Agnico Eagle Mines Limited (TSX: AEM) is a Canadian gold mining company which produces precious metals since 1957. The group’s operating mines are situated in Canada, Finland, and Mexico, while its exploration and development activities are in each of these countries as well as in the United States, Sweden, and Colombia.

Key Highlights:

• Increased production: For Q1FY22, the company reported an increase in the gold production of 660,604 oz (ounces) which is higher than the gold production of 516,804 oz in Q1FY21. The major driver of the increase in the gold production was the merger of the Detour Lake mine, Macassa mine, and Fosterville mine, which collectively produced 206,758 oz of gold in the reported period (Q1FY22). 

• Commencement of 2022 Diamond drill program: The group recently announced the start of its 2022 diamond drill program on its White gold property. The property is estimated as per the study to have combined mineral resources of 1,139,900 ounces indicated at 2.28 g/t Au (grams per tonne of gold) and 402,100 ounces inferred at 1.39 g/t Au, which is a key positive.

• Strong liquidity: The group stated an increase in its cash and cash equivalent balance to USD 1,061.99 million in Q1FY22, against the cash and cash equivalent balance of USD 126.46 million in Q1FY21. To add more, the cash flows from operations surged to USD 507.43 million during Q1FY22 versus the cash from the operating activities of USD 366.64 million in Q1FY21. The strong liquidity helps the company to meet its day-to-day operational expenses along with carrying out the expansionary plans as well.

• Efficient debt management: In Q1FY22, the group efficiently managed its debt as compared to its peers, which is represented below.

Source: Refinitiv, Analysis by Kalkine Group

• Increased adjusted net income: During Q1FY22 the company witnessed an increase in the adjusted net income to USD 235.61 million against the adjusted net income of USD 172.01 million in Q1FY21. On account on increase in the severance and transaction costs related to acquisitions and purchase price allocation to inventory in the reported period, the group was able to achieve a higher adjusted net income.

Risks associated with investment

The group’s major revenue portion is driven by the gold prices and any sustained price decline can impact the revenues severely. Further, the risk of changing laws, decline in demand for gold, rising interest rates which could slow down the mining operations, and inflationary cost pressure, can also dampen the company’s financials. 

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing

• During Q1FY22, the group reported an increase in revenues to USD 1,325.68 million versus the revenue of USD 949.62 million in Q1FY21. The 35% increase in sales volume of gold on account of the merger from the three mines and 5.6% increase in the average realized gold prices, pushed the overall sales higher in Q1FY22.

• The income before income and mining taxes declined to USD 174.56 million in the reported period (Q1FY22) when measured against the income before income and mining taxes of USD 243.16 million in pcp. On account of the increased cost of production, and exploration & corporate development expenses, the group witnessed the decline in the income before income and mining taxes.

• The group reported a net income of USD 109.75 million in Q1FY22 which is lower than the net income of USD 145.23 million in Q1FY21.

Valuation Methodology (Illustrative): Price/ Cash-flow based

Analysis by Kalkine Group

Stock Recommendation:

The company reported an increase in the revenue to USD 1,325.68 million in Q1FY22 as compared to the revenue of USD 949.62 million in Q1FY21, also the adjusted net income rose to USD 235.61 million in the reported period (Q1FY22) against the adjusted net income of USD 172.01 million in pcp. Recently, the group declared a quarterly dividend of CAD 0.40 per share. On the valuation front, the stock is measured on the Price/ Cash-flow based relative valuation multiple and we have considered Newmont Corporation, Franco-Nevada Corp, etc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock of AEM at the last closing price of CAD 66.57 on June 16, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as of June 16, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Disclaimer

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