Agnico Eagle Mines: A Stronger Yr On Deck (NYSE:AEM)

It has been a tricky 12 months for the Gold Miners Index (GDX) with the disappointing outcomes of some souring sentiment for the group, and continued share-price underperformance vs. the gold worth. A few of the detractors with pitiful outcomes and/or per share metrics (attributable to continued share dilution) have been Coeur Mining (CDE), First Majestic (AG), and Iamgold (IAG). In the meantime, though Evolution Mining’s (OTCPK:CAHPF) margins have been strong, we have seen important share dilution with extra aggressive progress by M&A, with this being the third deal in three years (Battle North, Ernest Henry, Northparkes).

On a optimistic notice, metals costs are lastly at favorable ranges the place the standard (share dilution) suspects would possibly be capable of keep away from issuing further shares, and the sector leaders have a few of the strongest steadiness sheets in years on steadiness, whereas the typical million-ounce producer is paying a dividend yield double that of the S&P-500 (SPY). As well as, we have seen much more disciplined progress from most miners (in contrast to previous cycles), with one firm that is doned a superb job over the previous few years of beefing up its portfolio at accretive costs being Agnico Eagle Mines (NYSE:AEM). On this replace, we’ll take a look at the corporate’s 2024 and long-term outlook, current developments, and whether or not the inventory is worthy of funding at present ranges.

2024 & Lengthy-Time period Outlook

2023 was a strong 12 months for Agnico Eagle regardless of some hiccups (Detour downtime in Q3, restrictions at Fosterville, allow delays at Kittila), however these points have since been resolved and the corporate could have one other report 12 months with manufacturing of ~3.4 million ounces. This has been helped by full possession of Canadian Malartic (50% –> 100%) and one other sturdy 12 months from Meadowbank (~322,400 ounces in first 9 months of 2023) which helped to offset decrease grades/mining charges at Fosterville and a change within the mining methodology at LaRonde. Therefore, regardless of was anticipated to be a harder 12 months with some uncertainty associated to manufacturing charges at Fosterville/Kittila, Agnico will are available in above its steering mid-point of three.34 million ounces, in step with its monitor report of over-delivering on guarantees.

Sadly, whereas manufacturing hit a brand new report in 2023, prices had been up sharply from the three-year common of $1,073/oz (2020-2022), impacted by inflationary pressures and better sustaining capital (greater deferred stripping prices at Detour Lake and Amaruq, plus full possession of Canadian Malartic). The consequence was that Agnico Eagle guided for greater prices of $1,140/ozto $1,190/ozin 2023, and prices appear like they’ll are available in close to the mid-point for 2023, at or under $1,175/oz. On a optimistic notice, 2024 is predicted to be a significantly better 12 months, with Agnico benefiting from greater manufacturing (helped by Meadowbank, Macassa/Amalgamated Kirkland, Kittila and Canadian Malartic), with Meadowbank anticipated to have a close to 500,000 ounce manufacturing profile in each 2024 and 2025. The upper gross sales mixed with what could possibly be a decrease gas worth recommend a significantly better 12 months on deck, with Agnico set to provide nearer to three.5 million ounces at ~$1,120/ozAISC (3% improve in output and ~5% decline in prices).

Kittila’s manufacturing will profit from the working allow being restored to 2.0 million tonnes each year.

Sean Boyd

Dominique, do you wish to assist us with the break up between underground and open pit at Meadowbank as we transcend 2023.

Dominique Girard

Yeah, the Amaruq underground goes to carry 100,000 ounces, 140,000 ounces to the sport. That is going to carry general Meadowbank getting – they will attain over 500,000 ounces, which goes to be our greatest operation in these years 2024, 2025.

– Agnico Eagle Mines This autumn 2020 Convention Name

This enchancment in the fee profile will assist Agnico to regain its throne as one of many lower-cost million-ounce producers sector-wide and the upper gold worth ought to contribute to a big improve in working money circulate and free money circulate when mixed with extra normalized sustaining capital expenditures this 12 months. The truth is, Agnico is positioned to generate as much as $1.35 billion in free money circulate in 2024 if gold costs can stay above $2,000/oz, and 2025 must be simply as sturdy with an identical manufacturing profile however at even decrease prices (consistent with Agnico’s steering supplied at year-end 2022 that said prices would decline from 2023 ranges in 2024/2025). Nevertheless, the corporate does have its work lower out for it within the latter half of the last decade to offset depletion, and the current Nunavut Impression Evaluate Board’s Reconsideration and Advice Report (which we’ll talk about later) associated to the Meliadine Part 2 Growth has added further uncertainty.

