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 Updates:

• Acquisition of TMAC Resources Inc.: On January 05, 2021, the company announced the acquisition of TMAC Resources Inc. at a price consideration of CAD 2.20 per share, while the transaction value is estimated at CAD 286.6 million. The acquisition would expand the group’s exploration activities and subsequently contribute to the business prospects.
• Increase in Cash from Operations: The company has reported strong growth in its cash flows, wherein cash from operating activities stood at USD 788.544 million for 9MFY20, significantly higher than USD 624.224 million, a year ago. The growth was supported by strong momentum in the company’s net profitability.

Q3FY20 Financial Highlights:

• AEM announced its quarterly results, wherein the company posted revenue of USD 980.612 million, significantly higher than USD 682.959 million in the previous corresponding period (pcp). The increase was driven by higher gold sales of 510,295 ounces versus 471,161 ounces in Q3FY19.
• The quarter was marked by higher production costs (USD 412.803 million versus USD 316.346 million) and exploration and corporate development costs (USD 30.488 million versus USD 28.227 million in pcp).
• Net income for the period stood at USD 222.654 million, as compared to USD 76.667 million in Q3FY19.
• Cash and cash equivalent stood at USD 315.884 million, while total assets were recorded at USD 9,201.507 million.                          

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: The group’s revenue is correlated to the price of gold in the international market. Volatility in gold prices would affect the company’s sales and margins.

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The acquisition by AEM would enhance the company’s exploration activities which would further support the company’s operations. The group expects its capital expenditure within the range of USD 720 million to USD 740 million. The corporation has accelerated development programs across several sites, which indicates higher production capacity in 2021 and beyond, which is a key positive. Gold production guidance for FY20 remained unchanged at 1.68 to 1.73 million ounces, which includes pre-commercial production of gold ounces from the Barnat deposit at Canadian Malartic. We have valued the stock using Price to Cash flow based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Eldorado Gold Corp, Franco-Nevada Corp etc. as a peer group. Hence, considering the above factors, price changes, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 94.07 on January 5, 2021.

AEM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

B2Gold Corp

B2Gold Corp (TSX: BTO) is a gold mining company, with five operating mines and several exploration projects in various countries, including Nicaragua, the Philippines, Namibia, Mali, and Burkina Faso. 

Key Updates:

• Elevated Production: Over the years, the company has reported elevated production levels, supported by strong momentum from Fekola Mine, Mali. An increase in production is backed up by increasing demand for gold which is a key positive.

Source: Company Presentation

• Higher Cash from Operations: The company reported solid growth in its cash flows and posted cash from operations of USD 755.064 million for 9MFY20, significantly higher from USD 347.068 million, a year ago. The growth was driven by higher net income coupled with prudent working capital management.

Source: Company Reports

• A significant reduction in long-term debt: The group has lowered its debt-component remarkably in the recent past, supported by strong cash flow generation. Long-term debt has been reduced to USD 25.841 million in Q3FY20, from USD 235.821 million in FY19.

Q3FY20 Financial Highlights:

• BTO announced its quarterly results, wherein the company posted gold revenue of USD 487.166 million, significantly higher than USD 310.783 million in the previous corresponding period (pcp). The increase was supported by higher gold sales (253,200 ounces versus 208,900 ounces in pcp) coupled with a higher realized price (USD 1,924/ounce versus USD 1,488/ounce).
• Gross profit stood at USD 271.639 million, higher than USD 132.246 million in the previous corresponding period. The increase was supported by significantly higher top-line, partially offset by an increase in the cost of sales (USD 215.527 million versus USD 178.537 million).
• Operating income soared to USD 426.932 million, from USD 115.626 million in Q3FY19, supported by a higher gross profit, partially offset by a reversal of impairment of long-lived assets amounting USD 174.309 million.
• Net income stood at USD 277.039 million, significantly higher than USD 49.921 million in pcp.
• BTO reported cash and cash equivalent of USD 365.460 million, while total assets were reported at USD 3,182.434 million.                    

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s revenue is correlated to the price of gold in the international market. Volatility in gold prices would affect the company’s sales and margins. 

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company reported the completion of its Fekola mill expansion and expects production from Fekola Mine within the range of 590,000 to 620,000 ounces of gold during FY20, which would eventually contribute to the company’s overall performance. For FY20, the group expects total consolidated gold production towards the midpoint of its guidance range of between 1,000,000 and 1,055,000 ounces, while cash costs are expected at the lower bracket of USD 415 and USD 455 per ounce. We have valued the stock using Price to Cash flow based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Eldorado Gold Corp as a peer group. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 7.62 on January 5, 2021.

BTO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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