Agnico Eagle Mines Limited

Agnico Eagle Mines Limited (TSX: AEM), is an international gold producer and explorer with operating mines in Canada, Finland, and Mexico, along with development activities in each of these countries as well as in the United States and Sweden.

Key highlights 

• Management is expecting a rise in gold production: The company has forecasted an increase in gold production by 24% from 2020 to 2022. Key Pipeline Projects are expected to drive future production growth.

Source: Company 

• Substantial Financial Flexibility:As of September 30, 2020, the company had strong cumulative liquidity of USD 1.5 billion, with USD 322 million in cash and cash equivalents and USD 1.2 billion in undrawn credit lines available.

Source: Company 

• Increased dividend distribution: The company has a strong history of dividend payment, which establishes the fact that the company’s business is resilient and has reported stable cash flows over the years. Recently, the company increased the dividend by 75%, to USD 0.35 per common share (USD 1.40/share on an annualized rate), payable on December 15, 2020, to holders with a record date of November 25, 2020.

Source: Company

Financial overview of Q3 2020 (thousands of United States dollars, except per share amounts)

Source: Company 

• The company’ gold production increased to 492,693 ounces in Q3 2020, compared with 476,937 ounces in Q3 2019, primarily due to increased gold production from the Meliadine mine and Meadowbank Complex. 

• In Q3 2020, the company reported revenues from mining operations of USD 980.6 million, as against USD 683.0 million in Q3 2019, primarily due to a 29.1% increase in the average realized price of gold.

• Production costs stood at USD 412.8 million in Q3 2020, compared with USD 316.3 million in Q3 2019. Production costs increased in the quarter primarily due to higher maintenance costs at the Meliadine mine.

• Net income posted by the group in Q3 2020 was USD 222.6 million, as against USD 76.6 million in the previous corresponding period, primarily due to high revenues on the back of high realization price of gold, along with gain on a derivative financial instrument, and gain on foreign currency translation. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. The price of gold is subject to volatile price movements. It is affected by numerous factors, such as the strength of the US dollar, supply and demand, interest rates, and inflation rates, all of which are beyond the Company’s control. 

Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Despite the recent pullback, we expect the gold price to remain elevated as we believe gold, as an asset class would continue to remain in the limelight on account of uncertainty over the global economic growth. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. Further, the company expects an increase in gold production by 24% from 2020 to 2022. Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 90.37 on December 10, 2020. We have considered Wheaton Precious Metals Corp, Alamos Gold Inc, Altius Minerals Corp etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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