Agnico-Eagle bids C$710 million for Cumberland

Agnico-Eagle Mines (AEM-T, AEM-N) plans to take on Canadas North with its proposed takeover of Cumberland Resources (CLG-T, CLG-A).

Cumberlands 100%-owned Meadowbank open-pit gold project near Baker Lake, Nunavut, will produce about 400,000 oz. over its first four years and would boost Agnicos annual gold production by 39% to 1.3 million oz. in 2010.

The Arctic is Agnico vice-chair and CEO Sean Boyds solution to the depletion of world-class deposits in more hospitable areas of the world.

We feel companies will have to go deeper and we also think companies have to open up the northern parts of the world, said Boyd in a conference call on Feb. 14. This strategically positions us in the Arctic.

Agnico has offered 18.5% of an Agnico share for each Cumberland share. This values Cumberland at about C$710 million based on its 80 million shares with a 29% premium over the Feb. 13 closing price.

Cumberland shares were up more than 25% in Toronto today to C$8.68 on a volume of more than 24 million. Agnico shares were down about 2% to C$46.91 on about 5 million shares.

Both companies boards have approved the deal. Cumberlands directors have agreed to tender their shares to Agnico, which make up 10.5% of all shares. Agnico already owned 2.6% of Cumberland shares.

If two-thirds of Cumberland shareholders agree to the offer before it expires in April, Agnico would increase its gold reserves by 28% to 13.3 million oz. Agnicos cash position would increase to more than US$550 million from US$460 million and the company would grow to 146 million shares from 131 million.

Meadowbank is slated for production in 2010. Three open pits to a depth of 170 metres are planned — the Goose Island deposit, the Portage deposit and the Vault pit.

Meadowbank currently has proven and probable reserves of 21.3 million tonnes grading 4.2 grams gold per tonne, or 2.9 million oz. An average annual production of 350,000 oz. per year over eight years at a cash cost of US$250 per oz. had been been planned. The company estimates it will cost C$375 million to bring the project into production with an additional C$65 million to be spent over the mine life.

Cumberland had signed a letter of agreement for a gold loan, but Agnico has cancelled the loan, spending nearly $1 million on a cancellation fee.

Boyd said the company has enough capital to finance all of its projects with its cash flow of US$200 million, a bank facility of US$300 million and US$130 million in warrants to be exercised this November.

Agnico also spent US$14.9 million to close down Cumberlands hedge position.

We dont like any hedging on the gold side, said Boyd. We are one of the companies that has never sold forward.

The company is looking to increase the processing facility to 8,500 tonnes per day from 7,500. As well, Agnico found Cumberlands diesel fuel estimates low at US37 per litre, upping them to US60 to US70 per litre. The company reported that with diesel at US75 to US80 per litre, operating costs increase by 10%.

The Meadowbank project will be run by a team based inVal dOr, northwestern Quebec, where Agnicos flagship LaRonde mine is located, on a fly-in-fly-out basis. Agnico also plans to employ more than 300 people from the largest community near Meadowbank, Baker Lake.

Boyd said Agnico will increase its 2007 exploration budget to expand the Meadowbank reserve base beyond 2.9 million oz. gold by converting the 1.1 million oz. resource and carrying out more exploration drilling.

Little drilling has been done below 200 metres in the areas surrounding the pits. Agnico plans to examine the potential for underground mining.

There are 40 known targets, said Boyd. A lot have one or two drill holes with interesting values and intercepts that have not been followed up on because of funding and timing issues.

Boyd said the company will look at the Goose South zone and the Goose Island zone, which had intercepts of 10 to12 grams gold per tonne over 5 to 6 metres. Agnico will also drill to expand the Cannu zone between the Portage deposit and the Vault pit.

Agnico has several other projects: the LaRonde mine in Quebecs Abitibi region produced about 250,000 oz. last year and has produced 2.9 million oz. since 1988; LaRonde II is an expansion of the first; the Goldex mine, 60 km east of LaRonde, is expected to go into production in 2008, averaging 170,000 oz. gold per year over 10 years; The Lapa project. 11 km east of LaRonde, is also slated for production in 2008 at an average 125,000 oz. gold per year; the Kittila mine in northern Finland will produce 150,000 oz. per year beginning in 2008; and the Pinos Altos project in Mexico, which has a mineral resource of 1.6 million oz. gold and nearly 41 million oz. silver.