For these unfamiliar, Meadowbank/Amaruq has been a money cow for Agnico Eagle because it went into manufacturing in 2010 (producing nicely over 4 million ounces of gold so far from Meadowbank/Amaruq), and manufacturing exceeded deliberate ranges with manufacturing initially anticipated to finish in 2020 with ~3.6 million ounces of open-pit reserves throughout three pits (Vault, Portage, Goose). Nevertheless, manufacturing is predicted to say no in 2026 from simply shy of 500,000 ounces in 2024/2025 as mining is accomplished on the Whale Tail Pit. Agnico famous in its Q3 2023 Convention Name that it’s taking a look at probably extending manufacturing previous 2027 at Meadowbank, which could possibly be achieved by finishing a pushback on the IVR Pit. Nonetheless, manufacturing shall be decrease at this #3 asset by measurement (simply behind Detour and Canadian Malartic) later this decade, and it isn’t clear how a lot additional the mine life will be prolonged previous 2026.

Concurrently, Canadian Malartic’s open-pit is being depleted whereas the corporate works to carry the extra productive and higher-grade East Gouldie Mine on-line (a part of the Odyssey Undertaking), with Canadian Malartic’s manufacturing set to say no to ~500,000 ounces from 2026-2029 with out additional optimization underneath the up to date life-of-mine plan. It is a practically 200,000 ounce headwind from 2024 ranges, and whereas not practically as impactful, La India in Mexico can also be set to move offline in 2025. Lastly, though Detour Lake has the potential to be a 1.0 million ounce each year asset, 2026-2029 are anticipated to be lower-grade years for the mine. And even when we see throughputs nearer to 29.5 million tonnes at Detour Lake (28.0 million tonnes assumed in 2022 TR), manufacturing ought to common ~690,000 ounces within the interval, an extra headwind on this similar 2026-2028 interval.

So, is decline in manufacturing a giant deal?

Whereas it seems to be like Agnico Eagle may see manufacturing slip to ~3.1 million ounces in 2027/2028 if the corporate would not purchase one other producing asset, manufacturing is about to return roaring again on the finish of the last decade and will develop ~30% from the 2027/2028 trough looking to 2030/2031 relying on the sequencing of initiatives. It is because Detour has the potential to be a ~1.0 million ounce each year asset if the corporate green-lights Detour Underground and may take absolutely benefit of the ~32 million tonnes each year of permitted capability (presently working nearer to ~26 million tonnes each year). In the meantime, Canadian Malartic is a ~550,000 ounce producer whereas using simply one-third of capability, and between Camflo, near-mine alternatives and future spokes (Higher Beaver/Wasamac alone may ship a mixed ~380,000 ounces) transported by rail to the hungry mill, the advanced may additionally produce ~1.0 million ounces each year.

On prime of those natural progress alternatives, the corporate may produce upwards of ~250,000 GEOs if it green-lights San Nicolas in Zacatecas, Mexico (similar state the place Penasquitoa, Juanicipio, La Colorada and Camino Rojo function). As well as, the compay’s Hope Bay Undertaking (beforehand in operation) was purchased for a track and has 350,000+ ounce each year potential. Lastly, whereas there is no ensures, a brand new high-grade discovery at Fosterville may definitely carry this asset again into the image (presently anticipated to provide at simply ~200,000 ounces), and the current Comet discovery south of Fosterville by Nice Pacific Gold (5 meters at 166 grams per tonne of gold) suggests this space of Bendigo in Australia could have extra left in retailer each south of Fosterville and on the corporate’s present tenements. Clearly, one gap doesn’t make a brand new discovery, however I proceed to be cautiously optimistic relating to a brand new high-grade discovery at Fosterville which may present a carry to manufacturing later this decade.

And whereas on the subject of Fosterville, Agnico continues to have exploration success at depth at Decrease Phoenix, hitting 10.8 grams per tonne of gold over 10.0 meters within the Cardinal splay at 1,830 meters depth, 190 meters down-plunge from its present mineral reserve base. The Cardinal Zone was initially recognized in 2022 by Agnico Eagle within the hangingwall of Decrease Phoenix with intercepts of 1.1 meter at 365.5 grams per tonne of gold (1,680 meters depth), 1.4 meters at 226.2 grams per tonne of gold (1,715 meters depth), and a couple of.9 meters at 168.6 grams per tonne of gold (1,680 meters depth), so this new seen gold intercept is the deepest at Cardinal so far.

