We have retained our Underperform recommendation on gold miner Agnico-Eagle (AEM) following its tepid first-quarter 2013 results. Out view reflects high operating costs across a number of mines and a weak gold price environment.
Why Retained?
Profit for the first quarter, reported on Apr 25, slid roughly 70% on lower gold prices and production as well as higher cash costs. Adjusted earnings fell well short of the Zacks Consensus Estimate. Revenues fell by double digits, yet beat expectations.
Payable gold production declined in the quarter, mainly due to the suspension of the Creston Mascota heap leach facility. While Agnico-Eagle achieved record quarterly throughput at its Meadowbank mine in northern Canada, its Kittila mine in northern Finland saw a decline in payable gold production in the quarter. The company backed its production guidance for the full year.
While Agnico-Eagle maintains a solid exploration budget and is reinvesting in its assets to expand output, any potential delay associated with the development projects may jeopardize its future production.
Moreover, one of Agnico-Eagle’s main issues has been persistently high operating costs across a number of mines. Total cash cost jumped around 25% year over year in the first quarter, mainly due to lower by-product revenue at LaRonde and lower grades at Meadowbank.
Agnico-Eagle raised its cash cost guidance for 2013 to a range of $735-$785 per ounce from the earlier expectation of $700-$750 to reflect weak metals prices and production changes at Goldex and Kittila mines. The company is exposed to a weak gold price environment, which may continue to affect its bottom line.
Agnico-Eagle currently retains a short-term (1 to 3 months) Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks Rank are Lake Shore Gold Corp. (LSG), Hi-Crush Partners LP (HCLP) and Golden Minerals Company (AUMN). All of them carry a Zacks Rank #2 (Buy).
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