Agnico Eagle

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 Highlights:

• Reaffirmed Guidance: The company reaffirmed its guidance for gold production in 2021 at ~2,047,500 ounces at total cash costs of USD 700 to USD 750/oz and AISC of USD 950 to USD 1,000/oz. The company also maintained its capex guidance at USD 803 million.
• Higher dividend payment: The company reported a jump in its dividend distribution at USD 140.008 million in H1FY21 compared to USD 78.563 million in pcp. This reflects the management’s confidence in its cash flow generation abilities.
• Positive exploration results: The company reported positive results at several minesites and projects in the first half of 2021 which include discovery of a new mineralized horizon 400 metres south of the East Gouldie deposit; additional high-grade gold-copper in the footwall zone at Upper Beaver in Kirkland Lake; exploration at Hope Bay confirmed the expansion potential of the Doris and Madrid deposits; and drilling at Kittila yielded the deepest ore grade intersection at the mine.

Q2FY21 Financial Highlights:

• AEM posted its quarterly results, wherein the company reported revenue of USD 320 million, which surged from USD 557.175 million in the previous corresponding period (pcp). The increase was driven by higher gold sales of 526,006 ounces v/s 331,064 ounces in Q2FY20. Moreover, a higher gold realization price at USD 1,814 /oz v/s USD 1,726 /oz in pcp also supported the top-line growth.
• The group reported a rise in production costs (USD 172 million v/s USD 280.394 million in Q2FY20) coupled with an increase in amortization costs (USD 175.309 million v/s USD 129.465 million in pcp) and general and administrative expense (USD 31.325 million v/s USD 25.546 million in pcp). Income before income and mining taxes jumped USD 282.247 million, from USD 117.551 million in Q2FY20.
• Net income surged to USD 561 million, from USD 105.301 million in pcp, driven by the above-mentioned factors.

Source: Company Report

Risk: The performance of the group heavily relies on the commodity prices; hence, volatility in the commodity prices is likely to hamper the company’s financial performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: The company reported strong payable gold production of 1,005,243 ounces in H1FY21, as compared to 742,430 ounces in pcp, supported by a robust operating performance from the company’s key mines. Notably, as per the management, the group expects ~24% production growth during 2020 to 2024, driven by strong mineral reserves coupled with a growing exploration base across the existing operating assets. We have valued the stock using the P/CF-based relative valuation method and have arrived at a single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Altius Minerals Corp, Wheaton Precious Metals Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 72.28 on September 8, 2021.

One-Year Technical Price Chart (as on September 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

First Quantum Minerals Ltd.

First Quantum Minerals Ltd. (TSX: FM) is a diversified mining company is engaged in the production of copper, nickel, gold, zinc, and acid, and related activities, including exploration and development.

Key Highlights:

• Increase in cash flows: The company reported a stellar cash flow growth supported by a net profit, as compared to a net loss in the previous period. Cash from operations was recorded at USD 1,422 million in H1FY21, jumped from USD 628 million in pcp.
• Robust production growth: The company reported an 18% jump in its Q2FY21 gold production of 81koz, which is the highest in the last six quarters. Notably, in H1FY21, copper and gold production stood at 404,753 tonnes and 159,423 tonnes, respectively, surged from 364,344 tonnes and 123,439 tonnes, a year ago. Meanwhile, nickel production jumped drastically to 9,185 contained tonnes in H1FY21 from 1,979 contained tonnes in pcp. The company derives its majority income from copper and witnessed an increased realized price of USD 3.39/lb in H1FY21, as compared to USD 2.58/lb in pcp.
• Healthy Balance sheet: The company has constantly reduced its net debt in the recent quarters, which is encouraging. Net debt reduced to USD 6,751 million in Q2FY21, from USD 7,658 million in Q2FY20. Notably, the net debt/EBITDA covenant ratio stood at 2.21x in Q2FY21, significantly below the covenant requirement of 4.75x. As per the management commentary, the group is focusing on reducing its gross debt by USD 2 billion by FY22.

