Agnico-Eagle’s Q1 and LaRonde II

Agnico-Eagle Mines (AEM-T, AEM-N) continues to build on its impressive assets by confirming it will go ahead with its LaRonde II project in northwestern Quebec.

While the move doesn’t come as surprise with gold reserves of 3.6 million oz. from 18.8 million tonnes grading 6 grams gold per tonne, the announcement was a foregone conclusion the additional capital expenditure may have exerted some downward pressure on its share price.

Midday in Toronto the company’s shares were off 4.7% or roughly $2 to $41.24 on just over 810,000 shares.

But Haytham Hodaly, an analyst with Vancouver-based Salman Partners says the shares’ retreat which coincides not only with the announcement of LaRonde II but also with first quarter earnings likely has more to do with a pull back on base metal prices combined with a slight decline in gold and silver prices.

That’s because Toronto-base Agnico-Eagle has significant copper, zinc and silver byproducts from its LaRonde mine in Quebec.

As for first quarter earnings, Hodaly says they came in in-line with analyst’s consensus, with the exception of cash costs — they were better than expected.

Agnico-Eagle has established itself as one of the lowest cost gold producers – largely thanks to the credits it receives for its byproducts. Cash costs at LaRonde came in at $57 a tonne, in line with the company’s guidance for the quarter.

Hodaly also says the company continues to be a strong growth story going forward.

Perhaps the most significant driver of such growth is the LaRonde II project. The project is an extension beneath the currently operating LaRonde mine and in keeping with its older sibling, will dig more than just gold out of the ground.

The deposit contains roughly 13 million oz. of silver, 62,000 tonnes of copper and 155,000 tonnes of zinc.

A recently completed feasibility study estimates an after tax rate of return of 13.3%, based on a gold price of US$450 an oz., a Canadian to American exchange rate of 1.25 and byproduct prices of US$6.50 an oz. silver, US$3,086 per tonne copper and US$1,213 per tonne zinc.

With operating costs of US$67 per tonne, processing 6,000 tonnes a day, the project will not enjoy the same low costs as the original LaRonde, but with annual gold production of around 320,000 oz. the company has reason to be bullish about the expansion.

It also says LaRonde II will extend the life of the LaRonde complex to at least 2020.

Annual byproduct production is expected to average 670,000 oz. of silver, 4,000 tonnes of copper and 8,600 tonnes of zinc.

Capital costs for the project will be US$210 million and average sustaining capital expenditures of roughly US$12 million per year.

With strong first quarter earnings, Agnico-Eagle says it will fund LaRonde II from existing cash and cash flows.

First quarter earnings were US$37.2 million, or US$0.35 per share, compared to net earnings of US$10.4 million, or US$0.12 per share, in the first quarter of 2005.

Agnico-Eagle has cash and cash equivalents of US$154.9 million, up from US$121.0 million at year end 2005.

Beyond LaRonde II the company has feasibility studies in progress on Suurikuusikko, Lapa in Finland, and Pinos Altos in Mexico.

In its press release, chief executive and vice-chairman Sean Boyd says the company is intent on tripling its gold production by 2009.