Taking all of this into consideration, a conceptual take a look at Agnico Eagle’s manufacturing profile looking to 2030 is proven above, and we will see that 2024 and 2025 must be two important years of free money circulate era earlier than a slight drop off in output in 2026-2028. Nevertheless, manufacturing may improve to three.9+ million ounces in 2030 with Hope Bay and San Nicolas (50%). And whereas a number of progress initiatives (Detour Underground, Wasamac/Higher Beaver, San Nicolas (50%), Hope Bay) would possibly appear to be so much to tackle directly, it is vital to notice that these are shared capex and/or comparatively low capex alternatives vs. constructing a large stand-alone greenfields operation like Cote with a $2.5+ billion capex invoice.

Why? Hope Bay advantages from present infrastructure, San Nicolas is shared with Teck Assets (TECK), and Hope Bay/Wasamac have already got a house for his or her ore if mines are developed at each websites. Therefore, this isn’t like the corporate is constructing three Cote’s or three Greenstone’s directly which might be unreasonable, and it definitely has the money circulate to assist this progress with the potential for ~$1.5 billion in free money circulate in 2025. The final level value noting is that whereas progress could seem to lag a few of Agnico’s friends, the distinction is that Agnico hasn’t seen its progress drop off materially from 2019-2022 and is having to develop from a excessive watermark vs. a low watermark corresponding to bigger gold producers whose manufacturing peaked final decade (proven under).

Lastly, whereas gold manufacturing could decline from the anticipated peak in 2024/2025 to 2027/2028, it is fairly doable that we may see comparable income and money circulate era if the gold worth can lastly enter a brand new bull market. And if Agnico actually wished to, it may plug this hole in a single day with a bolt-on acquisition of a comparatively low capex or already producing 300,000+ ounce each year asset. To summarize, I do not see this manufacturing cliff as a problem to the funding thesis, however there is no query that the corporate has some optimization work to do to clean out this profile as a lot as doable. The excellent news is that exploration success at a number of property continues to return in at or above expectations, permitting different property to take care of manufacturing profiles and lengthen their mine lives.

NIRB Report On Meliadine Growth Undertaking

Agnico Eagle responded to the Nunavut Impression Evaluate Board [NIRB] earlier this month in relation to its Meliadine Mine (considered one of its largest operations producing ~400,000 ounces of gold each year), with its response being to the NIRB’s conclusion to not enable the Extension Proposal at Meliadine to proceed presently on condition that “the potential for significant adverse ecosystem and socio-economic effects cannot be adequately managed and mitigation”.

Pictures under spotlight Agnico Eagle’s land package deal, regional targets, and exploration success/upside on its huge Meliadine land package deal subsequent to present reserves at Tiraganiaq, Wesmeg, and Wesmeg North.

To supply some background on the asset, Agnico Eagle’s present mine plan at Meliadine runs till 2032 (business manufacturing started in 2019), and the corporate has been a large contributor from an financial standpoint to Nunavut with its two mines (Meadowbank/Meliadine) over the previous decade and a half. The plan was to increase Meliadine’s mine life from 2032 to 2043 and the corporate had deliberate for a rise in throughput from ~4,500 to ~6,000 tonnes per day, with this anticipated to be accomplished by year-end 2024. Nevertheless, the NIRB’s current choice to not enable this to proceed in the meanwhile has definitely thrown a brief wrench in these plans.

Agnico Eagle’s response was that it was “surprised and disappointed”, particularly contemplating the misplaced financial profit from Meadowbank, which is beginning to run brief on mine life. The truth is, Meadowbank’s operations ought to head offline by the top of this decade even when the corporate goes forward with a deliberate pushback to increase manufacturing previous 2027. Clearly, this may have a big impression on Nunavut’s GDP, with considered one of its two main mines in Nunavut already set to go offline later this decade and Agnico additionally said that it’s withdrawing its proposal for the Meliadine Extension instantly, however that it’s not ruling out the submission of a brand new software at a later date when circumstances are appropriate.

