statements of Cash Flows
(Unaudited)
For the three months ended July 31, 2009 and 2008

(expressed in Canadian dollars)

	Three Month Period Ended July 31 2009	Three Month Period Ended July 31 2008
Cash flows from (used in) operating activities
Net income (loss) for the period	$1,617,859	$(3,353,500)
Items not affecting cash
Amortization and depletion	1,380,331	896,112
(Gain) loss on short-term investment	(11,985)	11,848
Stock-based compensation	652,489	337,168
Asset retirement obligation	45,622	38,257
Gain on sale of equipment	(12,500)	-
Changes in non-cash working capital items
Accounts receivable	2,162,213	1,133,196
Inventories	1,518,524	(782,346)
Prepaid expenses and deposits	(163,449)	49,966
Accounts payable and accrued liabilities	(187,805)	588,536
	7,001,299	(1,080,763)
Cash flows from financing activities
Net proceeds from issuance of capital stock	72,500	-
Capital lease	137,160	-
	209,660	-
Cash flows from (used in) investing activities
Purchase of property, plant and equipment	(1,304,871)	(953,829)
Purchase of short-term investments	(14,999,050)	(15,229,072)
Proceeds from sale of short-term investments	23,506,312	15,131,534
Proceeds of disposition of property, plant and equipment	12,500	-
Additions to mineral properties	(2,794,348)	(1,350,262)
Restricted cash	(218,041)	-
	4,202,502	(2,401,629)
Increase (decrease) in cash and cash equivalents	11,413,461	(3,482,392)
Cash and cash equivalents - beginning of period	1,806,199	15,602,593
Cash and cash equivalents - end of period	$13,219,660	$12,120,201

Supplemental cash flow information (Note 16)

 

KIRKLAND LAKE GOLD INC.

Notes to Unaudited Financial Statements
For the three months ended July 31, 2009 and 2008
(expressed in Canadian dollars)

 

1.        Operations, going concern and measurement uncertainty 

Operations

Kirkland Lake Gold Inc. (the Company) owns gold mining and milling operations in Kirkland Lake, Canada, which were inactive when acquired in December 2001.

Going concern

While the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations into the foreseeable future, certain historical adverse conditions and events could cast significant doubt upon the validity of this assumption and hence the appropriateness of the use of accounting principles applicable to a going concern.

During the years ended April 30, 2009 and 2008, the Company incurred losses of $10.5 million and $3.3 million, respectively. Cash flow required for operating activities, including exploration costs charged to operations of $7.5 million, aggregated $3.0 million for the two years in total. The funds required to continue operations and exploration activities during this period have been financed primarily from the issue of equity.

At July 31, 2009, the Company has working capital of $25.9 million. Management projects that these funds, together with cash flow from operations, will be sufficient to meet the Company's obligations and capital expenditure plans for the next twelve months. Nevertheless, differences are likely to occur between actual results and those projected by management, and those differences may be material. It is possible that the operations will not generate sufficient cash flow for the Company to continue in the normal course without funding being provided from outside sources.

Management has been successful in obtaining sufficient funding for the Company's operating and capital exploration requirements in the past and will pursue additional funding in the future, if necessary. There is, however, no assurance that such funding will be available to the Company, or that it will be available on terms which are acceptable to management. If this does not occur, the Company may not be able to continue as a going concern.

These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material.

Measurement uncertainty

The Company's history of operating losses from mining operations indicate that the recorded costs for mineral properties and related fixed assets may not be recoverable. Management estimates, using a constant gold price of $1,051 per ounce and operating costs similar to historical costs incurred over the past year, that annual production of 72,000 to 80,000 ounces for each year would be required to cover costs of operations and estimated capital expenditures required for mining operations. To date, the Company has not been successful in achieving and sustaining this higher rate of production.

There is significant uncertainty associated with the ability of the Company to recover the carrying value of the mineral property and related assets. Gold price or Canadian/U.S. dollar exchange rate movements, the success of the Company in realizing the benefit of the production improvements noted above, adverse changes in the costs of labour and the other costs or unforeseen production difficulties all would have an impact on the ability of the Company to achieve its goals from operations. The amount of working capital currently available for use by the Company could mean that an adverse development could have a significant impact on the Company's operations and ability to recover costs.

 

2.        Significant accounting policies

Basis of presentation

These unaudited interim financial statements are prepared in accordance with Canadian generally accepted accounting principles ('GAAP'). They do not include all of the information and disclosures required by Canadian GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. The interim financial statements should be read in conjunction with the Company's audited financial statements including the notes thereto for the year ended April 30, 2009.

Adoption of new accounting standards

Effective May 1, 2009, the Company adopted Canadian Institute of Chartered Accountants ('CICA') Handbook Section 3064, Goodwill and Intangible Assets.

The initial adoption of this new standard had no material impact on the Company's financial statements.

Accounting changes

The following Canadian accounting pronouncements were issued and not yet adopted by the Company:

• CICA Handbook Section 1582, Business Combinations. The new standard prescribes how an organization recognizes, measures and discloses a business combination. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011.

• CICA Handbook Section 1601, Consolidated Financial Statements. The new section prescribes consolidation accounting standards. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for fiscal years beginning on or after January 2011.

• CICA Handbook Section 1602, Non-Controlling Interests. The new section prescribes standards for the accounting for a non-controlling interest in business combination. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for fiscal years beginning on or after January 2011.

