Agnico Eagle Mines Limited

Closing of Fully Subscribed CAD6 Million Private Placement: Agnico Eagle Mines Limited (TSX: AEM) is a gold miner operating mines in Canada, Mexico, and Finland. As on 11 June 2020, the market capitalization of the company stood at ~CAD19.67 billion. The company has recently closed a non-brokered private placement of ~6 million common shares at a price of CAD0.90 per share for gross proceeds of CAD6 million.

Quarterly Performance (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, cash provided by operating activities increased to USD163.4 million, up from USD148.7 million in the first quarter of FY19. This was mainly due to higher gold sales volumes and higher realized gold prices, partially offset by higher costs at the Meadowbank Complex and Meliadine mine. In the same time span, the company produced 411,366 ounces of gold at production costs per ounce of USD872 and all-in sustaining costs per ounce of USD1,099. During the quarter, DBRS Morningstar upgraded the investment grade credit rating of AEM to BBB from BBB (low) and changed the trend to Stable from Positive, reflecting the strong financial risk profile of the company.

Quarterly Operational Highlights (Source: Company Reports)

Impact of COVID-19: The first quarter of 2020 was challenging given the global COVID-19 pandemic. Throughout this crisis, operations were reduced to minimum across all five of the company’s Canadian mines. Despite the shutdowns, AEM made progress in the first quarter at LaRonde, Meliadine and Amaruq operations. Hence, it expects to have a strong second half with quarterly gold production expected to return to levels like the fourth quarter of 2019.

Future Guidance: The company expects to produce 1.63 to 1.73 million ounces of gold in 2020. Capital expenditures in 2020 are now forecasted to be ~USD690 million and AISC per ounce expected to be in between USD1,025 to USD1,075.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: During the quarter, the company opportunistically increased its currency and diesel hedge positions and is anticipating generating significant free cash flow in the second half of 2020. The stock of AEM gave a return of 1.89% on the YTD basis and a return of 30.80% in the past three months. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation approach and have arrived at a target price of single-digit upside (in percentage terms). For the said purposes, we have considered Newmont Corporation, Barrick Gold Corp, etc. as peers. The stock is inclined towards its 52-weeks’ high level of CAD97.32 but holds the potential for further as depicted by the EV/EBITDA valuation methodology. Considering the decent returns in the past three months, higher gold sales volumes, positive guidance and outlook, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD81.49, down by 1.4989% on 11 June 2020.

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

B2Gold Corp.

Strong Q1 Results and Quarterly Records for Total Gold Production: B2Gold Corp (TSX: BTO) is a gold mining company, with five operating mines and numerous exploration projects across four continents in various countries. As on 11 June 2020, the market capitalization of the company stood at ~CAD7.24 billion.

Quarterly Performance (For the Period ended 31 March 2020): During the quarter ended 31 March 2020, the company was well-positioned with strong operational and financial performance. It reported gold production of 250,632 ounces, well-above budget by 7%, and an increase of 25% over the 1Q19. The significant increase in gold production was driven by the Fekola Mine in Mali which had a strong start to the year with record quarterly gold production of 164,011 ounces. In the same time span, the company reported record quarterly consolidated gold revenue of USD380 million, an increase of 44% over the pcp and a record quarterly low consolidated cash operating costs of USD367 per ounce produced. During the quarter, net income of the company was USD72 million.

Quarterly Financial Highlights (Source: Company Reports)

What to Expect: BTO remains well-positioned for continued strong operational and financial performance. Despite the disruptions caused by the COVID-19 pandemic, the company continues to ship its gold inventory to refineries. Based on the current life of mine plans, the company expects annual consolidated gold production guidance remains in between 1,000,000 and 1,055,000 ounces, averaging to 950,000 ounces with an AISC averaging to USD825 per ounce. The company also expects to generate cashflows of approximately $700 million from operating activities in 2020.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: B2Gold Corp continues to retain a strong financial position and liquidity with cash and cash equivalents of USD208 million. It has an ongoing strategy to maximize profitable production from its mines, reduce debt, expand Fekola Mine throughput and annual production. The stock of BTO gave a return of 33.59% on the YTD basis and a return of 37.82% in the last three months.  The stock is also inclined towards its 52-weeks’ high level of CAD8.03 but holds the potential for growth. We have valued the stock using EV/Sales multiple based illustrative relative valuation approach and have arrived at a target price offering an upside of higher single-single (in percentage terms). For the said purposes, we have considered Alamos Gold Inc, Endeavour Mining Corp, etc. as peers. Considering the current trading levels, decent returns in the past three months, increased production, record gold revenue and positive guidance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD6.96, down by 4.3956% on 11 June 2020.

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

Disclaimer

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