We are upgrading our recommendation on
Agnico-Eagle Mines Ltd.
(
AEM
) to Neutral following our assessment of its strong first-quarter
2012 results. Its revenues and adjusted earnings for the quarter
topped Zacks Consensus Estimates. Sales and profit were boosted by
a higher average realized gold price.
Agnico-Eagle has rebounded from a series of underperformances in
2011, which was partly attributable to the closure of its Goldex
mine due to safety issues. The company has sufficient cash flow
which enables it to maintain a very strong exploration budget for
2012, primarily focused on Kittila, Meliadine and Mexico.
Agnico-Eagleis also reinvesting in its assets to expand its
output. It expects production to expand by 24% through the end of
2014. The company also has consistently rewarded its shareholders
by way of dividend payments.
With an increase in gold reserves in 2011, Kittila is the
company's largest contributor to proven and probable gold reserves.
Agnico-Eagle expects further production growth in 2012. It is
currently exploring expansion opportunities in Kittila and is
conducting a feasibility study for a potential 25% expansion in
throughput.
Agnico-Eagle has developed a revised life of mine plan. The new
plan forecasts lower gold production over a shorter mine life but
is still expected to yield significant free cash flows over the
next six years. The company believes that the new life of mine plan
for the Meadowbank mine lowers its operating risk.
However, any potential delay associated with the development
projects may jeopardize the company's future production. Moreover,
uncertainties surrounding the Goldex mine could affect the stock's
performance.
Agnico-Eagle suspended operations at the Goldex mine in October
2011. Considering the safety of its employees and the integrity of
surface infrastructure, the company decided to cease production and
initiated an investigation on the site. Agnico-Eagle is expected to
provide an update on the status of the mine in mid-2012.
The company is also faced with persistently high operating costs
at its Meadowbank mine in the Canadian Arctic. Moreover, it is
exposed to risks associated with currency exchange swings, metal
prices and political environment.
Agnico-Eagle, which competes with
Barrick Gold Corporation
(
ABX
),
Kinross Gold Corporation
(
KGC
) and
Newmont Mining Corp.
(
NEM
), currently retains a short-term Zacks #3 Rank (Hold).
BARRICK GOLD CP (ABX): Free Stock Analysis
Report
AGNICO EAGLE (AEM): Free Stock Analysis Report
KINROSS GOLD (KGC): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
Report
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