3.        Restricted cash

Restricted cash includes:

	JULY 31 2009	APRIL 30 2009
Letters of Credit:
Ministry of Northern Development, Mines and Forestry	$4,452,597	$4,452,597
Independent Electricity System Operator of Ontario	500,000	281,959
	$4,952,597	$4,734,556

Letters of credit are in place with the Ministry of Northern Development, Mines and Forestry to cover the estimated total costs of reclamation and site restoration (Note 9) and with the Independent Electrical System Operator of Ontario to secure the provision of electricity.  

 

4.         Investments

Investments include:

	JULY 31 2009	APRIL 30 2009
Government of Canada Treasury Bill bears interest at 0.05%, matures August 20, 2009	$4,999,350	$-
Government of Canada Treasury Bill bears interest at 0.05%, matures August 20, 2009	9,999,699	-
Government of Canada Treasury Bill bears interest at 0.65%, matures May 14, 2009	-	4,999,286
Government of Canada Treasury Bill bears interest at 0.6%, matures May 14, 2009	-	9,999,577
Government of Canada Treasury Bill bears interest at 0.3%, matures June 11, 2009	-	1,504,795
Government of Canada Treasury Bill bears interest at 0.3%, matures June 11, 2009	-	5,003,994
Government of Canada Treasury Bill bears interest at 0.25%, matures July 23, 2009	-	1,998,660
Investment in mutual funds	143,815	131,830
	$15,142,864	$23,638,142

5.        Inventories

	JULY 31 2009	APRIL 30 2009
Mine operating supplies	$1,755,473	$1,559,459
Gold in process	4,114,146	5,457,505
Surface stockpile	-	371,179
	$5,869,619	$7,388,143

 

6.        Mineral properties

	JULY 31 2009	APRIL 30 2009
Balance - Beginning of period	$43,319,425	$36,947,885
Development costs	2,794,348	8,077,906
Depletion	(658,358)	(1,706,366)
Balance - End of period	$45,455,415	$43,319,425

	COST	ACCUMULATED DEPLETION	JULY 31 2009	APRIL 30 2009
Acquisition allocation	$2,055,024	$289,208	$1,765,816	$1,778,637
Underground development	49,350,602	8,010,157	41,340,445	39,152,009
Underground pumping	2,050,942	542,934	1,508,008	1,533,399
Mill and surface facilities	149,371	40,275	109,096	110,945
Lakeshore property	1,000,411	268,361	732,050	744,435
	$54,606,350	$9,150,935	$45,455,415	$43,319,425

 

7.        Property, plant and equipment

	COST	ACCUMULATED AMORTIZATION	JULY 31 2009
Computer equipment	$780,226	$722,139	$58,087
Mine and mill equipment	26,507,136	10,925,264	15,581,872
Vehicles	129,493	111,480	18,013
Buildings	591,822	336,644	255,178
	$28,008,677	$12,095,527	$15,913,150

 

	COST	ACCUMULATED AMORTIZATION	APRIL 30 2009
Computer equipment	$780,226	$695,722	$84,504
Mine and mill equipment	25,202,263	10,245,820	14,956,443
Vehicles	129,493	108,912	20,581
Buildings	591,822	323,099	268,723
	$26,703,804	$11,373,553	$15,330,251

 

8.        Obligations under capital lease

	JULY 31 2009
Lease bearing interest at 8% per annum, repayable in monthly payments of $8,487. The lease matures in 18 months.	$137,160
Amounts payable within one year	(91,440)
	$45,720

9.        Asset retirement obligation

The Company has filed a reclamation and site restoration plan in connection with the Kirkland Lake properties and these plans are currently being discussed with the Ontario Ministry of Northern Development and Mining (MNDM). The Company's best estimate of the total costs of reclamation and site restoration at July 31, 2009 are $5,415,814 and financial assurance has been provided to the MNDM by way of a letter of credit in the amount of $4,452,597 (Note 3). 

A reconciliation for asset retirement obligations is as follows:

	JULY 31 2009	APRIL 30 2009
Balance - Beginning of period	$3,041,434	$2,862,508
Revision to estimated cash flows	-	25,896
Accretion	45,622	153,030
Balance - End of period	$3,087,056	$3,041,434

The Company continues to correspond with the MNDM regarding the Wright Hargreaves property. The Company has retained a consultant to assist in the identification of, if any, potential hazards and related obligations to the Company. This process is currently ongoing, the outcome of which is currently indeterminable at this time.

The provision for asset retirement obligations is based on the following key assumptions.

• The total undiscounted cash flow as at July 31, 2009 is $5,415,814.

• The expected settlement to be in 2024.

• A credit adjusted risk free rate at which the estimated payments have been discounted of 6%.

• An inflation rate of 2%.

10.        Capital stock

 

	Number of shares	Stated value
Balance - Beginning of period	58,548,898	$165,755,459
Exercise of options (Note 11)	12,500	96,648
Exercise of warrants (Note 12)	2,500	16,478
Balance - End of period	58,563,898	$165,868,585

  11.       Options

The Company has a stock option plan which allows the Company to grant options to directors, senior officers and employees of or consultants to the Company or employees of a corporation providing management services to the Company. The aggregate number of shares which may be subject to issuance pursuant to options granted under this plan is 3,500,000 shares.

