Agnico Eagle's Q1 Earnings Beat Ests, Shares Up - Analyst Blog

Shares of Agnico Eagle Mines Limited AEM rose as much as around 9.6% during the trading session following the release of its forecast-topping first-quarter 2014 results. The company's adjusted earnings (barring one-time items other than stock-option expenses) were 56 cents per share in the quarter, beating the Zacks Consensus Estimate of 25 cents per share. The company's shares eventually closed at $32.31 last Friday, gaining around 9.2%.

The company logged a net income of $108.9 million (or 62 cents per share) on a reported basis in the first quarter, increasing more than four-fold from of $23.9 million (or 14 cents a share) recorded in the year-ago quarter. Despite lower gold prices, net income was higher, aided by significantly increased gold production coupled with lower production expense.

Revenues and Operational Highlights

Agnico Eagle registered revenues of $491.8 million in the quarter, up 17% from $420.4 million in the year-ago quarter. The results also surpassed the Zacks Consensus Estimate of $445 million.

Payable gold production in the quarter increased 54.6% year over year to a record 366,421 ounces. The higher production was mainly due to higher grades at Meadowbank, a full quarter of production at Goldex, higher grades and better recoveries at LaRonde, and the ramp-up to commercial production at La India which started in Feb 2014.

Total cash costs per ounce for the first quarter decreased 27.4% year over year to $537 per ounce largely due to record quarterly production, lower costs at Meadowbank and higher grades at LaRonde.

Realized gold price fell roughly 19% to $1,308 an ounce from $1,611 a year ago. Gold prices declined due to a challenging gold market.

Gold production at Kittila in the reported quarter decreased 10.6% to 38,552 ounces at total cash costs per ounce of $795 from 43,145 ounces produced at total cash costs per ounce of $624 in the year-ago quarter. The mine's production declined largely due to lower grades and recoveries and slightly higher ore.

Payable production at the Pinos Altos mine in northern Mexico increased 2.4% year over year to 45,217 ounces of gold. Cash cost per ounce increased 50% year over year to $450 due to a 25% decrease in byproduct silver production and lower realized silver prices. The mine's production lowered mainly due to slightly higher grades processed.

The Creston Mascota heap leach operates as a satellite operation to the Pinos Altos mine. Payable gold production at Creston Mascota was 10,317 ounces, a roughly five-fold year-over-year rise from 1,907 ounces produced in the prior-year quarter. The year-ago lower production was due to suspension of operations for leach pad modifications.

Record quarterly payable gold production at Meadowbank of 156,444 ounces, up 91.2% year over year from 81,818 ounces recorded in the prior-year quarter. Total cash cost per ounce decreased around $635 year over year to $434.

At the La India mine in Mexico, which began its commercial production in the first quarter of 2014, produced 10,208 ounces of gold at a total cash cost per ounce of $426 in the reported quarter.

Financial Condition

Agnico Eagle's cash and cash equivalents totaled $206.8 million as of Mar 31, 2014, compared with $170 million as of Dec 31, 2013, up 21.6%. The increase owed largely to higher realized metal prices, lower costs and record quarterly gold production. Long-term debt reduced to $920 million as of Mar 31, 2014 from $1 billion as of Dec 31, 2013.

Cash provided by operating activities in the first quarter was $247.7 million compared with $146.1 million in the prior-year quarter. Capital expenditures as of Mar 31, 2014, were $98.8 million compared with $133.1 million as of Dec 31, 2013. The decrease in capital spending is a reflection of capital and cost reduction initiatives that were incorporated in the second half of 2013.

Proposed Acquisition

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 total 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 with an implied value of roughly C$575 million ($523.8 million).

As Agnico Eagle has a good operating hold in Quebec, the Osisko acquisition is a strategic fit for the company which already holds a production platform in the Abitibi region. Partnering with Yamana will allow Agnico Eagle to maintain its strong balance sheet and keep its equity dilution low.

Developments

The 100% owned Meliadine mine near Rankin Inlet, Nunavut, continued with its underground development, exploration, technical studies and permitting in the first quarter. The mine is scheduled to complete in late 2014.

Outlook

Agnico Eagle expects payable gold production to surpass the top end of the 2014 outlook of 1,175,000–1,205,000 ounces set earlier in 2014. Moreover, the company now expects total cash cost to be better than the bottom end of the earlier-set total cash cost per ounce guidance of $670 to $690.

The guidance assumes strong operational performance from the Meadowbank mine and positive contributions from other mines. The company also expects all-in sustaining costs to be better than the previous guidance of $990 per ounce for 2014.

Agnico Eagle believes that with its current cash balance, anticipated cash flows and available bank lines it is fully funded for the development and exploration of its current pipeline of approved gold projects in Canada, Finland and Mexico along with the Osisko acquisition. However, a planned three-week shutdown is expected at the LaRonde mine in Jul 2014 for the installation of new hoist drives replacing obsolete production and service hoist equipment in the Penna shaft.

Agnico Eagle currently retains a Zacks Rank #2 (Buy).

Other companies in the gold mining industry worth considering are AngloGold Ashanti Ltd. AU and Lake Shore Gold Corp. LSG, both carrying a Zacks Rank #1 (Strong Buy).