Agnico Eagle Mines (AEM, Financial) enjoyed a robust fourth quarter of gold production coupled with ongoing robust cost performance that enabled the company to surpass its yearly production regarding its cost outlook for the third consecutive year.
What next?
Going forward, Agnico targets on enhancing its annual gold production by 12% and at reduced unit costs. The cash costs are estimated to be in $610 to $630 per ounce range with all-in sustaining cost in the $880-to-$900-an-ounce range.
The impressive gold production depicts the continued solid operating performance of the company, encouraging it to set reasonable production targets for the future at lower costs.
Agnico is also focused on improving its reserve grade for the mines and recorded a notable increase in grade for several of its key mines. It witnessed LaRonde grade expanding, currently 5.2 grams per ton. For Kittila, currently 4.9 grams per ton an increase from 4.6 and at Pinos Altos it’s witnessing a 3 gram per ton or 3.2 gram per ton reserve grade.
Agnico experienced a 56% expansion in its forecasted resource base and its inferred resource enhanced slightly more than 30% including the primary resource at the Amaruq breakthrough, which is currently 1.5 million ounces.
Operational expansion will power results
The robust expansion in the gold resource base of the company along with the continued improvement in the grades of the produce at several of its key mines is estimated to strengthen Agnico’s position, going forward.
Agnico reported solid quarterly as well as annual production performance, achieving robust contribution from all its key operations at Abitiibi, Lapa, Goldex and the LaRonde. There’s also solid revert back of production at Kittila along with the cost reductions for the production in Mexico.
Hence, the rising forecast production in 2015 is believed to be delivered at reduced unit costs compared to 2014, and Agnico is robustly positioned to expand both its total free cash flows and operating cash flows due to which it was able to maintain its quarterly dividend at $0.08 per share.
The consolidated increase in the overall gold production at some of the major mines of Agnico at lowered production costs is estimated to offer enough financial flexibility to Agnico for investing into future mining explorations and delivering impressive shareholder returns.
Over the approaching three years, Agnico is expected to witness approximately 70% of the input coming from Canada, nearly 10% from Europe and approximately 20% from Mexico. Agnico is witnessing better cost at LaRonde below $600, at Malartic about $600, at Goldex nearly $620.
At Meadowbank, Agnico expects to grow its mine production depending on the reduced oil price owing to a weaker Canadian dollar. The successful execution of the production growth plan by Agnico is forecast to improve the production in 2017 and continuing into 2018, which again allows the company an opportunity to expand the mine life at Meadowbank.
The production improvements at the key mines of Agnico including the cost reduction benefits highlight the robust growth strategy of the company, giving it a solid standing among its competitors.
In general, the World Gold Council forecasts demand from China to expand by about 20% by 2017. In the next five years, the middle class of China is expected to increase to 500 million from 300 million. Moving ahead, India also has a reasonably poor level of per capita gold holdings. The rising urbanization coupled with robust cultural similarity for gold converges appropriately with the rising metal’s demand in both China and India.
Agnico Eagle Mines currently carries a “Hold” rating owing to the excessive stock valuation and comparatively slower growth prospects of the company compared to its competitors such as Newmont Mining, Asanko Gold Inc. and Sandstorm Gold.
The forecast expansion in gold demand from the major emerging economies of India and China is believed to drive significant company growth, moving ahead.
Some analysts expect Agnico to be an extremely solid performer with impressive production performance at reduced costs compared to its peers. However, Agnico needs to improve its production growth outlook for fiscal years 2016 and 2017 by robust project executions or strategic acquisitions and gold price needs to recover.
The consensus estimate among 31 polled investment analysts evaluating Agnico Eagle Mines Ltd suggests the company will outperform the market. This rating is maintained since the investment analyst’s sentiments enhanced on Sept. 8, 2014. The earlier consensus estimate suggested investors should hold their position in the company.
The robust investment rating provided by the analysts to Agnico indicates a bright growth outlook for the company that should attract the key investors towards the stock.
Conclusion
Overall, the investors are advised to invest into the Agnico Eagle Mines Limited looking at the satisfactory growth level with the PEG ratio of 2.99, depicting slower and costlier company growth compared to the solid industry’s average of 0.13. However, the stock is excessively overvalued with the trailing P/E and forward P/E ratios of 75.45 and 33.78 respectively compared to marginally healthy industry’s average P/E of 21.60. The profit margin of 4.37% is satisfactory. Still, Agnico needs to optimize its hugely debt-laden balance sheet with significant total debt of $1.42 billion against weaker total cash of $238.63 million only, restricting the company to execute future growth investments.