The plan provides that the exercise price of an option granted under the plan shall not be less than the market price at the time of granting the option. Options have a maximum term of 10 years and terminate on the 90th day after the optionee ceased to be any of a director, officer, consultant or employee; on the 30th day after the optionee ceased to be an employee or consultant if the optionee was engaged in providing investor relations services for the Company; or the earlier of the 90th day and the third month after the optionee ceased to be an employee or officer if the optionee is subject to the tax laws of the United States of America.

Notwithstanding that options can have a maximum term of 10 years it is presently the policy of the Company to issue options for terms of five years.

The changes in stock options issued during the 3 month period ended July 31, 2009 are as follows:

	Number of shares	Weighted average exercise price
Options outstanding - beginning of period	1,468,000	$7.62
Exercised	(12,500)	4.70
Options outstanding - end of period	1,455,500	7.53
Options exercisable - end of period	447,500	$8.54

The following table summarizes information about stock options outstanding and exercisable at July 31, 2009:

Exercise price	Options outstanding	Options exercisable	Outstanding options weighted average remaining life (years)	Exercisable options weighted average remaining life (years)
$4.70	7,000	7,000	0.15	0.15
5.05	50,000	-	4.19	-
6.99	250,000	-	4.06	-
6.99	487,500	-	4.14	-
7.90	301,000	150,500	3.79	3.79
8.65	245,000	245,000	2.50	2.50
9.25	75,000	25,000	3.81	3.81
12.50	40,000	20,000	3.24	3.24
$ 4.70 - 12.50	1,455,500	447,500	3.72	3.00

The fair value of each option at the date of grant was estimated using the Black-Scholes option-pricing model.

	JULY 31 2009	APRIL 30 2009
Expected life of options	3- 5 years	3 -5 years
Risk-free interest rate	3.58 - 3.98%	3.58 - 3.98%
Expected stock price volatility	53.3 -   64%	53.3 - 64%
Expected dividend yield	0%	0%

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate.

The value ascribed to unexercised options recorded as a component of shareholders' equity is as follows:

	JULY 31 2009	APRIL 30 2009
Balance - Beginning of period	$3,630,924	$1,284,136
Accretion of options granted	652,489	2,642,448
Exercise of options	(37,898)	(14,362)
Options forfeited	-	(281,298)
Balance - End of period	$4,245,515	$3,630,924

12.      Warrants

The changes in warrants outstanding are as follows:

	Number of shares	Weighted average exercise price
Warrants outstanding - beginning of period	930,000	$7.31
Exercised	(2,500)	5.50
Warrants outstanding - end of period	927,500	$7.32

	JULY 31 2009	APRIL 30 2009
Balance - Beginning of period	$1,499,541	$677,891
Warrants issued in private placements	-	821,650
Exercise of warrants	(2,728)	-
Balance - End of period	$1,496,813	$1,499,541

13.       Related party transactions

The following related party transactions occurred during the period:

(a)The Company paid office facilities and administration services in the amount of $10,500 (2008 - $10,500) to a Company related by directors in common.

(b)At July 31, 2009, accounts payable included $3,896 (2009 - $NIL) owing to companies with directors in common. Amounts due to related parties are non-interest bearing and have no fixed terms of repayment.

These transactions were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties.

 

14.      Commitments

As at July 31, 2009, capital commitments included:

Capital Commitments (All commitments in 000s of Canadian Dollars)	$000
Property, Plant and Equipment	412
Underground Development	5
Total	417

A net smelter royalty is payable to Kinross Gold Corporation on a sliding scale commencing at 2% if the price of gold sold is equal to or greater than US$300 per ounce and increasing to 4% if the price of gold sold is equal to or greater than US$500 per ounce. The royalty amount due is payable quarterly commencing on the third month anniversary of the commencement of commercial production from any of the properties and terminates upon a maximum aggregate payment of $15 million. During the period ended July 31, 2009, royalties under this agreement amounted to $899,724 (2008 - $317,277). Of the $15 million the Company had paid $6,853,304.

An agreement between Queenston Mining Inc. and the Company was formed in April 2007 to explore the Morgan property. The Company has agreed to spend $770,000 on exploration for the fiscal year 2010. 

With regard to the Morgan purchase agreement, the company has completed the issuance of the third tranche of shares and made the third cash payment to the vendor of the South claims. To complete its purchase obligations, the company must issue a further $50,000 worth of shares and pay a further $50,000 to the vendor by January 15, 2010.

 

15.      Segmented information

The Company has one operating segment consisting of a mining and milling operation located in Kirkland Lake, Canada. During the periods ended July 31, 2009 and 2008 all of the Company's capital assets, revenues earned and operations were in Canada.

16.       Supplemental cash flow information

Cash and cash equivalents comprise cash on deposit with Canadian chartered banks, lines of credit and treasury bills.

	JULY 31 2009	JULY 31 2008
Value assigned to options/warrants exercised	$40,626	$-
Capital lease	$137,160	$-
Purchase of asset under capital lease	$(137,160)	$-

 

17.      Subsequent event

On August 19, 2009 the Company announced it reached an agreement on a private placement for 4,555,000 units at a price of $8.15 per unit for gross proceeds of $37,123,250. Each unit consisted of one common share and one-third of a share purchase warrant. Each whole warrant is exercisable to purchase one common share at a price of $9.85 until October 10, 2010.

The proceeds from the financing will be used for exploration and development of the mine infrastructure capable of supporting an annual target production rate of 200,000 ounces. The common shares issued and issuable pursuant to the private placement will be subject to restrictions on their transfer for a period of four months from the date of their issue.

