Agnico Eagle Mines

Agnico Eagle Mines Ltd (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 Highlights

• Higher dividend payment: The group has increased its dividend distribution to USD 72.970 million in Q1FY21, from USD 37.494 million in Q1FY20. This is backed by higher cash flow (USD 356.387 million in Q1FY21 v/s USD 163.358 million in Q1FY20).
• Operational Updates: Recently, the company reported significant gold anomalies by soil sampling from its Nolan and Betty properties located in Yukun, Canada. From the above two properties, the company hosts multiple large targets with the potential for several mineral deposit types, including orogenic gold, epithermal precious and base metal veins.

Q1FY21 Financial Highlights:

• AEM declared its quarterly results, wherein the company reported revenue of USD 934.392 million, which surged from USD 671.878 million in the previous corresponding period (pcp). The increase was driven by higher gold sales of 513,286 ounces v/s 410,883 ounces in Q1FY20. Moreover, a higher gold realization price of USD 1,780/oz v/s USD 1,579/oz in pcp also supported the top-line.
• The group reported higher production costs (USD 412.400 million v/s USD 356.102 million in Q1FY20) and an increase in amortization costs (USD 181.115 million v/s USD 153.509 million in pcp) coupled with a surge in general and administrative expense (USD 44.933 million v/s USD 30.543 million in pcp). However, lower exploration and corporate development costs (USD 28.709 million v/s USD 29.643 million in pcp) supported the profitability.
• The group turned profitable and reported a net income of USD 136.148 million, as compared to a net loss of USD 21.565 million in Q1FY20.

Q1FY21 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 affect the company’s performance as it would weigh high on the margins.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects its gold production at ~2,047,500 ounces, while 48% of the production is expected in the first half of FY21 and 52% in the second half. The company expects its total cash costs per ounce and AISC per ounce within the range of USD 700-750 and USD 950 -1,000, respectively. The company reported positive results from its soil geochemistry samples, which is encouraging. Moreover, the company’s average mine life is more than 17 years which represents only 50% of known Mineral Resources. The above indicates ample mining opportunities in the coming years. We have valued the stock using the P/CF based relative valuation method and have arrived at a higher single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Kinross Gold Corp, Wheaton Precious Metals Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 84.98 on June 08, 2021.

One-Year Technical Price Chart (as on June 08, 2021). Analysis by Kalkine Group

B2Gold Corp.

B2Gold Corp. (TSX: BTO) is a gold mining company, which operates in mines and numerous exploration projects and have a presence across four continents in various countries, like Nicaragua, the Philippines, Namibia, Mali, and Burkina Faso. 

Key Highlights:

• Operational Update from Fekola Mine: Despite the ongoing strike in Mali, the group reported an uninterrupted mining activity at Fekola Mine. The group retains a strong relationship with the Mali government and is expects a smooth operation for the rest of FY21. For the entire financial year of 2021, the group expects to produce 530,000 to 560,000 ounces of gold from the Fekola Mine.
• Reduction in Total debt: The corporation has a prudent capital management which is reflected from the lowering debt, backed by the stable cash flows. Notably, in Q1FY21, the company reduced ~9% of its total debt to USD 100.145 million from Q4FY20. A reduction in the debt component is a key positive as its increases the company’s financial flexibility and lowers the interest expense. Notably, interest expense lowered to USD 2.896 million from USD 4.517 million in Q1FY20, supported by constant reduction in total debt.

Q1FY21 Financial Highlights:

• BTO announced its first-quarter result, wherein the company posted gold revenue of USD 362.302 million, lower than USD 380.298 million in the previous corresponding period (pcp). The decline was primarily due to a lower gold sales 26,760 ounces, as compared to 41,900 ounces in Q1FY20, partially supported by higher average realized gold price USD 1,798/ounce vs USD 1,581/ ounce in pcp.
• Gross profit stood lower at USD 157.417 million compared to USD 192.399 million in Q1FY20. The decline was primarily attributed to lower revenue coupled with higher cost of sales (USD 204.885 million v/s USD 187.899 million in pcp).
• Operating income slide to USD 150.176 million, from USD 179.425 million in Q1FY20. The quarter was marked by slightly lower general and administrative costs, a foreign exchange gains v/s foreign exchange loss.
• Net income for the period surged to USD 98.832 million, as compared to USD 83.008 million in Q1FY20, supported by a lower current income tax (USD 41.126 million v/s USD 63.470 million in Q1FY20).