Relating to the NIRB’s choice, Agnico pointed to a number of inconsistencies, and it seems to be there was some miscommunication of extension plans within the report. The problems raised are stunning relating to the problems with the Meliadine Extension with one sticking level being the results on caribou migration despite the fact that the results have truly been lower than predicted initially a decade in the past, and Agnico has been very accommodating at its operations with the mine shutting down for between 9-28 days in previous years (all-weather entry street and floor restrictions) to make sure no impression to caribou migration. One other sticking level in approving the Meliadine Extension was the proposal of a wind farm, however this was not an integral part of the deliberate extension.

The pushback associated to the deliberate wind farm was that this may be the primary wind farm that the caribou herd could be uncovered to and it is unclear what damaging results this might have on the herd. Agnico Eagle pointed to wind farms on the Raglan and Diavik mines being instantly comparable, and that no opposed impacts had been recognized for caribou at these working wind farms in Nunavut. An extra sticking level mentioned by the NIRB was associated to worries about including further roads and water strains, however this isn’t related because the Discovery Website and Discovery Highway are already a part of the permitted venture underneath the earlier Undertaking Certificates 006 (granted in 2015).

Third, whereas the venture shall be expanded, there shall be minimal further floor disturbance as mining will happen on the F Zone, Pump, and Discovery (portals/vent raises already inside the beforehand permitted footprint) and underground waste rock piles are inside the quantities permitted within the 2014 FEIS. Plus, there’ll truly be a discount in waste rock storage amenities on floor as a part of the Meliadine Extension, in addition to a decreased TSF footprint with 13.4 million tonnes for use underground. Lastly, the general improve within the permitted footprint is a mere 190 hectares (vs. 3,369 hectares already permitted), so that is hardly a significant improve corresponding to doubling the footprint the place it could be cheap to count on some pushback and never desirous to approve the venture instantly.

There was a number of different inaccuracies that Agnico Eagle identified from the Reconsideration and Advice Report and the corporate additionally famous that there have been procedural points together with that the complete sitting board of NIRB members didn’t take part within the vote, the admission of late filings prompted confusion, and though the NIRB confirmed that the applying met info necessities, it contradicted itself within the report by stating that inadequate info was obtainable. To summarize, this seems to extra of a misunderstanding between the 2 events (Agnico Eagle & NIRB) moderately than hostility towards Agnico Eagle, and the advantages (or misplaced economics advantages if not permitted) are huge with Meadowbank already set to move offline later this decade.

General, Agnico isn’t any stranger to allow delays/points (Kittila, Fosterville which barely weighed on sentiment and valuations for these mines over the previous 12 months), however each permits had been since permitted and I might count on the Meliadine Extension to be permitted as nicely. As well as, Agnico Eagle contributes over 25% to the GDP of Nunavut, has paid practically $300 million in employment revenue to Inuit workers since 2010, has invested considerably in the neighborhood whereas investing simply shy of $10 billion in Nunavut so far. Therefore, this isn’t a case of a scarcity of neighborhood assist or a extreme environmental situation that has modified the outlook for the asset, and Agnico has at all times been among the best operators of the very best sector-wide for taking good care of workers, its neighborhood, and being a accountable operator with reference to environmental impacts/wildfire.

For instance, it paid its Nunavut workers to remain house (75% of their salaries throughout COVID lockdowns) due to the extra fragile healthcare system in Nunavut.

General, the current choice by the NIRB is definitely a damaging growth short-term and will impression deliberate manufacturing from Meliadine in 2025/2026. As well as, it isn’t excellent to have added uncertainty round a significant mine when the corporate is already working arduous to offset depletion from the Canadian Malartic Open Pit, Meadowbank, La India, and decrease manufacturing from Fosterville as grades have normalized after a number of years of . That mentioned, I finally count on this to be resolved within the firm’s favor, however it’s definitely a growth value monitoring going ahead.

Valuation & Technical Image

Primarily based on ~496 million shares and a share worth of US$54.90, Agnico trades at a market cap of ~$27.2 billion and an enterprise worth of ~$28.8 billion, making it one of many highest capitalization names within the sector. That is definitely justified given that it is the third largest gold producer globally, and the corporate has a considerably extra favorable jurisdictional profile than its friends with over 95% of 2024 manufacturing coming from Tier-1 ranked jurisdictions. In the meantime, Agnico Eagle has the very best per share progress metrics amongst its multi-million ounce producer friends, and in addition boasts the very best margins, with FY2025 all-in sustaining value margins set to return in close to 50% assuming a $2,000/ozgold worth. In my opinion, this justifies a premium relative to friends, particularly given the extra unstable setting from a jurisdictional standpoint that has led to divestments and a few property heading offline (Kupol, Boungou, Cobre Panama, and many others.).

