Agnico-Eagle’s Meadowbank, Kittila see improvements

Agnico-Eagle Mines (AEM-T, AEM-N) has bulked up its full-year production guidance following a solid third quarter, where both the Meadowbank and Kittila gold mines reported record quarterly output and improved costs.

For the year, the Toronto-based miner expects to produce 1.02 million oz. gold, up from 975,000 oz., and is guiding cash costs at US$660 per oz., down from US$690 per oz. previously. This revision considers a weak fourth quarter and lower anticipated grades and production. 

But Agnico has still bumped up its output forecast for the second time this year, with the first revision coming in July following a strong performance at the Meadowbank mine in Nunavut. 

“If we go back and look at where we were in the beginning of the year, we got questions out there, [and opinions that we] ‘lowballed this’ and ‘lowballed that.’ But if you actually look at it, sixty percent of the increase in guidance from the original number comes from one asset, and that’s Meadowbank,” Agnico president and CEO Sean Boyd said on a conference call in late October. 

The gold producer started 2012 forecasting output between 875,000 and 950,000 oz. gold, within cash costs of US$690 to US$750 per oz. 

Now it’s aiming higher, thanks primarily to improvements at Meadowbank, where the mine took a partial writedown last year due to “persistently high operating costs.”

As for Agnico’s other four mines, Boyd says they “will likely be within single-digit percentage points of where we expected them to be when we started the year.”

The four gold mines — Kittila in Finland, La Ronde and Lapa in Quebec and Pinos Altos in Mexico, combined with Meadowbank — delivered more gold ounces in the three months ended Sept. 30, compared with the same period a year ago when the company had six mines online, including the Goldex mine in Quebec, where mining has been suspended since October 2011. 

“So that’s tremendous performance from the remaining five mines to have to make up for what we lost at Goldex,” Boyd said. 

For the quarter, Agnico had record payable gold production of 286,971 oz., up from 265,978 oz. a year ago. The higher production resulted mainly from better grades at all its mines apart from the Lapa underground mine, where mining should taper off and end in 2016.

Total cash costs were US$556 per oz., down from US$590 per oz. a year ago as Agnico recorded “significant per-ounce cost reductions” at Meadowbank, Kittila and Pinos Altos. This partially offset higher costs at La Ronde, where it is transitioning to the lower mine, and noted reduced throughput due to heat, congestion and little operational flexibility underground. 

Agnico reported quarterly earnings of US$106.3 million, or 62¢ per share, up from a net loss of US$81.6 million, or negative 48¢ per share a year ago. 

Adjusted earnings came in at US$131.5 million, or 77¢ per share, beating the consensus of 42¢ per share. 

Given the upbeat period, CIBC analyst Alec Kodatsky has hiked his price target to $69 from $50, and upgraded his rating on the stock to “sector performer” from “sector underperformer.”

He writes in a note that “recent beats in quarterly results and substantial improvements at Meadowbank have helped AEM regain its premium valuation over the past two quarters, with the shares now trading near top of its peer group.” He sees the trend continuing for awhile, and adds that “although operational issues have recently emerged threatening fourth-quarter output, production has largely stabilized at better-than-expected levels. Consequently, we see little evidence to suggest that positive market sentiment that drove the multiple re-rating should reverse course in the near-term.” 

Cash flow generated from operations came in at a record US$199.5 million.

The company ended the Sept. 30 period with US$320.8 million in cash and equivalents, putting it in a good position to meet its capital expenditures for the year.

Agnico plans to spend US$457 million on all its projects in 2012, up US$5 million from the July forecast, as it has added capital for developing its La India mine in Mexico, where construction was approved on Sept. 4.

The open-pit, heap-leach operation is on track to come online in the second half of 2014. It should produce 90,000 oz. gold a year at total cash costs averaging US$500 per oz. over its eight-year mine life.

The gold producer plans to publish a detailed forecast for all its mines in February 2013, after the board has approved a three-year plan.

Boyd describes 2013 as Agnico’s “building year,” as the company will focus on La India, improve several of its existing assets and work on developing two new satellite zones at the Goldex mine. For these reasons, Agnico has maintained its 2013 total gold production forecast at 990,000 oz. 

“Looking at 2013, our guidance is unchanged,” Boyd declared. “People say: ‘Well, you’ve had such a good year, why don’t you increase the guidance for 2013?’ Number one, we haven’t completed the budget process. We’re in the middle of a budget process, but there are some moving parts to 2013.”

This includes slower access to the lower mine at La Ronde, which should temper production. The company also anticipated reduced output in the first half of 2013 from Creston Mascota, although this would be offset by an estimated strong run at Meadowbank. 

Once the budget is in place, the company expects “to get a better feel for 2013,” Boyd said. 

On the third-quarter results, Agnico gained 9%, or $4.59, to end at $55.97 a share in Toronto.