The private placement was closed on September 10, 2009.

KIRKLAND LAKE GOLD INC.

Management's Discussion & Analysis ('MD&A')

Period Ending July 31, 2009 - Q1 Fiscal 2010

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 September 14, 2009 and covers the results of operations for the quarter ended July 31, 2009. It is intended to supplement the unaudited Financial Statements and notes thereto which are expressed in Canadian Dollars and prepared in accordance with Canadian Generally Accepted Accounting Principles ('GAAP'). This MD&A should be read in conjunction with both the annual audited financial statements and notes thereto for the year ended April 30, 2009 and the related annual MD&A. Additional information relating to the Company is available from the Company's Annual Information Form ('AIF') filed with the Canadian securities regulators on SEDAR at www.sedar.com.

Kirkland Lake Gold Inc.
P.O. Box 370
Kirkland Lake, ON  P2N 3J1

  CONTENTS

OUR BUSINESS

HIGHLIGHTS OF THE QUARTER

OUTLOOK

CAPITAL PROJECTS UPDATE

OPERATIONS REVIEW

EXPLORATION UPDATE

REVIEW OF FINANCIAL RESULTS

SUBSEQUENT EVENT

SUMMARY OF QUARTERLY RESULTS

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

APPENDIX 1

SELECTED FINANCIAL INFORMATION & REVIEW OF OVERALL PERFORMANCE

APPENDIX 2

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

CHANGES IN ACCOUNTING POLICIES

APPENDIX 3

OTHER MATTERS

Outstanding Share, Option & Warrant Data

Forward Looking Information

Qualified Persons

Quality Assurance & Control

OUR BUSINESS

The Company is an operating gold mining company located in Kirkland Lake, Ontario, Canada which owns the Macassa Mine and Mill and four contiguous formerly producing gold mining properties. The Company's corporate goal is to expand its gold resources and reserves and reduce its operating costs to become a profitable gold producer. The Company's common shares trade on the TSX (Toronto Stock Exchange) and the AIM (Alternative Investment Market of the London Stock Exchange).

HIGHLIGHTS OF THE QUARTER

The Company is pleased to report a net income for the quarter ended July 31, 2009 of $ 1,617,859 or $0.03 per share, which compares with a net income of $2,349,177 or $0.04 per share for the previous quarter and a loss of $3,353,500 or $0.06 per share for the same quarter in fiscal 2009. 

• Gold production for the quarter was 17,135 ounces (oz), 16% lower than in the previous quarter (20,411 oz) due to a paste fill blockage that occurred on June 23, 2009 and mining less high grade ore than expected. 

• Cash flows generated from operations were $7,001,299 for the quarter, which compared to cash flows of $1,853,960 in the previous quarter.
  
• Cash resources (including short-term investments) as at July 31, 2009 were $28,580,565 and as at September 14, 2009 increased to $59,557,553.
  
• Drilling of a new four inch paste borehole to 3400 level has now been completed and the contractor is now starting to drill a second back up hole. These two new holes should be easier to maintain and operate than the old twelve inch hole.

OUTLOOK

Production tonnage during May and June of the first quarter of fiscal 2010 was on track but ore milled was only 78% of the forecasted grade. In July, production was then impacted by a shortage of fill as a result of the borehole blockage. Paste fill activities should return to normal in the second half of September but a return to full production is unlikely to occur until November as most of the stope production areas are now awaiting fill before production can advance. Production in the second quarter of fiscal 2010 is therefore likely to be in the range of 6,000 to 9,000 ounces. Production forecasts for the fiscal year, as a consequence of stoping production delays caused by the borehole collapse, have effectively reduced production by one quarter. As a result, the Company is revising down its annual gold production forecast to [60,000 - 80,000] ounces. 

See 'Forward Looking Information' for a description of the factors that may cause actual results to differ from forecast. 

  CAPITAL PROJECTS UPDATE

During the quarter the Company spent $2.8 million on underground capital drift and raise development and $1.2 million on property, plant and equipment.

Underground development spending consisted of $2.0 million on the Phase I Project development, $0.5 million spent on ongoing development, and $0.3 million on exploration development. The Phase I Project will continue until July 2010 and consists of development work required to bring the South Mine Complex (SMC) zone into sustained production. Ongoing development is required to sustain production in the Main Break area, and exploration development is designed to extend and add exploration drilling locations in both the Main Break and SMC as required. 

The Company plans to continue with this work as required to sustain production in future quarters, and is developing a Phase II Project to examine the timing, physical requirements, and capital development necessary to achieve a sustained annual production rate of 200,000 ounces. Once completed and approved by the Board, work could begin late in the second quarter.

Property, plant and equipment purchases included $0.4 million on Phase I Project equipment, $0.4 million on on-going capital equipment, and $0.4 million in Phase II Project related equipment, plant, and engineering.

