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Agnico Eagle Mines Ltd.

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Msg  318 of 322  at  9/18/2014 11:19:50 PM  by

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Can Agnico Eagle Mines Continue Beating The Market?

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

  • Agnico Eagle is delivering tremendous growth and recently turned in a profit.
  • Agnico Eagle's focus on improving its production profile should lead to better performances in the long run.
  • Agnico Eagle's bottom line is expected to grow in the double digits in the next five years.

Agnico Eagle Mines (NYSE:AEM) has beaten the market comprehensively this year. The Canadian gold miner has appreciated 34% so far, well ahead of the S&P 500's gains of just 8.6%. Considering that Agnico has beaten Wall Street's expectations by a big margin in three of the last four quarters, its strong run in 2014 doesn't come as a surprise. In fact, Agnico has delivered an average positive surprise of almost 132% over the past four quarters.

Delivering impressive growth

However, the last reported second-quarter threw a dampener, as Agnico missed Wall Street's bottom line estimate. But, even then, the company's results were strong. Agnico Eagle announced revenue of $437.8 million from its mining operations for the second quarter, up from revenue of $336.4 million in the prior-year period.

In addition, Agnico reported non-GAAP net income of $58.4 million for the second quarter, a massive improvement over the non-GAAP net loss of $23.5 million in the prior-year period. Hence, even though the company missed the bottom line estimate, it reported a robust improvement in its performance.

A strong asset profile will drive results

Looking ahead, Agnico is confident of being able to sustain its impressive performance, driven by an impressive cost and production profile. Agnico has raised its production estimates from the pre-Canadian Malartics for this year from a level of 1.19 million ounces to 1.235 million ounces.

In addition, Agnico's mine at La Ronde is witnessing a strong cost profile. The mine is expected to ramp up robustly in the second half of the year. The mine at Goldex is also progressing well considering its cost and production. Moreover, the company is six months ahead of schedule for initiating the operations at a rate of 6,000 tonnes a day at the mine.

Moreover, the expansion of the mill at the Kittila mine in Finland is proceeding ahead of schedule, with the plant expected to handle nearly 4,000 tonnes a day, ahead of the earlier guidance of approximately 3,750 tonnes per day. The production at Meadowbank is forecasted to be in the 90,000 ounce range on a quarterly basis during the second half, coupled with an expected production in the 100,000 to 110,000 ounce range.

The La India project, a part of the company's southern business, is also operating well with low costs, healthy cash generation, and solid contribution to the cash flow. The underground production is on schedule as well. At Meadowbank, the second quarter cost per tonne is also impressive at CAD 71 a tonne. Hence, the mine is performing robustly with a throughput of 11,500 tonnes a day on an average for the quarter at a low cost.

Improving the asset portfolio

The company recently acquired 50% of Osisko, with Yamana Gold (NYSE:AUY) owning the other half. As a result, Agnico has put its 2014 guidance for the production at Canadian Malartic in 510,000 to 530,000 ounces range, slightly below the production of 530,000 ounces for the mine at Osisko. Hence, this move should improve Agnico's production profile, and management thinks the same. According to a press release:

With the acquisition of Osisko now complete, Agnico Eagle looks forward to working with Yamana to further optimize the Canadian Malartic mine and build on the solid operational performance achieved in May 2014," said Sean Boyd, President and Chief Executive Officer of Agnico Eagle. "In addition, we are jointly reviewing the Kirkland Lake portfolio with the intent of designing an exploration program to expand and upgrade the current resource base to further enhance shareholder value," added Mr. Boyd.

Agnico is now focused on improving and expanding the grinding and crushing capacity in the short term at this project. In the medium term, it is focused on expanding the plant capacity. Therefore, the company is exploring ways for eliminating the handling costs linked to the stock piling. In addition, Agnico is exploring ways to improve the blasting and drilling techniques in the pits to improve fragmentation. Besides this, both Agnico and Yamana are focused on optimizing their maintenance.

In addition, Agnico is also on track to acquire Cayden Resources for nearly C$205 million. This is another smart move from Agnico, as it now has access to an early-stage gold company with promising projects. According to a release:

Cayden owns, has options to acquire or has staked, concessions constituting a 100% interest in the El Barqueňo Property, which covers approximately 41,000 hectares in the Guachinango gold district in Jalisco State, Mexico. El Barqueňo hosts a significant epithermal bonanza type gold vein and disseminated stockwork system. Several gold bearing zones have been identified by drilling and trenching in an area approximately 13.5 km long by 4.7 km wide.

Cayden also owns a 100% interest in the Morelos Sur Property, which covers approximately 13,000 hectares in the Guerrero gold belt in Guerrero State, Mexico. Morelos Sur consists of three properties ((La Magnetita, Tenantla and Las Calles)), and exploration by Cayden has outlined a 25 km2 gold soil anomaly at La Magnetita, and Tenantla.

Thus, Agnico is making the right moves to strengthen its asset portfolio, and this should help the company maintain its strong rate of growth in the future.

Conclusion

Agnico is making smart moves to strengthen its business and sustain its impressive growth rate. Even analysts are of the same opinion, as estimates suggest that Agnico's bottom line will grow almost 40% this fiscal year. Even the long-term prospects look upbeat, as it is estimated that Agnico will deliver bottom line growth of almost 11.5% in the next five years. The company recently reported a profit, and looking ahead, there is a good chance that its strong run will continue on the back of its impressive production profile.



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