Q1FY21 Income Statement Highlight (Source: Company Report)

Risk: The company’s revenue is directly related to the international gold prices, and a price volatility would affect the company’s revenue and cash flows. moreover, the group reported a higher cost of sales, and continuation of the above trend would likely to dampen the overall performance. Due to any political and other strikes, the company might witness a lower mining activity, which would dampen the overall production.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has paid a significantly higher dividend of USD 42.072 million in Q1FY21, as compared to USD 10.368 million in Q1FY20, which is encouraging. Moreover, the BTO stock carries a decent dividend yield of ~3.387% on an annualized basis, which is impressive considering the existing interest rate scenario. The gold prices are likely to remain elevated in the near to medium term, which would help the group in delivering the healthy performance. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Alamos Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BTO at the closing price of CAD 5.95 on June 08, 2021.

One-Year Technical Price Chart (as on June 08, 2021). Analysis by Kalkine Group

Parkland Corporation

Parkland Corporation (TSX: PKI) distributes and markets fuels and lubricants, which are delivered to motorists, businesses, consumers, and wholesalers in the United States and Canada.

Key Highlights:

• Consistent Dividend Payment: Historically, the group has an excellent record of consistent dividend payment, backed by stable cash flows. Moreover, at the last traded price, the stock was offering a dividend yield of ~3.0%, which looks decent considering the ongoing interest rate scenario.

Five years Dividend History 

• Offerings of CAD 600 million of Senior Unsecured Notes: The company has issued a private placement of CAD 600 million of Senior Unsecured Notes, which would be due by June 2026. The above is encouraging as it would enhance the company’s liquidity levels. As per the management, the above funds would be utilized to repay its debt under revolving credit facilities and would be utilized for general corporate purposes.
  

• Expansion across the Caribbean region: The company is expanding its footprint across the Caribbean, through its 75% ownership in Sol Investments SEZC, which has a presence across retail, commercial and aviation. The above acquisition would strengthen the company’s operations across the Princess Juliana International Airport, which is a hub for the associate islands and major North American and European markets.

Q1FY21 Financial Highlights:

• PKI announces its quarterly result, wherein the company posted sales and operating revenue of CAD 4,233 million, as compared to CAD 4,316 million in the previous corresponding period (pcp). The slide was primarily due to lower fuel, petroleum product commodity prices coupled with a lower demand scenario attributable to COVID-19 pandemic.
• Operating costs and cost of purchases reduced to CAD 244 million and CAD 3,530 million, respectively, as compared to CAD 284 million and CAD 3,756 million in pcp.
• Adjusted EBITDA soared to CAD 314 million, reflecting a growth of 64% on y-o-y basis, supported by cost reductions coupled with continued growth in non-fuel sales and stronger margins from the Canada region.
• The group reported a net profit of CAD 38 million, as compared to a net loss of CAD 74 million in Q1FY20, due to the above-mentioned factors.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The income and the cash flows are dependent on the oil prices. Any volatility in the commodity prices would affect the overall performance.

Valuation Methodology (illustrative): Price to Cash Flow

Stock Recommendation:

The group operates through a diversified revenue model, which includes gas stations & convenience stores, over the road and delivered diesel, propane, heating oil and lubricants. Moreover, PKI has prudent capital management and has increased its liquidity through the issuance of unsecured notes amounting to CAD 600 million. Moreover, the group has lowered its capital expenditure in Q1FY21, and has only invested in certain capital projects based on its priority like infrastructure and IT maintenance, network development etc. We have valued the stock using the P/CF based relative valuation method and have arrived at a higher single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Pembina Pipeline, Superior Plus Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of PKI at the last closing price of CAD 41.17 on June 08, 2021.

One-Year Technical Price Chart (as on June 08, 2021). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.