Precious metals surge would spur Agnico-Eagle

The surge in precious metals prices, if maintained, promises to have a profound effect on the earnings of Agnico-Eagle Mines, especially for its silver division which has been building up a strong and unique position at Cobalt.

In fact the company is already capitalizing on this, having recently sold about half of the some 700,000 ozs of refined silver bullion it has been holding off the market, including a sizeable amount just this week that fetched over $14.50(Cdn) per ounce. (Agnico is one of the very few gold producers in this country that has not sold any production forward.)

From all appearances, over-all corporate earnings for the current quarter will reach an all-time high — and this before an expected imminent upturn in grade at its main Telbel gold operation. Helping this better showing is a $1.8 million profit realized from investments (including a bundle it made on Equity Silver) and another $1.8 million from its new real estate division which is doing quite well in industrial land transactions in the Metropolitan Toronto area.

Silver has actually been a heavy drain on corporate earnings since early last year when fire destroyed the company’s mill at Cobalt. But this will soon change when its new $2.5 million 300-ton plant comes into operation in June. But because there has been no letup in underground development at the four separate mines it operates in that camp, it will start with a strong backlog of broken ore containing over one million ounces.

The mill startup will also call for reopening of the company’s silver refinery at Cobalt.

And, as exclusively reported in this paper recently, the company is going to put down a 1,200-ft production shaft to develop a brand new silver mine in a new area 10 miles northeast of Cobalt on what is known as the Langis project.

The higher gold price, too, could make quite a difference at its Dumagami Mines operation in Bousquet Twp. That company, in which Agnico holds a 26% interest, has just raised $22 million for construction of a new 2,000 ton mill. But if gold keeps on its upward trend, that plant may not be large enough, for this is a mine very sensitive to the price of gold.

Because there are 40 to 50 ft widths of gold carrying sulphides in each wall of both the east and west zones at this mine, management has ordered a new ore inventory be taken to determine just what can be profitably mined at various gold prices. While it is just too early to say where this will lead, a 4,000 ton-per-day operation is conceivable for there would be substantial ore tonnages readily available simply by reducing the grade.

Based on the planned 1,500 ton initial mill rate from present reserves of 5,452,200 tons grading 0.134 oz and a 90% recovery, this mine should turn out 63,500 ozs of gold annually. With operating costs estimated at $36 per ton and gold at $350(US), earnings per share (assuming the excercising of all warrants) would amount to 41 cents per share, rising to 83 cents at $450 gold and $1.24 at $550 gold. Each $1 per ton change in operating costs would change earnings by 3 cents a share.

Followers of the Agnico saga may be interested to know that Agnico- Eagle Mines topped the list of Canadian gold mines favored for strong production growth by the giant Merrill Lynch brokerage firm at an investment seminar held in New York last week. * *

Agnico-Eagle reports income of $3,062,133 or 22 cents per share for the fourth quarter of 1986, significantly higher than the $934,846 or 7 cents in the same period the previous year. However, cash generated from operations declined to $4,473,832 or 32 cents per share from $6,807,240 or 49 cents in the corresponding 1985 quarter.

But bullion revenues for the full year ended Dec 3l, were lower at $38,034,433, off from $46,351,573, with income before an extraordinary item of $5,189,708 or 37 cents per share down 20% compared to the previous year’s $6,524,761 or 47 cents per share.

Reductions in the 1986 financial results are primarily attributable to the absence of any income from the silver division. Too, there was an increase in costs at the gold mining division due to higher development charges incurred with a change in stoping methods to correct a dilution problem encountered at the Telbel mine. The transition from longhole stoping to sub-level mining met hods should start to show in May when the first of the new stopes comes into production, W. A. Hubacheck, the company’s consulting geologist, tells The Northern Miner. In fact a whole new block of above average grade ore estimated to contain at least a million tons that should average at least 0.30 oz is currently being developed for extraction by the new method, so there should be a steady improvement in grade from here on.