Agnico-Eagle Mines Ltd. (AEM): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are downgrading our recommendation on Agnico-Eagle to Underperform following its lackluster third-quarter 2014 results. The company swung to a loss in the quarter, hurt by lower gold pricing and increased costs associated with exploration activities. Both revenues and adjusted earnings missed Zacks Consensus Estimates. While Agnico-Eagle maintains a solid exploration budget and is reinvesting in its assets to expand output, any potential delay associated with the development projects may jeopardize its future production. We also take into account the current weak gold price environment and higher operating costs across a number of mines.

Overview:

Founded in 1953, Toronto, Canada-based Agnico-Eagle Mines Limited (AEM) is a gold producer with mining operations in Canada, Mexico and Finland, and exploration activities in Canada, Europe, Latin America and the U.S. Agnico-Eagle's LaRonde mine in Quebec is one of Canada's largest operating gold mines by gold reserves and has provided the company's foundation for domestic and international expansion. Throughout its history, Agnico-Eagle's policy has been not to sell forward its future gold production. In 2013, the company produced 1,099,335 ounces of gold at total cash costs of $672 per ounce. Its proven and probable gold reserves (net of 2013 production) totaled 149 million tons at the end of 2013, containing 16.9 million ounces of gold.

Agnico-Eagle operates through four regional units: the Quebec Region, the Nunavut Region, the European Region and the Latin American Region.

The Quebec Region includes the LaRonde mine (including the LaRonde mine extension below Level 245, earlier referred to as the LaRonde II project) and the Goldex and Lapa mine projects situated in the Abitibi region of Quebec.


The Nunavut Region comprises the Meadowbank mine project, which is administered by the office in Vancouver, British Columbia.

Agnico-Eagle's operations in the European Region are performed through its indirect subsidiary, Riddarhyttan Resources AB, which owns the Kittila mine project in Finland.

In the Latin American Region, operations at the Pinos Altos project are conducted through the company's subsidiary, Agnico-Eagle Mexico S.A. de C.V. The company also has the La India mine in the Mulatos gold belt in Sonora, Mexico.

Agnico-Eagle, in May 2013, wrapped up its takeover of mining company Urastar Gold Corp. The company acquired all the outstanding shares of Urastar pursuant to a statutory plan of arrangement under the Business Corporations Act (British Columbia). Following closure of the deal, Urastar is now a fully-owned subsidiary of Agnico Eagle.

Agnico-Eagle penned a definitive agreement with Urastar in March 2013. Urastar is engaged in the exploration of former gold producing regions in Sonora, Mexico, which is among the richest gold producing belts globally.

On Apr 16, 2014, Agnico-Eagle and Yamana Gold Inc. (AUY) entered into an agreement to jointly acquire 100% issued and outstanding common shares of Osisko Mining Corporation for a total consideration of roughly C$3.9 billion, or C$8.15 per share ($3.55 billion or $7.43 per share). The offer consists of about C$1 billion ($0.9 billion) in cash, roughly C$2.33 billion ($2.12 billion) in Agnico-Eagle and Yamana shares, and shares of a new company (Spinco) with an implied value of roughly C$575 million ($523.8 million).

The acquisition closed in June 214. Under the agreement, Agnico-Eagle and Yamana acquired 50% of Osisko, and set up a joint committee to operate the Canadian Malartic Mine in Quebec. Per the agreement, a number of assets of Osisko have been transferred to Osisko Gold Royalties Ltd. which, include a 5% net smelter royalty (NSR) on the Canadian Malartic mine, C$157 million cash, a 2% NSR on the Kirkland Lake assets, the Hammond Reef project, and certain other properties, all assets and liabilities of Osisko in its Guerrero camp, and certain other investments and assets.

On November 28, 2014, Agnico-Eagle completed the acquisition of 100% of the issued and outstanding common shares of Cayden Resources Inc. Canada-based Cayden is an exploration company focused on discovery, financing, and monetization of precious metal assets in two mining jurisdictions in Mexico. Per the Arrangement, each share of Cayden was exchanged for 0.09 of an Agnico-Eagle share and C$0.01 in cash. Cayden is now a wholly-owned subsidiary of Agnico-Eagle. The acquisition is a part of Agnico-Eagle's strategy to buy promising, early-stage gold projects where it can add value through exploration and mine building.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: AEM , AUY , NSR

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