OPERATIONS REVIEW 

Q1/10 Results	Commentary	Comparatives
		Q4/09	*B/ (W)	Q1/09	B/ (W)
17,135  oz	Gold production was lower than the previous quarter due to the paste fill borehole blockage described above and lower than expected average ore grades. Despite this, gold sales of 20,994 ounces were achieved during the quarter as a consequence of running down gold inventory levels.	20,411  oz	(16)%	9,193  oz	86%
0.32  oz/ton	Overall grade for the quarter decreased compared to the previous quarter due to higher grade stopes being placed on hold in July awaiting paste backfill and lower than expected ore grades coming from certain other stopes.	0.42  oz/ton	(24)%	0.29  oz/ton	10%
1,366 ft	Operating development decreased from the previous quarter as the quantity of initial stope openings decreased. Operating development associated with the SMC represented 17% (305 feet) of all operating development within the quarter. This development decreased 61% from the previous quarter (Q4/09: 779 feet) and is expected to decrease in future quarters, mainly due to the completion of delineation of ore zones in stopes.	1,978  ft	(31)%	1,776  ft	(23)%
25,303 tons	Ore generated from production, development and delineation in the SMC throughout Q1/10 was 25,303 tons grading 0.48 ounces of gold per ton (opt) with a recovery of 11,535 ounces. The higher tonnage combined with lower grade resulted in an equivalent number of ounces being produced from the SMC compared to the previous quarter (Q4/09: 11,541 ounces).	18,176 tons	39%	7,643  tons	231%
27,480 tons	Ore generated from the Main Break had a grade of 0.21 opt due to lower than expected grade ore and low grade ore from exploratory mining.	31,979 tons	(14)%	25,420 tons	8%
1,939 ft	Capital Development footage consistency is due to long term access development associated with the SMC and will continue throughout fiscal 2010.	2,096 ft	(8)%	898  ft	115%
54,306 tns	Hoisted ore tons increased compared to previous quarters as a result of more stopes being in production but these workplaces generated less high grade ore than expected.	50,854 tns	7%	30,063 tns	81%

*B / (W) = Better / (Worse)

EXPLORATION UPDATE

During the quarter four electric drills and two air machines were dedicated to exploration. Approximately 44,000 feet of exploration drilling was completed during the quarter with five of the exploration drills being dedicated to testing the SMC.

Exploration results during the quarter included intersections on the New South Zone of the SMC. Drill hole 53-1279 assayed 23.75 opt uncut (3.60 opt cut) over a true width of 14 feet and included 192.50 opt over a true width 1.3 feet. Drill hole 53-1277 assayed 0.90 opt uncut (0.63 opt cut) over a true width of 26.3 feet and drill hole 53-1223 assayed 3.35 opt uncut (2.25 opt cut) over a true width 7.7 feet including 14.52 opt over a true width of 1.1 feet.

305 feet of track development was completed on the border between the South Claims Joint Venture property with Queenston Mining and the 100% owned KGI Macassa property. This development will facilitate drilling on both the South Claims joint venture property as well as the Macassa property.

 

REVIEW OF FINANCIAL RESULTS 

Q1/10 Results ($000's)	Commentary	Comparatives
		Q4/09	*B/ (W)	Q1/09	B/ (W)
22,499	Revenue increased as a result of 12,181 more ounces being sold compared to Q1/09 and 4,927 compared to Q4/09.	18,210	24%	7,952	183%
19,216	Operating Costs	14,289	(34)%	10,062	(91)%
	Compared to Q1/09: Operating expenses increased $9.2 million primarily due to increases in mining costs ($4.2 million) and milling costs ($0.7 million). The balance of the increase was related to inventory changes and higher production levels. The increase in mining costs resulted primarily from the activity associated with a 114% increase in mining personnel to support the expanded mining plan in the main break and SMC.  An increase in milling throughput of 84% required an increase in personnel ($0.1 million) and resulted in the costs of materials increasing ($0.6 million). These costs included mill reagents, grinding media and power. Compared to Q4/09: Operating expenses increased $4.9 million primarily due to a change in inventory levels ($5.1 million) which was offset by a slight decrease in mining costs ($0.4 million). An inventory adjustment of $5.1 million occurred between quarters as a result of:  (i) a reduction in the number of ounces of gold in inventory between quarters.  (ii) a 52% increase in the average unit of production cost resulting from the material change in output between quarters. Mining costs were lower mainly due to a slight decrease mining personnel and associated materials.
515	General and administrative expenses are lower as a result of lower accounting and audit fees and listing and filing fees.	645	20%	526	2%
1,092	Exploration costs remained consistent when compared to the previous quarter, but increased compared to the same quarter in the previous fiscal year as a result of increased contractor drilling.	1,043	(5)%	814	(34)%
2,794	Capital spending on mine development increased year on year but remained consistent between quarters as explained in the capital project update	2,604	(7)%	1,350	(107)%
1,305	Capital spending on equipment reflects the timing of scheduled deliveries.	1,802	28%	954	(38)%
21,413	The increase in total spending including operating costs, capital expenditures and royalties reflects increased mining and development and project related activities.	16,437	(30)%	11,338	(89)%
76	Other income is lower due to declining interest rates on investments and overall lower cash balances.	70	9%	303	(75)%

*B / (W) = Better / (Worse)

SUBSEQUENT EVENT

On August 19, 2009 the Company announced it reached an agreement on a private placement for 4,555,000 units at a price of $8.15 per unit for gross proceeds of $37,123,250. Each unit consisted of one common share and one-third of a share purchase warrant. Each whole warrant is exercisable to purchase one common share at a price of $9.85 until October 10, 2010.

The proceeds from the financing will be used for exploration and development of the mine infrastructure towards the production target rate of 200,000 ounces annually. The common shares issued and issuable pursuant to the private placement will be subject to restrictions on their transfer for a period of four months from the date of their issue.

