Agnico Eagle’s (AEM) Strategic Investments Should Bear Fruit

On Sep 2, we issued an updated research report on Agnico Eagle Mines Limited (AEM). While the gold miner’s strategic investments in several exploration projects should bring in meaningful growth opportunities, it remains exposed to weak gold pricing.

Agnico Eagle posted lower-than-expected second-quarter 2014 results on Jul 30. Both revenues and adjusted earnings missed Zacks Consensus Estimates. However, the company swung to a profit in the quarter as higher gold production offset a decline in metal pricing.

Agnico Eagle, a Zacks Rank #3 (Hold) stock, is reinvesting in its assets to expand output. Moreover, its revised life of mine plan is expected to yield significant free cash flows over the next several years.

Agnico Eagle’s sufficient cash flow is enabling it to maintain a strong exploration budget, primarily focused on Kittila. The company is currently progressing with a 1,000-ton per day expansion at Kittila, which is expected to boost throughput capacity at the mine to 4,000 tons per day starting end-2014. The expansion is expected to cut total cash costs per ounce and offset the impact of a gradual reduction in realized grade on production over the next several years.

Agnico Eagle, in Jun 2014, completed the acquisition of Osisko Mining Corporation along with Yamana Gold Inc. (AUY). The acquisition is expected to boost Agnico Eagle’s production profile, improve its cost structure and be accretive to the company.

Through the acquisition, Agnico Eagle gets access to Canadian Malartic, the largest producing gold mine in Canada with the potential to produce an average of roughly 600,000 gold ounces per year for 14 years. The mine is expected to produce 510,000 to 530,000 ounces of gold in 2014.

However, Agnico Eagle is exposed to a weak gold price environment, which may hurt its bottom line. Moreover, any potential delay associated with the development projects may jeopardize its future production.

Although Agnico Eagle is making a good progress with its cost containment measures, it is still seeing high costs across a number of mines. Total cash cost per ounce rose year over year across a number of mines such as Lapa, Kittila, Pinos Altos and Creston Mascota in first-half 2014.

Other Stocks to Consider

Other companies in the gold mining industry worth considering include Harmony Gold Mining Company Limited (HMY) and Pretium Resources Inc. (PVG) with both carrying a Zacks Rank #2 (Buy).