Agnico Eagle (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 located in each of these countries as well as in the United States, Sweden and Colombia.

Key Updates:

• Increase in dividend payment: In 9MFY21, the company reported a higher dividend payment of USD 205.594 million, significantly higher than USD 118.407 million in pcp. The above is impressive as most of the organizations are lowering their dividend distributions in order to retain their liquidity.
• Technical suggests a price recovery: On a daily price chart, the AEM stock closed near the lower range of its 20-days Bollinger band, indicating a possible price recovery in the coming trading sessions. Moreover, the RSI of the stock is at 31.9875, respecting an oversold zone and a price up move from the current levels.

Technical Price Chart (as on December 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Recent merger proposal to provide value unlocking opportunity: Recently, the company reported the approval of the merger with Kirkland Lake Gold, which was proposed during Q3FY21. The above is likely to provide a unique opportunity and would unlock significant operational and strategic synergies along the Abitibi/Kirkland Lake corridor. The above is likely to create a lower cost’s structure and would provide access to new technologies, which would further help to improve its overall mining activities.
  

Q3FY21 Financial Highlights:

• AEM posted its quarterly results, wherein the company reported revenue of USD 065 million, slide from USD 980.612 million in the previous corresponding period (pcp). The decline was primarily attributable to a 6.5% and 7.2% lower average realized price of gold and silver, respectively.
• The corporation reported a rise in production costs and an increase in amortization costs, higher exploration & corporate development expense and an increase in General & administrative expense.
• Net income stood at USD 482 million, as compared to USD 222.654 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risk: As the performance of the group heavily relies on the commodity prices, any major correction in the international prices is likely to trigger the company’s performance as it would weigh high on the margins.

Valuation Methodology (Illustrative): Price to CF based

Stock Recommendation:

The company is well poised to increase its gold production supported by expanded mine-life in the coming years. The above is supported by a strong project pipeline coupled with additional growth opportunities. As of Q3FY21, the company has a cash & cash equivalent of USD 1,066 million along with an Undrawn Revolver of USD 1,200 million, which are sufficient to support its working capital and capital expenditure. We have valued the stock using the P/CF-based relative valuation method and have arrived at a double-digit (in percentage terms) upside. For the said purposes, we have considered peers like Teck Resources Ltd, Alamos Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of AEM at the current market price of CAD 60.65 at 10:26 am Toronto time on December 10, 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 10, 2021). Analysis by Kalkine Group

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

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