One Large Cap Metals & Mining Stock under the Radar- AEM

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 

• 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. Including the Hope Bay mine, the Company's quarterly gold production was a record of 541,663 ounces in the third quarter of 2021.

• Solid operating performance from Abitibi and Meliadine mines: In Q3 2021, the LaRonde Complex, Goldex, and Canadian Malartic mines in Quebec's Abitibi region cumulatively produce 222,373 ounces of gold at USD 716 per ounce and total cash costs per ounce of USD 594, while the Meliadine mine in Nunavut had a record quarter, producing 97,024 ounces of gold at USD 585 per ounce and total cash costs per ounce of USD 634. Furthermore, in Q3 2021, these four mines accounted for roughly 59% of the Company's gold production and 68% of its operating profit, respectively.

• Merger with Kirkland Lake Gold Ltd.: Agnico Eagle Mines Limited (TSX: AEM) and Kirkland Lake Gold Ltd. (TSX: KL) recently announced a merger agreement, with the merged business continuing to be known as "Agnico Eagle Mines Limited." The new Agnico Eagle will be the gold industry's best-quality senior producer, with the lowest unit costs, greatest profits, and most favourable risk profile, thanks to the merger

• Substantial Financial Flexibility:As on September 30, 2021, the Company had strong cumulative liquidity of USD 1.4 billion, with USD 244 million in cash and cash equivalents and USD 1.2 billion in undrawn credit lines available. The company believes that it holds sufficient liquidity to carry its operations without any disruption, which is a key positive.

Source: Company Presentation 

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.

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

Source: Company Filing 

• 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.
  

Valuation Methodology (Illustrative): Price/ Cash Flow

*1USD=1.27CAD

Analysis by Kalkine Group 

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 forecasted healthy gold production for FY2021, which seems impressive. Hence, based on the above rationales and valuation done using the above methodology, we have given a “Buy” rating at the closing price of CAD 61.11 on February 3, 2022.

One-Year Technical Price Chart (as on February 3, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Summary Analysis

Disclaimer

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