Agnico sets earnings benchmark

High prices for its byproducts saw gold production costs on the decline for Agnico-Eagle Mines (AEM-T, AEM-N), fuelling record third-quarter earnings for the Toronto-based company.

The jewel in the Agnico crown continues to be the enormously profitable LaRonde gold mine in the Abitibi region of Quebec. The mine generated a profit of US$221 million in the first nine months of the year, compared with US$76 million for the same period last year.

But Agnico’s story is rapidly becoming about more than just LaRonde. The company continues to push forward construction at four new mines: Goldex, Lapa and La Ronde II, in Quebec; and Kittila, in Finland.

A bankable feasibility study on a fifth project — Pinos Altos, in Mexico — is expected to be complete by the second quarter of 2007.

Speaking on a conference call, Agnico’s chief executive Sean Boyd emphasized that the rapid growth was fully financed and that Agnico was in “the strongest financial position we’ve ever been in.”

Backing up that statement were record third-quarter earnings of US$45.2 million compared with net earnings of US$2.1 million for the same period in 2005.

Agnico says such robust earnings were inflated by a non-recurring after-tax gain of US$11 million on the sale of its 31% stake in Contact Diamond (CO-T, CONPF-O) — a one-time windfall.

Agnico sold its 13.8 million shares to Stornoway Diamond (SWY-T, SWYDF-O); it now holds roughly 14% of Stornoway.

The company said non-cash foreign exchange translation resulted in the loss of US$1 million with another US$1 million lost on zinc forward sales.

Agnico’s cash position remains enviable at US$431 million — up from US$415.5 million at the end of the second quarter.

Cash flow for the quarter also set a record with roughly US$74 million from operations. That figure easily covered capital spending of US$41 million and US$20 million in investments.

But what continues to set Agnico apart is its incredibly low cash costs at LaRonde. Payable gold production in the third quarter was roughly 60,000 oz. and with high prices for LaRonde’s silver, copper and zinc byproducts, cash costs per oz. declined to an extraordinary minus US$709.

However, mine site costs per tonne were up slightly to C$63 per tonne from C$57 per tonne in last year’s third quarter. The company blamed the increase on accelerated development work and general cost increases for the industry as a whole. Boyd says that costs should drop to C$61 per tonne for the fourth quarter.

For 2006, the company says it is on target to turn out roughly 5 million oz. silver, 77,000 tonnes zinc, and 7,500 tonnes copper.

The company also stood by its gold production guidance for the year, saying it will produce roughly 250,000 oz. of the yellow metal in 2006.

Agnico’s shares were up nearly 2% to C$39.45 on volume of roughly 1.2 million shares following the earnings announcement.