The private placement was closed on September 10, 2009.

  SUMMARY OF QUARTERLY RESULTS

The quarterly results for the Company for the last eight fiscal quarters are set out in the following table.

 

Quarterly Results (All amounts in 000s of Canadian Dollars, except Loss per share figures)	4th Quarter	3rd   Quarter	2nd Quarter	1st Quarter
Fiscal 2010
Revenue				22,499
Net Income (Loss)				1,617
Loss per Share (Basic & Diluted)				0.03
Fiscal 2009
Revenue	18,210	8,553	8,827	7,952
Net Income (Loss)	2,349	(4,688)	(4,790)	(3,354)
Loss per Share (Basic & Diluted)	0.04	(0.08)	(0.09)	(0.06)
Fiscal 2008
Revenue	13,198	9,576	7,362
Net Income (Loss)	906	(1,895)	(2,393)
Loss per Share (Basic & Diluted)	0.00	(0.02)	(0.04)

Compared to the previous quarter, the number of full time employees fell 1% from 400 to 396. The slight change is attributable to timing between hires. Employee retention is being enhanced by the introduction of personnel development plans and a number of other retention schemes.

The Company continued to work diligently regarding safety and training. There were no lost time accidents on the property (including contractors) and medical aid frequency was 3.6 on the MASHA ratings scale. Currently the Company is ranked #3 for MASHA's Award of Excellence for mines with more than 250 employees. 

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

To date, the Company has relied on private placement financings of equity securities to finance its operations. With current cash resources and expenses historically exceeding income, the liquidity risk could be material. Success will depend, for the most part, upon increasing production, adding to reserves as cost effectively as possible and maintaining tight controls over material price increases and expenditure generally. 

Sales of gold doré bars and the majority of the Company's expenses are incurred in Canadian Dollars therefore the Company is substantially protected against movements in foreign exchange. The Company's principal exchange rate risk relates to movements between the Canadian Dollar and US Dollar on the price of gold. 

Our holding of cash balances is kept under constant review and surplus funds are held on deposit at the best available market rates set by reference to the prevailing Prime Rate. There are no fixed, floating rate or interest free financial liabilities by way of borrowing.

Cash and short-term investment resources, (cash, cash equivalents and short-term investments) were as follows: 

Resource	At July 31,
	2009	2008
Cash $CDN	13,219,660	12,120,079
Cash $US	0	122
Short-term Investments	15,142,864	15,474,809
Total	28,362,524	27,595,010

Interest received on Canadian Dollar deposits range from 0.05 - 0.5% per year. A breakdown of restricted cash and investments is available in Notes 3 and 4 of the accompanying Financial Statements. 

The cash flow statement shows that the Company generated $7.0 million in cash from operations in the quarter. This cash inflow was a consequence of a $1.6 million income in the period, as well as a $2.1 million change in items not effecting cash and changes in non-cash working capital items of $3.3 million.

Net proceeds from financing activities during the quarter included $0.1 million from the issuance of capital stock and a capital lease for $0.1 million (see subsequent event on page 6).

Net investing activities of $4.2 million was attributable to net proceeds from short-term investments of $8.5 million, which was offset by expenditures in mine equipment of $1.3 million, capital development of $2.8 million and an increase in restricted cash of $0.2 million to cover electricity supplies from the IESO. 

As at September 14, 2009 the Company's cash resources are $59.6 million. These funds are expected to be sufficient to fund the Company's planned exploration and development activities for the next 12-18 months.

Financial Instruments

The Company's financial instruments as at year end consist of cash and cash equivalents, short-term investments, security deposits, restricted cash, accounts receivable, accounts payable, and accrued liabilities. At July 31, 2009, the carrying values of these instruments 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, currency or credit risks arising from these financial instruments.

As at July 31, 2009, the Company had an outstanding commodity contract with Johnson Matthey Plc. to fix the price of 4,242 ounces of gold at an average price of $1050.16 per ounce to be delivered under this contract. Fair value was not significantly different from stated value when the gold was delivered. As part of the commodity contract Johnson Matthey Plc. has a right to make a margin call if the price of gold falls below the price of the commodity contract until the full amount of the commodity contract has been satisfied. At the end of the quarter, $292,875 was on deposit to cover the margin calls made by Johnson Matthey Plc.

Commitments

As at July 31, 2009, capital commitments included:

Capital Commitments  (All commitments in 000s of Canadian Dollars)	$000
Property, Plant and Equipment	412
Underground Development	5
TOTAL	417

The Company also has a capital lease in the amount of $137,160 bearing interest at 8% per annum, repayable in monthly payments of $8,487. The lease matures in 18 months.

A net smelter royalty is payable on a sliding scale commencing at 2% if the price of gold is equal to or greater than US$300 per ounce and increasing to 4% if the price of gold sold is equal to or greater than US$500 per ounce. The royalty amount due is payable quarterly commencing on the third month anniversary of the commencement of commercial production from any of the properties and terminates upon a maximum aggregate payment of $15 million. During the period ended, July 31, 2009, royalties under this agreement amounted to $899,724 (2008: $317,277). Of the $15 million the Company has paid $6,853,304.

An agreement between Queenston Mining Inc. and the Company was formed in April 2007 to explore the Morgan property. The Company has agreed to spend $770,000 on exploration for the fiscal year 2010.

