Agnico-Eagle Mines Ltd. (AEM) agreed to acquire Grayd Resource Corporation (Grayd) in a deal valued at approximately US$275 million, giving the Canadian gold producer an early stage project in Mexico.
Agnico-Eagle will offer Grayd shareholders a combination of cash and shares valued at US$2.80 per Grayd share. The offer for Grayd, will give shareholders the option to receive either US$2.80 in cash or 0.04039 of an Agnico-Eagle share and five cents in cash, subject to a maximum cash payout of about US$92 million.
In return, Agnico-Eagle will get ownership of the La India project in the Mulatos gold belt in Sonora, Mexico. The project has an indicated resource of 26.8 million tonnes at a grade of 0.88 of a gram per tonne.
Grayd has also recently discovered the Tarachi gold prospect covering about 54,000 hectares around 10 kilometres north of La India.
It is expected that La India and Tarachi, will contribute to the ongoing growth in Agnico-Eagle's gold production and cash flows reflecting the high quality of work performed by Grayd.
The acquisition is in line with Agnico-Eagle’s strategy of building value by bringing its mine development and exploration skills to bear on early stage gold deposits and projects.
In July 2011, Agnico-Eagle released its financial results for the second quarter of 2011. The company reported a quarterly net income of $68.8 million or 41 cents per share for the second quarter of 2011. Net income included a non-cash foreign currency translation loss of $2.7 million, or $0.02 per share and stock option expense of $8.3 million.
Adjusted net income for the reported quarter was $79.4 million, or $0.47 per share compared with $100.4 million or $0.64 per share in the prior-year quarter. Results were a penny below the Zacks Consensus Estimate.
The decrease in net income was largely due to a return to normal levels of tax expense and a foreign currency translation loss versus a large tax recovery and a large foreign currency translation gain in the second quarter of 2010.
In second-quarter 2011, revenues were $433.7 million versus $347.5 million in the prior- year quarter. Results were below the Zacks Consensus Estimate of $440 million.
Payable gold production in the second quarter of 2011 was 239,328 ounces compared with 257,728 ounces in the prior-year quarter.
The lower level of production in 2011 resulted from the issues in April relating to the March 2011 fire at the Meadowbank mine and also due to higher-than-expected levels of dilution in its pit during the second quarter of 2011.
Total cash costs for the second quarter of 2011 were $565 per ounce compared with $482 in the second quarter of 2010. The higher cost in 2011 was largely attributable to the issues at Meadowbank, which more than offset the positive impact of higher byproduct metals prices.
For full-year 2011, management expects capital expenditures to total $423 million, up from the December 15, 2010 estimate of $313 million. Major components of the increase include a $25 million impact from foreign exchange movements, $21 million for the change in dyke design at Meadowbank and $19 million for soil settlement remediation at Goldex.
The remaining amounts are largely accelerated capital previously expected to be spent in 2012 and amounts relating to the Meadowbank fire (of which approximately $10 million may be recovered through insurance).
Agnico-Eagle faces stiff competition from Barrick Gold Corporation (ABX), Kinross Gold Corporation (KGC)and Newmont Mining Corp. (NEM).
Currently, we maintain a Neutral recommendation on the stock and a Zacks #3 Rank (Hold).
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