Taking a look at how the inventory’s valuation stacks up relative to friends, Agnico is without doubt one of the costlier names (largely justified by its superior margins, scale, jurisdictional profile and constant per share progress), however we will additionally see that it trades at a big low cost to the place it has for the reason that secular bear marketplace for gold resulted in 2015. In the meantime, the inventory additionally stays moderately valued from a worth to money circulate standpoint, sitting at simply ~9x FY2024 money circulate per share estimates vs. a historic a number of of ~13.4x (15-year common). And even when we use extra conservative multiples of 1.40x P/NAV and 11.5x money circulate and a 65/35 weighting (P/NAV vs. P/CF), I see a good worth for the inventory of US$69.00. This factors to a 25% upside from present ranges or nearer to a 28% upside on a complete return foundation when together with its ~3.0% dividend yield.

As for the technical image, buyers have bid up high-flying retail and tech names to ranges of serious extension previous their most up-to-date base breakouts, with names like Elf Magnificence (ELF), Nvidia (NVDA), Tremendous Micro Laptop (SMCI), and Costco (COST) up between 70% and 250% final 12 months alone. Nevertheless, if one is prepared to buy round in numerous sectors, names like Agnico Eagle (AEM) are quietly constructing decade lengthy cup and deal with bases, with the present base in Agnico Eagle being quiet much like the one which despatched the refill ~350% in only three years from its 2005 breakout. Given the scale of the corporate relative to 2005, I might not count on a repeat from a share standpoint. Nonetheless, if the inventory does breakout of this base, the measured transfer would simply exceed its earlier highs of $90.00 per share, pointing to important potential upside from present ranges.

Some buyers would possibly query what the catalyst could be for Agnico Eagle to move again to new all-time highs, however as I’ve pointed above, the inventory truly trades at a really cheap valuation right now and nicely under the ~20x money circulate a number of that it traded at its 2020 peak. That is even supposing the corporate has a stronger pipeline, a bigger manufacturing profile and has held the road on prices higher than friends. Plus, Tier-1 jurisdiction operators have by no means been in additional demand after we simply noticed one of many largest copper mines taken offline in Panama which had led to huge losses for First Quantum (OTCPK:FQVLF) buyers. Therefore, even when the inventory traded at ~15x money circulate which is not that a lot of a stretch given the premium that Tier-1 operators ought to command, this may translate to a share worth of ~$90.00 primarily based on FY2024 estimates.

Abstract

Agnico Eagle has had one other transformational 12 months in what’s been a transformational decade for the corporate and its 2024 outcomes must be even higher. That is evidenced by the corporate gaining 100% possession of two ~700,000 ounce each year property with every asset having the potential to function ~1.0 million ounces each year in an upside case situation. The truth that these are Tier-1 jurisdiction operations is a large benefit for buyers that desire a “sleep-well-at-night” funding, and the corporate’s sturdy pipeline exterior of those property (San Nicolas 50%, Hope Bay, Hammond Reef optionality, Higher Beaver/Wasamac as spokes for Canadian Malartic) means Agnico Eagle shouldn’t be determined for M&A to develop and will be capable of develop right into a ~4.0 million ounce producer by 2030.

Whereas this will not make Agnico the largest producer, the corporate’s self-discipline and laser concentrate on staying true to its mannequin (regional miner) and per share progress make it arguably the very best producer, and in addition one of the vital constant names from an revenue standpoint with a dividend that is grown at a better tempo (24% compound annual progress charge) than many Dividend Aristocrats. Lastly, the corporate has an outstanding monitor report of including worth to its mining property, and being one of the vital aggressive drillers within the sector has paid off by extending mine lives and never needing to do over-priced M&A like a few of its friends to fill gaps in its manufacturing profile (finally affecting different producers’ per share progress).

In abstract, with a really cheap valuation, a vibrant future forward, and a disciplined staff on the helm, I see Agnico Eagle as a staple for any valuable metals portfolio, and I might view any sharp pullbacks as shopping for alternatives.