We are retaining our Neutral recommendation on Agnico-Eagle Mines Ltd. (AEM). Its revenues and adjusted earnings for second-quarter 2012 outstripped the Zacks Consensus Estimates. However, profit slid 37% year over year as higher cost more than offset a modest growth in revenues.
Payable gold production climbed 11% year over year in the quarter on the back of record gold production from five mine operations. The company raised its gold production target for 2012 based on the first half production trend.
Agnico-Eagle has rebounded from a series of underperformances in 2011. The company has sufficient cash flow, which enables it to maintain a very strong exploration budget for 2012, primarily focused on Kittila, Meliadine and Mexico.
Agnico-Eagle is currently exploring expansion opportunities in Kittila, its largest contributor to proven and probable gold reserves, and is conducting a feasibility study for a potential 25% expansion in throughput. The company recently announced that its board has approved the development and construction of the La India mine in Mexico with commercial production is expected to begin in the back half of 2014.
Agnico-Eagle is also reinvesting in its assets to expand its output. The company also has consistently rewarded its shareholders by way of dividend payments. Moreover, Agnico-Eagle’s revised life of mine plan is expected to yield significant free cash flows over the next several years.
However, any potential delay associated with the development projects may jeopardize the company’s future production. The company also contends with persistently high operating costs.
In addition, uncertainties surrounding the Goldex mine could affect the stock’s performance. Agnico-Eagle suspended operations at the mine in October 2011 considering the safety of its employees. While its Board has approved two zones in the mine for gold production following a thorough investigation, production at the core Goldex Extension Zone (GEZ) remains suspended.
Agnico-Eagle, which competes with Barrick Gold Corporation (ABX), Kinross Gold Corporation (KGC) and Newmont Mining Corp. (NEM), currently retains a short-term Zacks #3 Rank (Hold).
BARRICK GOLD CP (ABX): Free Stock Analysis Report
AGNICO EAGLE (AEM): Free Stock Analysis Report
KINROSS GOLD (KGC): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis Report
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