As long as the price of gold continues to drift lower, it seems
earnings expectations for miners of the yellow metal are following
its decline. And in the high-risk metal mining industry, costs can
quickly escalate too.
) dropped to a Zacks #5 Rank as analyst 2013 EPS estimates have
fallen from $2.44 to $2.04 in the past 60 days. And downward
revisions have taken the full-year 2014 down to $2.36 from $2.80.
Agnico-Eagle Mines Limited is a Toronto-based gold producer with
operations in Canada, Finland and Mexico. The company'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.
Profits Again, But Rising Costs
The company missed expectations in fourth-quarter 2012 with both
revenues and adjusted earnings falling short of the Zacks Consensus
Estimate. But this was a welcome return to profitability from a
On a reported basis, the company turned to a profit of $82.8
million or $0.48 per share in the quarter compared with a loss of
$601.4 million or $3.53 per share a year ago. The bottom line in
the year-ago quarter was hit by $907.7 million of impairment charge
at their Meadowbank mine in northern Canada.
For full-year 2012, the company posted a profit of $310.9 million
$1.81 per share versus a loss of $568.9 million or $3.36 per share
in 2011. The hefty impairment loss coupled with production
suspension at the Goldex mine crimped the bottom line in 2011.
Adjusted earnings of $1.87 per share fell behind the Zacks
Consensus Estimate of $2.12.
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
And here's the view of future profits according to the analysts...
One of Agnico-Eagle's main issues has been the persistently high
operating costs at its Meadowbank mine in the Canadian Arctic. Ore
dilution resulted in lower than expected grades to the mill, and
the cost of transportation, logistics, labor and maintenance
continued to be much higher than expected.
According to the company, Meadowbank previously had a property,
plant and mine development book value of about $1.7 billion. Owing
to persistently high operating costs, the latest optimized mine
plan for Meadowbank resulted in shorter mine life and the company
had to reduce the carrying value of the operation. The company
expects cash costs to increase across a number of mines in 2013.
Shut-Down = Write-Down
Agnico-Eagle suspended operations at the Goldex mine in October
2011 due to suspected rock subsidence in the hanging wall above the
GEZ orebody. Considering the safety of its employees, and the
integrity of surface infrastructure, the company decided to stop
production at the mine.
Due to the uncertainty regarding any future production at Goldex, a
$161 million after-tax write down was incurred. In addition, all
proven and probable reserves at Goldex were transferred into
All About the Glitter
AEM's fortune's are closely tied to the barbarous relic, as are
those of most miners. One business practice that could be a
double-edge sword is the fact that the company is that they don't
Throughout its 40-year history, Agnico-Eagle's policy has been not
to sell forward its future gold production. In 2012, Agnico- Eagle
produced 1,043,811 ounces of gold at total cash costs of $640 per
The advantages to hedging might become apparent if gold enters an
extended decline. Many miners will wish they would have sold gold
forward contracts above $1600 should the price drop persist.
For further perspective, the gold miners are currently ranked in
the bottom 10% of Zacks Industry groups. Until the outlook for the
miners and the metal changes, it's probably best to stay away.
Kevin Cook is a Senior Stock Strategist with
AGNICO EAGLE (AEM): Free Stock Analysis Report
MKT VEC-GOLD MI (GDX): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
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