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 Updates:

• Increased stake in Cartier Resources Inc.: Recently, the company has increased its stake in Cartier Resources Inc. from 13.33% of the issued and outstanding Common Shares on a non-diluted basis to 17.70% of the issued and outstanding Common Shares on a non-diluted basis. Currently, the company would own 49,292,536 Common Shares and 7,000,000 Warrants of Cartier Resources Inc.
  

• Surge in Gold Production: The company reported a strong Gold production in Q1FY22 at 660,604 ounces, increased from 516,804 ounces in the Q1FY21, driven by the added contribution of the Detour Lake, Fosterville and Macassa mines as a result of the Merger. Moreover, a higher gold production from LaRonde mine, primarily due to higher gold grades also supported the company’s operation.
  

• Higher dividend payment: In Q1FY22, the company reported a higher dividend payment of USD 154.7 million, which is significantly higher than USD 72.9 million in pcp. This is impressive as most of the companies are lowering their dividend payment in pcp. Moreover, the stock of AEM is carrying a dividend yield of ~3.126% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

Risks associated with the Investment:

The company’s operations might be impacted due to lower commodity prices, currency volatility, high input costs, etc. Moreover, changes in drilling and well-servicing technology, along with the impact of any adverse weather conditions, might also dampen the ongoing operation of the company. 

Q1FY22 Financial highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• AEM announced its Q1FY22 result, wherein the company posted its Revenues from mining operations of USD 1,325.6 million, higher than USD 949.6 million in pcp. The increase in revenues from mining operations was due to a higher gold sale from the Detour Lake, Fosterville and Macassa mines.
• The quarter was marked by a higher production cost, rise in exploration & corporate development costs coupled with an increase in general & administrative expense, partially offset by lower finance costs. Income before income and mining taxes stood at USD 174.5 million, lower than USD 243.1 million in Q1FY21. This was primarily due to higher input costs as mentioned above.
• Net income for the period stood at USD 109.7 million, declined from USD 145.2 million in Q1FY21, due to lower income before income and mining taxes while offset by a lower income tax and mining expense.

  Valuation Methodology (Illustrative): Price to CF based

  Analysis by Kalkine Group

Stock Recommendation:

The company reported solid gold production in Q1FY22 due to added contribution from the recent acquisitions. The company has a prudent capital management and has a D/E ratio of 0.11x in Q1FY22, as compared to the industry median of 0.21x. This indicates higher financial flexibility and is a key positive.

We have valued the stock using the P/CF-based relative valuation method and have arrived at a single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Alamos Gold Inc, Yamana Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of AEM at the last closing price of CAD 65.59 on May 18, 2022.

One-Year Technical Price Chart (as on May 18, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

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