Market Overview

Agnico-Eagle Moving Forward With 2012 Momentum


With write-offs, dividend increases, and a 6.96% bump in Thursday trading after February 15 earnings release, what's next for Agnico-Eagle Mines (NYSE: AEM)?

Agnico-Eagle President and CEO Sean Boyd spoke with Benzinga about project initiatives, the company's net free cash flow, and forward-moving sentiment.

"I think 2011 was a tough year, we've regrouped," Boyd told Benzinga. "What we've put out is some guidance that's very achievable - more in 2012 than 2011. We still have growth in 2013 and 2014 from the existing mines, [and] several growth opportunities not in our three year forecast."

Highlights of Agnico-Eagle's release include a quarterly net loss of $601.4 million, or $3.53 per share, for Q4 2011, including a $644.9 million partial writedown of its Meadowbank mine. The company announced record operating cash flows at up 46% year-over-year, as well as record gold production numbers at its Pinos Altos and Kittila properties.

Two things are particularly tasty for investors. Agnico-Eagle increased its dividend by 25% to $0.20 per share for the 30th consecutive year that the company has offered a dividend to shareholders.

Second, and perhaps more notable, is the company's ability to turn its expenses back into cash. Seth Jayson of Motley Fool tackles this point beautifully in a recent article, pointing to Agnico-Eagle's cash conversion cycle ("CCC") as a "hidden" reason for "outstanding" earnings.

In the post-earnings conference call, Boyd was positive on Agnico-Eagle's financial flexibility moving into 2012, stating net debt at $700 million and that the company was net free cash flow with an undrawn credit line of almost $900 million.

"I think we've got a very good balance on how we're allocating net free cash flow," Boyd told Benzinga. "The big focus is to hit our guidance and targets [such as] production costs. . . We feel we've got some solid achievable guidance here."

When the cost per ounce raises for a gold miner, the wallet takes a hit, and Agnico-Eagle was hit hard by its write-offs, arguably more so by Meadowbank. The company's Goldex Mine suspension caused investors to move swiftly with shares trading down 18.55% on a heavy volume of 13 million shares in one day.

The final thing to note is Agnico-Eagle's management restructuring and, with that, the company's decision to allocate additional resources to project evaluation. Agnico-Eagle is well-known for its fairly aggressive exploration budget, which Boyd stated is maintained moving forward, in the post-earnings conference call.

"With the changes in restructuring of the management team, we have allocated more resources to project evaluation," Boyd said in the call. "We will be looking at more things and looking at them in more in depth.We think there will be opportunities out there for us, but we're not feeling pressure to do something."

Boyd reiterated the guidance to Benzinga, stating that the analysis of current projects will add value.

"We've been active on the acquisition front over the past five years [at the] earlier, smaller stage," Boyd told Benzinga. "We're not looking for major initiatives in new countries. . . [We'll] continue to look for opportunities, that effort will continue."

Although the price of gold fell 10% in December, the average price per ounce in 2011 sat at $1,571.52 - up over $300 from 2010's average price of $1,224.53. Further, the metal's 2011 demand hit a 14-year high of $1,920.30 per ounce due largely to record global investment stemming from the euro zone debt crisis and economic uncertainty. Central banks flocked to gold. ETF Daily News puts the number of gold bought by banks at 440 tons, roughly 500% more than the 77 tons purchased in 2010.

Domestically, a weaker US dollar and rising interest rates added to the conversation. The marginal effects to the US economy from the first two rounds of quantitative easing, and the much-discussed potential for QE3 may be a factor in analysts looking to gold to continue its rise in 2012.

Shares of Agnico-Eagle Mines closed at $35.44, down 3.14% from Thursday's close. Shares are down 2.42% year to date.

Posted-In: Earnings Long Ideas News Short Ideas Dividends Financing Commodities Movers & Shakers Best of Benzinga


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