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 and in each of these countries as well as in the United States and Sweden.

Key highlights 

• Favourable opportunities through Merger: The merger of Agnico Eagle and Kirkland Lake’s entails a remarkable operational and strategic synergies. This will benefit the company is streamlining corporate costs which includes offices, payroll etc. Besides this, the operational synergies establish procurement and warehouse savings for the firm. The strategic synergy outcomes with optimizing infrastructure, leveraging existing assets, and expected cash flow of USD 240 million over the next 5 years and USD 590 million over the course of 10 years.

• Record quarterly gold production: In Q3 2021, the company produced 523,706 ounces of payable gold (excluding 17,957 ounces at Hope Bay and including pre-commercial gold production of 6,881 ounces at the Tiriganiaq open pit at Meliadine) at production costs per ounce of USD 832, total cash costs per ounce of USD 765, and AISC per ounce of USD 1,011.

• Solid operating performance from Agnico Eagle and Kirkland Gold mines: Record nine months gold production of 1,584koz at total cash costs of USD 755/oz and AISC of USD1,035/oz. The Abitibi mines collectively produced 644koz of gold at total cash costs of USD 591/oz. The Meliadine had a record nine months producing 290koz of gold at total cash costs of USD 626/oz. Moreover, Kirkland Lake Gold also witnessed strong operating performance for the first nine months of 2021 with gold production of 1,053koz at total cash costs of USD466/oz sold and AISC of USD 785/oz sold.

• Strong Dividend track record: The Agnico Eagle has a long history of dividend distribution with a CAGR of 20% since 2010 and the company is consistently paying dividend since 1983. Additionally, the Kirkland Lake Gold confirmed robust dividend distribution plans whereas its dividend growing at a CAGR of 108% since 2017. The company seeking to take advantage from the new consolidation opportunities from pipeline projects and new investments.
  

Source: Company PPT 

• Sound Balance Sheet: The company has strong balance sheet for capital allocation with low leverage having liquidity of USD 2.3 billion with Cash and cash equivalents of USD 1,066 million and undrawn revolving facility of USD 1,200 million as of September 30,2021.

Source: Company PPT 

• Prime record of growing reserves: The company has invested in several geologies while aiming on growing reserves and resources via continuous investment in exploration. Hence, it has vibrantly grown reserves over the last 10 years. The gold reserves spiked to 48Moz in 2020 from 21Moz in 2011, M&I resources showcased increase of 40Moz in 2021 from 12Moz during 2011 while the Inferred resources hiked to 32Moz in 2020 from 11Moz during 2011.

Source: Company PPT 

Financial overview of Q3 2021 (in thousands of United States dollars)

Source: Company Financials 

• In Q3 2021, the company reported revenues from mining operations of USD 974.0 million, against USD 980.6 million in Q3 2020. The marginal decline was mainly due to 5% decrease in the average realized price of gold to USD 1,787.
• On the back of higher production, amortization cost and loss on derivative financial instrument the company’s income before income and mining tax fell to USD 200.4 million compared to USD 332.6 million in pcp.
• Net income for the reported period in Q3 2021, stood at USD 114.4 million against USD 222.6 million in pcp.
  

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 Methodology (Illustrative): Price/ Cash Flow 

Stock recommendation

In Q3 2021, the company produced 523,706 ounces of payable gold on the back of solid operating performance from Abitibi and Meliadine mines. Furthermore, in Q3 2021, the group’s four mines accounted for roughly 59% of the Company's gold production and 68% of its operating profit, respectively, which is considerable. Recently the company announced a merger with Agnico Eagle.

We believe the merger will establish a best-in-class gold mining corporation with superior financial and operating metrics, operating in one of the world's top gold areas, the Abitibi-Greenstone Belt of northeastern Ontario and northern Quebec. Additionally, with a robust financial position and regular dividend distribution, the company has forecast healthy gold production for FY2021, which seems impressive. Hence, based on the above rationale and valuation done using the above methodology, we have given a “Buy” rating at the closing price of CAD 66.05 on December 23, 2021. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary:

One-Year Technical Price Chart (as on December 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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