Shareholders of one of the darlings of the retail gold-bug crowd,
The offering consists of 12 million units priced at a generous US$13.90 apiece, with each unit consisting of a share and half a warrant. A whole warrant would allow the holder to buy another share within five years for US$19. The underwriters also have an overallotment option to buy up to 1.8 million more units within 30 days of the filing of a final prospectus.
TD Securities and Merrill Lynch are leading the underwriting syndicate, which includes Scotia Capital, Yorkton Securities, CIBC World Markets, Salomon Smith Barney Canada, Dundee Securities and Sprott Securities.
Agnico-Eagle says the proceeds are earmarked for acquisitions, capital expenditures and working capital.
The company had not exactly run out of money when it annouced the financing: at Sept. 30, 2002, consolidated cash and cash equivalents stood at US$17.7 million, and working capital amounted to US$36.6 million. Including an undrawn bank credit line, Agnico had US$112.7 million in available cash.
The market reacted to the deal swiftly and painfully: in Canada, shares tumbled $2.56, or 12%, to close at $18.84 on Oct. 31.; in New York trading, shares plunged US$1.66, or 12%, to US$12.09. Trading volume jumped, with a combined 7 million shares changing hands in Toronto and New York on Oct. 31 and Nov. 1.
At presstime, Agnico’s share price had not recovered from the Halloween blowout, despite an overall rise in North America’s mid-tier gold producers.
In the week prior to the financing announcement, Agnico had reported a rare disappointing quarter that was characterized by a sharp drop in gold production at the LaRonde mine in Quebec.
During the third quarter, LaRonde produced 50,073 oz., compared with a record 74,617 oz. in the previous (second quarter) and 45,928 oz. in the third quarter of 2001.
The mine also produced, as a byproduct: 547,000 oz. silver (compared with 709,000 oz. silver in the previous quarter and 570,000 oz. in the third quarter of 2001); 9,404 tonnes zinc (compared with 12,171 tonnes a year earlier), and 785 tonnes copper (325 tonnes a year earlier).
For the first nine months of the year, the mine produced 184,948 oz. gold (168,488 oz. last year), 2 million oz. silver (1.9 million oz.), 36,978 tonnes zinc (42,072 tonnes) and 2,244 tonnes copper (1,217 tonnes).
Total cash costs in the third quarter jumped US$27, to US$208 per oz.; over the 9-month period, they increased by US$29, to US$173 per oz. However, on a per-ton-milled basis, on-site operating costs have held steady in the low C$50 range over the past 21 months.
“Naturally, we are disappointed in the third-quarter results, from the standpoint of gold production,” says President Sean Boyd. “Essentially, in the third quarter we did not have access to as many gold-ore mining blocks at depth as we had expected.”
The activity of development crews was especially curtailed by limited ventilation capacity at depth, a predicament compounded by record-high ambient temperatures experienced in the region during the summer.
But Chief Operating Officer Ebe Scherkus stresses that these production problems are now behind the company: “We’re very confident, because I don’t think it could get much worse than this [past] summer. The main area of concern was development, and we’ve made numerous changes: we now have major improvements in ventilation, so immediately the productivity increases, and on a side note, we’ve produced more gold in the first 12 days of October than we did for all of July, so I think we’ve turned the corner.”
As a result of the higher summer costs, Agnico posted a third-quarter net loss of US$630,000 (US1 per share) on unhedged mining revenue of US$20.2 million, compared with a year-earlier loss of US$5.6 million (US8 per share) on revenue of US$18.9 million.
For the recent 9-month period, Agnico profited US$3.2 million (US5 per share) on revenue of US$76.4 million, an improvement over the US$4.7 million ((US7 per share) lost on US$69.6 million in revenue during the corresponding period of 2001.
Agnico started the current quarter on a much stronger footing with the changeover to a 7,000-ton-per-day milling rate, up from the 5,000 tons that had been the norm since an expansion was completed in 2000.
Since early October, the facility has been treating an average of 7,500 tons of ore per day, with daily, payable gold production averaging a little more than 1,100 oz.
Both the mine and the mill are operating at the newly expanded production rate, with richer gold ore from the lower levels of the mine providing about 35% of the millfeed. Agnico expects 85% of the ore processed in 2003 to be sourced from the lower levels, which should result in increased gold production in 2003.
Gold production in the fourth quarter of 2002 is now forecast to reach 100,000 oz. at a total cash cost of US$160 per oz.
For the full year, Agnico is revising its production forecast downward to 285,000 oz. gold at a total cash cost of US$165 per oz. Three months ago, the company slashed its forecast for 2002 to 320,000 oz. gold from 340,000 oz., owing to a shortfall in gold production in June and lost time in the mill in July.
During the third quarter, capital expenditures at the mine were US$21.5 million, up from US$9.4 million in the corresponding 2001 period. For all of 2002, capital expenditures are expected to be US$55 million — or US$10 million over budget, owing to delays in underground development, a replacement of the mill’s electrical drive, the addition of an underground spot-cooling system, and an acceleration of tailings-dam construction.
“The LaRonde low-cost-production growth story is essentially unchanged,” insists Boyd. “With the mine operating at the expanded 7,000-ton-per-day rate, we expect steady growth in earnings and cash flow.”
Agnico continues to drill at LaRonde at a furious pace: almost 44,000 ft. of core drilling was completed during the quarter, using eight drills.
Currently two drills are testing Zone 20 North along both the eastern and western resource limits at a depth of 7,800 ft. below surface, while a third tests the zone along the western resource margin at a depth of 8,800 ft.
As the resource continues to expand, management is considering ways to gain access to resources below the bottom of the Penna shaft, which was sunk to a depth of 7,350 ft.
“We’ve initiated a number of studies during the quarter using outside experts to provide input on such things as deep-access alternatives, deep-mining methods and geomechanical issues,” says Boyd, adding that the company’s technical group had recently returned from South Africa, where they evaluated large hoisting installations and underground cooling systems.
Agnico expects to have completed a feasibility study on the potential for an even-deeper mine at LaRonde before mid-2003.
Meanwhile, the company is carrying out grassroots exploration at the Lapa gold property, along northwestern Quebec’s Cadillac-Larder Lake structural break.
In the 1980s,
Agnico has an option agreement with Breakwater whereby the gold miner can earn a 60% interest in the property over five years. Agnico has already collared four holes that have intersected slightly higher grades over widths of 6-15 ft., and more drilling is planned.
In Ontario’s Thunder Bay region, Agnico has begun a 10-hole, 5,000-ft. drill program on
The widely exposed Tib Lake gabbro is the second-largest intrusion of the Lac des les suite of rocks and, as such, is viewed as an exploration target for palladium-platinum-gold mineralization.
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