Agnico Eagle Mines — A year of optimisation ahead

Agnico Eagle Mines (NYSE: AEM)

Last close As at 23/05/2024

USD67.32

−0.69 (−1.01%)

Market capitalisation

USD33,583m

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Research: Metals & Mining

Agnico Eagle Mines — A year of optimisation ahead

Agnico Eagle Mines (AEM) started the year with strong quarterly production of 813koz at an US$832/oz total cash cost and a US$1,125/oz all-in sustaining cost (AISC). A number of records were achieved, including in cash flow and safety. This marks the final quarter incorporating 50% of production from Canadian Malartic. From 30 March, this will increase to 100%, following AEM’s acquisition of Yamana’s Canadian assets, which will add c 80–90koz in attributable production per quarter. Guidance for FY23 remains unchanged at 3.24–3.44Moz at a cash cost of US$840–890/oz and AISC of US$1,140–1,190/oz. An unchanged quarterly dividend of US$0.40/share was declared.

Tom Batho

Written by

Tom Batho

Analyst

Metals & Mining

Agnico Eagle Mines

A year of optimisation ahead

Metals and mining

QuickView

2 May 2023

Price

US$56.35

Market cap

US$28bn

C$1.352/US$

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Share details

Code

AEM

Listings

TSX, NYSE

Shares in issue

494.3m

Business description

After completing its merger with Kirkland Lake Gold (effective 8 February 2022), Agnico Eagle Mines has become the world’s third-largest gold miner, operating 12 mines in Canada, Australia, Finland and Mexico. Its philosophy is to build a high-quality business that generates superior long-term returns and contributes to the communities in which it operates.

Bull

Low-risk mining jurisdictions in Canada (Nunavut and Abitibi), Australia, Finland and Mexico.

Management focused on costs, returns and profits, rather than output growth.

Easing inflationary pressures.

Bear

Exposure to harsh Canadian Arctic climate.

AEM has no gold hedges; however, it does hedge portions of its Canadian dollar, Mexican peso, euro and diesel exposure.

Yamana transaction added US$1.0bn to net debt, but leverage is still only 7.3% and gearing 7.9%.

Analysts

Tom Batho

+44 (0)20 3077 5734

Lord Ashbourne

+44 (0)20 3077 5724

Agnico Eagle Mines is a research client of Edison Investment Research Limited

Agnico Eagle Mines (AEM) started the year with strong quarterly production of 813koz at an US$832/oz total cash cost and a US$1,125/oz all-in sustaining cost (AISC). A number of records were achieved, including in cash flow and safety. This marks the final quarter incorporating 50% of production from Canadian Malartic. From 30 March, this will increase to 100%, following AEM’s acquisition of Yamana’s Canadian assets, which will add c 80–90koz in attributable production per quarter. Guidance for FY23 remains unchanged at 3.24–3.44Moz at a cash cost of US$840–890/oz and AISC of US$1,140–1,190/oz. An unchanged quarterly dividend of US$0.40/share was declared.

Sealing the deals

Following its successful merger with Kirkland Lake in 2022, AEM has now concluded its acquisition of Yamana Gold (in concert with Pan American Silver). Consequently, AEM now owns 100% of Canadian Malartic, the Wasamac project located in the Abitibi region of Quebec, and several other exploration properties. In addition, on 6 April 2023 AEM entered into a 50/50 joint venture with Teck Resources for the San Nicolás copper-zinc project in Zacatecas, Mexico. The JV is targeting several permits and a subsequent feasibility study in 2024.

Looking to the future

AEM intend to expand their mill at Detour beyond 28Mtpa and conduct a technical study for an underground component; each could contribute c 300koz pa to production. The Canadian Malartic Complex is progressing with the Odyssey development (update expected June 2023), evaluating exploration opportunities and advancing drilling projects. Abitibi regional pipeline projects are also advancing internal studies (completion expected by early 2024) with the potential to process ore by 2028 at the Canadian Malartic Mill, adding up to c 500koz pa to production.

Valuation: Dividend yield leading the pack again

Consensus estimates

Year
end

Revenue
(US$m)

PBT
(US$m)

EPS
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/21

3,824

943

2.30

1.45

24.5

2.6

12/22

5,741

1,428

1.84

1.60

30.6

2.8

12/23e

6,485

1,548

2.08

1.64

27.1

2.9

12/24e

6,703

1,482

2.22

1.68

25.4

3.0

Source: Company data, Refinitiv. Note: PBT and EPS are normalised.

AEM continues to command a premium rating relative to the sector, consistent with both its size and the low-risk jurisdictions in which it operates. Guidance is for production to increase from 3.24–3.44Moz in FY23 to 3.4–3.6Moz in FY25 and consensus earnings estimates have been moving modestly upwards since our last note in February. However, they still appear conservative within the context of Q1 adjusted net EPS of US$0.578/share, the current gold price and the future 100% contribution to earnings from Canadian Malartic. At the same time, AEM’s yield remains at a notable premium to its peers.

General disclaimer and copyright

This report has been commissioned by Agnico Eagle Mines and prepared and issued by Edison, in consideration of a fee payable by Agnico Eagle Mines. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Agnico Eagle Mines and prepared and issued by Edison, in consideration of a fee payable by Agnico Eagle Mines. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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