With regard to the Morgan purchase agreement, the Company has completed the issuance of the third tranche of shares and made the third cash payment to the vendor of the South Claims. The Company issued 15,586 shares valued at $62,500 ($4.01 per share) and paid $62,500. To complete its purchase obligations, the Company must issue a further $50,000 worth of shares and pay a further $50,000 to the vendor by January 15, 2010.

On February 1, 2008 the Company submitted a revised end of mine life closure plan to the Ministry of Northern Development & Mines ('MNDM') of the Province of Ontario. At the same time, the Company put in place a letter of credit for $4,452,597 in favour of the MNDM who, in turn, refunded the Company the original mine closure bond for $2,235,829 on April 17, 2008.

The MNDM advised the Company on May 12, 2008 that the amended closure plan submitted on February 1, 2008 did not address all of the prescribed requirements for a certified closure plan. 

On September 25, 2008 the Company received from the MNDM technical comments regarding the plan's short comings. As a consequence, the Company has engaged third party consultants, to compile the necessary data to respond to these comments.

The Wright Hargreaves property is not included in the amended closure plan nor is there any financial assurance in place with respect to this property. A letter from the MNDM dated October 27, 2008 requires that the Company provide a schedule to determine how and when any hazards on this property will be rehabilitated. In response on March 5, 2009 the Company issued a letter to MNDM explaining that a consultant has been retained to assist in the identification of potential hazards and related obligations, if any. This process is currently ongoing.

  

Related Party Transactions

Pursuant to an agreement between the Company and Ionic Management Corp. (formerly Quest Management Corp.), the Company pays $3,500 per month to Ionic in consideration of Ionic providing corporate and administrative services to the Company. During the quarter and year to date, the total fees paid to Ionic for services performed under the agreement were $10,500 (2008: $10,500). Ionic is a private management company and has one director (Brian E. Bayley) in common and a corporate secretary (Sandra Lee) in common with the Company. 

  APPENDIX 1

SELECTED FINANCIAL INFORMATION & REVIEW OF OVERALL PERFORMANCE

Financial Highlights (All amounts in 000s of Canadian Dollars, except shares and per share figures)	Three months ended,
		July 31, 2009	April 30, 2009	July 31, 2008
Gold Sales (ounces) Average Price (per ounce)	20,994 $1,072		16,067 $1,133	8,813 $902
Revenue Operating Expenses Exploration Expenditure Net Income (loss) Per share (basic and diluted) Cash Flow from (used) operating activities Cash Flow from financing activities Cash Flow (used) for investing activities Net increase (decrease) in cash Cash at end of period Short-term investments Total cash resources	22,499 19,216 1,092 1,617 0.03 7,001 210 4,203 11,413 13,220 15,143 28,363		18,210 14,289 1,043 2,349 0.04 1,854 13,051 (16,296) (1,393) 1,806 23,638 25,444	7,952 10,062   814 (3,354)   (0.06)   (1,081) 0 (2,402)  (3,482) 12,120 15,475 27,595
Total Assets Total Liabilities Working Capital	103,233 14,122 25,856		100,896 14,127 26,358	88,819 10,368 25,670
Weighted average number of shares outstanding Dividends per share	58,557,132 NIL		56,349,826 NIL	55,703,312 NIL

  APPENDIX 2

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The details of the Company's accounting policies are presented in accordance with Canadian GAAP as set out in Note 2 to the financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The preparation of the Company's financial statements depend upon estimates of proven and probable reserves, measured and indicated mineral resources and recoverable ounces, assumptions of operating costs and future gold prices and possible values assigned to potential resources on exploration properties. Such estimates and assumptions affect the cost recovery of long-lived assets and the rate at which depletion and amortization are charged to earnings. In addition, management must estimate costs associated with mine reclamation and closure costs. 

The following estimates are considered by management to be the most critical for investors to understand some of the processes and reasoning that go into the preparation of the Company's financial statements, providing some insight also to uncertainties that could impact the Company's financial results.

Going Concern

While the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations into the foreseeable future, certain historical adverse conditions and events, could cast significant doubt upon the validity of this assumption and hence the appropriateness of the use of accounting principles applicable to a going concern. 

During the years ended April 30, 2009 and 2008, the Company incurred losses of $10.5 million and $3.3 million, respectively. Cash flow required for operating activities, including exploration costs charged to operations of $7.5 million, aggregated $3.0 million for the two years in total. The funds required to continue operations and exploration activities during this period have been financed primarily from the issue of equity.

At July 31, 2009, the Company had working capital of $25.9 million. Management projects that these funds, together with cash flow from operations, will be sufficient to meet the Company's obligations and capital expenditure plans for the next twelve months. Nevertheless, differences are likely to occur between actual results and those predicted by management, and those differences may be material. It is possible that the operations will not generate sufficient cash flow for the Company to continue in the normal course without funding being provided from outside sources.

Management has been successful in obtaining sufficient funding for the Company's operating and capital exploration requirements in the past and will pursue additional funding in the future, if necessary. There is, however, no assurance that such funding will be available to the Company, or that it will be available on terms which are acceptable to management. If this does not occur, the Company may not be able to continue as a going concern.

These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material.

Measurement Uncertainty

The Company's history of operating losses from mining operations indicate at April 30, 2009, that the recorded costs for mineral properties and related fixed assets may not be recoverable. Management estimates, using a constant gold price of $1,051 per ounce and operating costs similar to historical costs incurred over the past year, that annual production of approximately 72,000 to 80,000 ounces for each year would be required to cover costs of operations and estimated capital expenditures required for mining operations. To date, the Company has not been successful in achieving and sustaining this higher rate of production. 

