Agnico Eagle Mines — First view of an emerging champion

Agnico Eagle Mines (NYSE: AEM)

Last close As at 28/03/2024

USD57.85

1.79 (3.19%)

Market capitalisation

USD27,971m

More on this equity

Research: Metals & Mining

Agnico Eagle Mines — First view of an emerging champion

On an underlying basis, Agnico Eagle Mines’ (AEM’s) Q122 revenue of US$1,325.7m, EBITDA of US$583.8m, pre-tax profits of US$300.4m and adjusted net EPS of US$0.612/share were either at or above the top end of analysts’ expectations. Production (with Kirkland Lake included from 8 February) was 660,604oz at a total cash cost of US$811/oz (on a by-product basis) and an all-in sustaining cost (AISC) of US$1,079/oz. Including a full quarter’s contribution from Kirkland Lake’s mines, pro forma payable production in Q122 was 806,329oz. AEM maintained the quarterly dividend at US$0.40/share, while net debt (excluding leases) declined to US$503.7m, equivalent to leverage (net debt/[net debt + equity]) of just 3.0%.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Agnico Eagle Mines

First view of an emerging champion

Metals & mining

QuickView

3 May 2022

Price

US$74.03

Market cap

US$33.7bn

C$1.2890/US$

Share price graph

Share details

Code

AEM

Listing

TSX, NYSE

Shares in issue (pre-merger)

454.8m

Business description

After the consummation of its merger with Kirkland Lake (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.

Increased corporate G&A synergies.

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.

Ongoing risk of future COVID-19 related disruptions and future, general inflationary pressures.

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

Agnico Eagle Mines is a client of Edison Investment Research Limited

On an underlying basis, Agnico Eagle Mines’ (AEM’s) Q122 revenue of US$1,325.7m, EBITDA of US$583.8m, pre-tax profits of US$300.4m and adjusted net EPS of US$0.612/share were either at or above the top end of analysts’ expectations. Production (with Kirkland Lake included from 8 February) was 660,604oz at a total cash cost of US$811/oz (on a by-product basis) and an all-in sustaining cost (AISC) of US$1,079/oz. Including a full quarter’s contribution from Kirkland Lake’s mines, pro forma payable production in Q122 was 806,329oz. AEM maintained the quarterly dividend at US$0.40/share, while net debt (excluding leases) declined to US$503.7m, equivalent to leverage (net debt/[net debt + equity]) of just 3.0%.

Guidance unchanged

Cost pressures at AEM were reported to be modest in Q1 owing to cost savings, long-term agreements with suppliers, existing fuel hedges and a predominantly local labour force. In the meantime, the effects of the COVID-19 pandemic are also reported to be waning. On a pro forma basis, expected gold production in FY22 remains unchanged at 3.2–3.4Moz at total cash costs of US$725–775/oz and AISC of US$1,000–1,050/oz. Similarly, the estimate for potential operational synergies remains unchanged at c US$130m pa (US$440m over five years and US$1.1bn over 10 years) as does the estimate of strategic opportunities at up to US$240m over five years and US$590m over 10 years. However, corporate G&A synergies are now expected to be up to US$200m in the first five years (cf US$145m previously) and US$400m over the next 10 years (cf US$320m previously). Estimates for total capex for FY22 remain unchanged at US$1.4bn.

ESG targets remain in focus

Following the merger with Kirkland Lake, AEM continues to have one of the lowest greenhouse gas intensities among gold miners globally and will provide an update on its climate strategy as well as publishing its 2021 sustainability report later in Q222. In the longer term, it has committed to both a net zero target for 2050 and the pathways to achieve it.

Valuation: Q1 likely the weakest of FY22’s quarters

Given that Kirkland Lake’s mines will contribute to AEM fully in Q2-Q422, FY22 consensus revenue, EPS and DPS estimates in particular appear conservative pro rata with Q122. In the meantime, it retains its premium rating in the sector, albeit to a lesser extent than previously, but offers a higher dividend yield than the average of its peers, while still being able to fund its growth plans internally.

Consensus estimates

Year
end

Revenue
(US$m)

PBT
(US$m)

EPS
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/20

3,138

768

1.87

1.10

3070

1.9

12/21e

3,824

947

2.41

1.45

23.8

2.5

12/22e

6,052

1,672

2.41

1.53

23.8

2.7

12/23e

6,084

1,692

2.55

1.53

22.5

2.7

Source: Company sources, Refinitiv. Note: PBT and EPS are normalised, excluding exceptional items.

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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 2022 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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