Q2FY21 Financial Highlights:

• FM announced its quarterly result, wherein the company posted revenue of USD 1,847 million, jumped from USD 1,014 million in Q2FY20. The surge was aided by strong growth from both the copper and gold segments.
• Gross profit soared to USD 625 million, from USD 141 million in the previous corresponding period. The increase was driven by higher revenue, partially offset by a higher cost of sales (USD 1,222 million v/s USD 873 million in Q2FY20).
• Earnings before income taxes stood at USD 396 million as compared to a loss of USD 87 million in pcp.
• The group reported a net profit of USD 214 million, as compared to a net loss of USD 184 million in the previous corresponding period (pcp).

Source: Company Report

Risk: A volatility in the underlying commodity prices, in which the company deals in would result in a slide in the realization price. This would subsequently take a toll on the cash flows and margins of the company.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects copper production in between 785,000 to 850,000 tonnes, while gold production is expected within the range of 280,000 to 300,000 ounces. Total capital expenditure is expected at around USD 950 million, which includes USD 740 million for sustaining capital and other projects and USD 210 million for Capitalized stripping. We have valued the stock using the P/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 Lundin Mining Corp, Freeport-McMoRan Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of FM at the last closing price of CAD 23.69 on September 8, 2021.

One-Year Technical Price Chart (as on September 8, 2021). Source: REFINITIV, Analysis by Kalkine Group

Copper Mountain Mining Corporation

Copper Mountain Mining Corporation (TSX: CMMC) is a copper producer, developer and explorer. Copper Mountain's flagship asset is the Copper Mountain mine located in southern British Columbia near the town of Princeton.

Key Highlights:

• Growing Metal production: In the recent past, the company has reported consistent growth in its production. In H1FY21, copper production surged to 51 million lbs, from 35.6 million lbs in pcp. The group also reported a strong silver production of 308,457 million lbs in H1FY21, higher than 166,142 million lbs in pcp.
• Surge in cash from operations: The company reported a surge in its cash flows and reported cash from operating activities of CAD 174.167 million in H1FY21, significantly higher than CAD 32.025 million in pcp. The growth was supported by a strong net profit of CAD 90.780 million in H1FY21, as compared to a loss of CAD 11.525 million in pcp.
• Industry leading margins: The company commands a higher margin than its peers, which indicates higher operational efficiency. Notably, the EBITDA margin and gross margin of CMMC stood at 60% and 54.2% in Q2FY21, respectively, higher than the industry median of 40.1% and 25.1%. Moreover, the company reported a net margin of 27.20%, significantly higher than the industry median of 15.6%.                

Q2FY21 Financial Highlights:

• CMMC announced its quarterly result, wherein the group reported revenue of CAD 064 million, climbed from CAD 91.089 million in Q2FY20.
• Gross profit surged to CAD 786 million from CAD 30.259 million in Q2FY20, thanks to the higher revenue coupled with a slide in cost of sales (CAD 56.278 million v/s CAD 60.830 million a year ago).
• The company posted an operating income of CAD 991 million, as compared to CAD 28.770 million in Q2FY20. The period was marked by a higher general and administration expense (CAD 4.263 million v/s CAD 0.914 million in pcp) and share-based compensation expense (CAD 4.532 million v/s CAD 0.575 million in Q2FY20).
• The group reported a net income of CAD 662 million, as compared to CAD 31.933 million in Q2FY20.

Risk: Volatility in the underlying commodity prices would dampen the company’s overall performance, including cash flows, margins, and profitability.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: In order to combat the growing demand for copper, the company is expanding its resources and reserves in the North and New Ingerbelle deposits in British Columbia. Moreover, the company reported successful drilling programs for high-grade copper in Cameron Copper mine in Australia, which is expected to announce results in H2FY21. We have valued the stock using the P/CF-based relative valuation method and have arrived at a single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Lundin Mining Corp, Capstone Mining Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 3.07 on September 8, 2021.

One-Year Technical Price Chart (as on September 8, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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