More gold and higher costs for Agnico-Eagle

The third quarter was mixed bag for Agnico-Eagle Mines (AEM-T, AEM-N).

While the company continued to build itself into a world class gold producer — achieving record production for the quarter — it also saw costs climb considerably.

The result was a net loss $17 million, or 11¢ per share for the quarter.

“Agnico-Eagle’s production growth continues as third quarter gold production increased 73% over the third quarter of 2008. However, our production ramp-up has not been as rapid as we had anticipated which has negatively impacted third quarter earnings,” Sean Boyd, Agnico’s chief executive said in a statement.

The company is banking on a stronger fourth quarter on the back of increased output at its Kittila Mine in Finland, Lapa in Quebec and Pinos Altos in Mexico.

For the quarter net income of $14 million, or 10¢ per share largely on the back of payable gold production of 118,763 oz. at a total cash cost of US$449 per oz.

That compares with gold production of 68,753 oz. in the third quarter of 2008 at total cash cost of US$135 per oz.

Greater production came thanks to the recent commissioning of Kittila and Lapa and the first gold pours at Pinos Altos. Production also continued to ramp up at its Goldex mine in Val d’Or Quebec.

Such higher gold production, however, was offset by increased costs stemming from, in part, a build-up of material and supplies for its Meadowbank project. The mine is scheduled for startup in the first quarter of 2010.

The company also gave an update on some its other key projects.

In Mexico, Pinos Altos achieved Mill start-up. While the mine is still in being commissioned, Agnico has managed to get some production from both the mill and the heap-leach pad.

Over in Finland, at its Kittila mine, the company is periodically achieving designed recoveries of 83%. The mine went into commercial production in May of this year, and while it has been able to go beyond its design capacity of 3,000 tonnes per day, Agnico says optimization of the plant is continuing.

At its flagship mine, LaRonde, the planned extension of the mine is ongoing with shaft sinking almost complete. The company says underground development will begin soon.

For the first nine months gold production came in at 329,628 oz. at cash costs of US$391 per oz. – that represents a 76% increase from the 187,402 oz. it produced for the same period last year. Cash costs, however, were considerably higher than the scant US$15 per oz. it registered in 2008.

Such dramatically higher costs came courtesy of a stronger Canadian dollar and Euro, lower byproduct prices and the fact that several of its new mines aren’t producing byproducts like its famed LaRonde mine has for so many years.

Agnico also had to reduce its production guidance for the year to 500,000 oz. of gold.

It blamed the decrease on slower than expected ramp up of the Kittila mill, the mining of lower grade blocks at Goldex and the higher than expected ore dilution at the start-up of Lapa.

It also said difficulties with the filter presses at the Pinos Altos mill were slowing commissioning there.

It said it expects record gold production of 170,000 oz. for the fourth quarter.

The company also lowered guidance for next year to between 1 and 1.1 million oz.

It said the more conservative estimate was a result of adding more contingency to the start-up phase of its new mines because of the difficulties it ran into with commissioning three new mines this year. 

The company is leaving its forecasts for 2011 through 2015 remain unchanged.