Agnico up on strong production, despite huge writedown

Agnico Eagle Mines (TSX: AEM; NYSE: AEM) kept its shares in the green after revealing strong operational results in the fourth quarter and full-year 2013, despite swallowing a huge impairment charge that weighed on earnings.

The Toronto-based miner reported a net loss of US$453.3 million, or US$2.61 per share, for the December quarter, compared to a profit of US$82.8 million, or US48¢ per share, in the same quarter of 2012.

Dragging down earnings were several one-time items, including a US$436.3-million non-cash after tax writeoff after impairment tests using a US$1,300 per oz. gold price. The writedown includes US$194.5 million for the Meadowbank gold mine in Nunavut, US$200.1 million for the Meliadine development project, also in Nunavut, and US$41.7 million for the Lapa gold mine in Quebec.

Also stifling quarterly profits was a US$47.2-million, non-cash deferred tax charge from a newly enacted Mexican mining-tax law.

After removing these one-time items, the adjusted quarterly earnings rose to US$44.2 million, or US25¢ per share, beating analysts’ average estimates of US20¢ per share.

The earnings were beat with better-than-expected performances from the company’s operations.

Fourth-quarter production came in at 322,443 oz., up 36% from a year ago. The higher production contributed to a record full-year output of 1.1 million oz., slightly above expectations. Forty percent of those ounces came from the company’s top performer: the Meadowbank mine.

“One of the big contributors to 2013 and also going forward is Meadowbank,” Sean Boyd, the company’s long-time CEO, said on a conference call. “Meadowbank is set for a strong next three years and particularly a strong first half of 2014,” he added.

The strong quarterly output drove down total cash costs to US$623 per oz. in the quarter from US$769 per oz. a year ago.

“We’ve had since the beginning of 2012 eight consecutive quarters where we’ve achieved or exceeded our production cost guidance,” Boyd said.

Full-year total cash costs were US$672 per oz., up 5% from a year ago due to lower by-product revenues that resulted from a decline in metal prices in 2013, while all-in sustaining costs were US$952 per oz., below the guidance of US$1,025 per oz.

The lower metal prices and non-cash writedowns in 2013 led Agnico to post a full-year net loss of US$406.5 million versus a US$310.9-million profit in 2012.

The lower gold price also prompted Agnico to recalculate its reserves using a US$1,200 per oz. gold price, compared to averages of US$1,350 per oz. and US$1,495 per oz. in 2012.

Its gold reserves fell 4% to 700,000 oz. (excluding production in 2013) to 16.9 million oz. in 149 million tonnes grading 3.51 grams gold per tonne. On a positive note, Boyd says that the average reserve grade rose 11% year-over-year.

Keeping things upbeat, Agnico forecasts slightly higher gold production of 1.18 million to 1.2 million in 2014 at total cash costs of US$670 to $690 per oz.

Looking ahead, it expects production to grow 16% over 2013 levels by 2016. Boyd said that increase will come from Agnico’s LaRonde and Goldex mines in Quebec, the Meadowbank mine in Nunavut and its new La India gold mine in Mexico, which should reach commercial production shortly.

Despite the encouraging growth, the miner has slashed it quarterly dividend to US8¢ per share from US22¢ per share to strengthen its balance sheet. With the reduction, it estimates saving US$80 million annually. “We just thought it made good business sense to do it. And hopefully, if things go well down the road, we’ll have an opportunity to increase it,” Boyd said.

Agnico ended the year with US$170 million in cash and equivalents. It has another US$1 billion in credit available. It has budgeted US$416 million in capital expenditures this year.

On the financial results, Agnico shares gained 1.5%, or 53¢, to close Feb. 13 at $36.73.