Neutral on Agnico-Eagle (ABX) (AEM) (KGC) (NEM)

Agnico-Eagle saw record production at its Meadowbank mine in the quarter. Its payable gold production rose 8% year over year in the quarter on higher grades across the LaRonde, Kittila, Meadowbank and Pinos Altos mines. The company raised its gold production target for 2012.

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, 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. A new drilling program is also currently underway to boost exploration in the Rimpi zone at Kittila. In addition, the development and construction of the La India mine in Mexico is currently in progress 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. Moreover, the uncertainties surrounding the Goldex mine could affect the company’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).