There is significant uncertainty associated with the ability of the Company to achieve the increase in production or reduction in costs necessary to recover the carrying value of the mineral property and related assets. Gold price or Canadian/U.S. dollar exchange rate movements, the success of the Company in realizing the benefit of the production improvements noted above, changes in the costs of labour, and the other costs or unforeseen production difficulties all would have an impact on the ability of the Company to achieve its goals from operations. The amount of working capital currently available for use by the Company could mean that an adverse development could have a significant impact on the Company's operations and ability to recover costs.

Mineral Reserves & Deferred Exploration Costs

The Company expenses exploration expenditures and near term ore development costs as incurred. Property acquisition costs and longer term development costs incurred to expand ore reserves are deferred and depleted on a units-of-production basis over proven and probable reserves which are currently accessible by the Company. Management's estimate of gold price, recoverability, proven and probable reserves, operating capital and reclamation costs are subject to risk and uncertainties affecting the recoverability of the Company's investment in mineral properties. The Company assesses capitalized costs for recoverability on an annual basis or more frequently if changes in circumstances suggest that possible impairment. Where information is available and conditions suggest impairment, estimated future net cash flows are calculated using estimated future prices, reserves and operating, capital and reclamation costs on an undiscounted basis. If the net carrying value of the property exceeds the estimated future undiscounted net cash flows, the property will be written down to fair value.

Closure Costs

The Company has an obligation to reclaim its properties after the minerals have been mined from the site, and has estimated the costs necessary to comply with existing reclamation standards. These estimates are recorded as a liability at their fair values in the periods in which they occur. If the estimate of reclamation costs proves to be inaccurate, the Company could be required to increase the provision for site closure and reclamation costs, which would increase the amount of future reclamation expense, resulting in a reduction in the Company's earnings and net assets.

Internal Control over Financial Reporting

As at the financial year ended April 30, 2009, the Chief Executive Officer and Chief Financial Officer evaluated the design and operating effectiveness of the Company's internal control over financial reporting. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operating effectiveness of internal control over financial reporting was effective as at April 30, 2009 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. During the period ended July 31, 2009, there has been no change in the Company's internal control over financial reporting that has materially affected the Company's internal control of financial reporting.

Adoption of International Financial Reporting Standards (IFRS)

The Canadian Accounting Standards Board (AcSB) and the Canadian Securities Administrators (CSA) have confirmed January 1, 2011 as the date IFRS will replace Canadian Generally Accepted Accounting Principles (Canadian GAAP) for publicly accountable, profit-oriented enterprises. This presents a change in the fundamental principles upon which financial reporting is conducted and requires significant analysis and planning to ensure a proper transition. The Company has completed a diagnostic review and is continuing to assess the implications of this change. The Company has also started training key personnel on IFRS. The results of the assessment and key elements and timing of the plan will be discussed in greater detail as information becomes available.

CHANGES IN ACCOUNTING POLICIES

Effective May 1, 2009, the Company adopted Canadian Institute of Chartered Accountants ('CICA') Handbook Section 3064, Goodwill and Intangible Assets.

The initial adoption of this new standard had no material impact on the Company's financial statements.

Accounting Changes

The following Canadian accounting pronouncements were issued and not yet adopted by the Company:

• CICA Handbook Section 1582, Business Combinations. The new section prescribes how an organization recognizes, measures and discloses and business combination. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011.

• CICA Handbook Section 1601, Consolidated Financial Statements. The new section prescribes consolidation accounting standards. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for fiscal years beginning on or after January 1, 2011.

• CICA Handbook Section 1602, Non-Controlling Interests. The new section prescribes standards for the accounting for a non-controlling interest in business combination. This standard is not expected to have a significant impact on the Company's financial position or results. This is effective for fiscal years beginning on or after January 1, 2011.

  APPENDIX 3

OTHER MATTERS

Outstanding Share, Option & Warrant Data

As at the date of this MD&A the following securities are outstanding:

Security	Shares issued or Issuable	Weighted Average Exercise Price
Common Shares	58,563,898	--
Options	1,455,500*	$7.53
Warrants	927,500	$7.32

*if all options have fully vested

Forward Looking Information

Certain statements in this MD&A constitute 'forward looking statements'. While these statements are made as of the date hereof they refer to future events. Any forward looking statements are based upon reasonable assumptions, but no guarantees or assurances can be given that actual results will be consistent with such statements. 

Forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such risks, uncertainties and other factors include, but are not limited to, the following:

• Risks inherent in natural resource exploration, development and production 

• Lack of operating cash flow and the Company's reliance on additional capital

• Competition in the mineral exploration and mining industries 

• Governmental regulation and environmental liability

• Uncertainty of title of resource properties

• Results of legal claims made by or against the Company

A comprehensive list of the risks and uncertainties are set out in the Company's AIF. Readers should not place undue reliance on any forward looking statements.

Qualified Persons

The scientific and technical results of the Company's exploration programs and operations 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 each department, Stewart Carmichael P.Geo., the Company's Chief Exploration Geologist in respect of exploration results, and Steve Gray, P. Geo, the Company's Chief Production Geologist in respect of production results, for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators). They 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 the annual audited financial statements and MD&A for the year ended April 30, 2009 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.

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