Loss sends Agnico-Eagle shares into tailspin (October 30, 2003)

Shares in Agnico-Eagle Mines (AGE-T) had about a fifth of their valued carved away after the mid-tier producer posted a wider third-quarter loss on continued poor performance from its LaRonde gold-copper mine, near Val d’Or, Que.

The net loss for the three months ended Sept. 30 totals US$11.9 million (or 14 per share), and compares with a year-ago loss of US$600,000 (a penny a share). For the first nine months of the year, the company lost US$21.9 million (26 a share), a staggering reversal from the US$3.2 million (a nickel a share) earned during the corresponding period of 2003.

Operations ate through US$6.6 million during the quarter, and US$6.5 for the first nine months, compared with positive cash flow of US$2.3 million and $14.9 million during the corresponding periods of 2002.

Third-quarter gold production amounted to 51,192 oz., slightly better than the year-ago period, but well below expectations despite a record number (but lower grade) of tonnes being mined. Total cash operating cash costs, including the El Coco royalty paid to Barrick Gold (ABX-T) soared by US$160 per oz. to US$368 per oz. The stronger Canadian dollar also helped to boost costs. Agnico notes that the El Coco royalty and ore will be largely exhausted by the end of the year.

The company says that “production drilling challenges” meant that five mining blocks containing about 27,000 oz. of gold were not mined during the quarter as planned. At the mill, recoveries suffered at the hands of numerous stop-start cycles resulting from ore shortages, electrical problems, and variation in ore types.

Agnico’s chief executive Sean Boyd said in a prepared statement, “While there has been steady progress in resolving LaRonde’s operating issues this year, our progress has been slower than expected and our third-quarter operating results are very disappointing. We are taking the steps necessary to ensure that LaRonde will become a strong cash flow generator for many years and form the foundation for our regional growth plan.”

Still, the company says it won’t meet its already lowered production forecast of 300,000 oz. for the year (previously 375,000 oz.), it does however figure that fourth-quarter production will recover to around 70,000-75,000 oz. Cash costs are projected at US$210-US$230 per oz.; US$240-US$260 per oz. including the El Coco royalty.

Meanwhile, the company is reworking the mine plan at LaRonde to include an annual production rate of 300,000 oz., with more tonnes being sourced from the upper levels of the mine than originally planned. The new plan is expected by year-end, and will result in increased byproduct production.

Looking to overcome the drilling problems, Agnico has added a pair of drills acquired when it picked up the neighbouring Bousquet gold property from Barrick Gold (ABX-T) earlier this summer.

The company says a first-quarter rock fall has been completely backfilled and normal mining operations in the immediate area resumed during the recent quarter.

At the end of September, Agnico had cash and equivalents totalling US$115 million and working capital of US$144 million.

The loss sent Agnico’s shares down $4.10, or more than 22%, to $14.33, near its 52-week low of 14.14; the shares have fallen around 40% since the beginning of the year.