On Nov 20, we reiterated our Neutral recommendation on gold miner Agnico-Eagle (AEM). While its strategic investment in several exploration projects should bring in meaningful growth opportunities, we maintain a cautious stance taking into account high operating costs across a number of mines and a weak gold price environment.
Why Maintained?
Agnico-Eagle’s revenues and profit slipped year over year in the third quarter of 2013, reported on Oct 23, due to lower metal pricing and maintenance outage at the Kittila mine. However, both revenues and adjusted earnings beat Zacks Consensus Estimates. The company raised its production guidance for the full year.
Agnico-Eagle, a Zacks Rank #3 (Hold) stock, is reinvesting in its assets to expand its 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 exploring expansion opportunities in Kittila, its largest contributor to proven and probable gold reserves. An expansion of throughput capacity is currently underway which is expected to cut total cash costs per ounce over the next several years.
Moreover, the development and construction of the La India mine in Mexico is currently in progress with commercial production is expected to begin in first-quarter 2014. Agnico-Eagle expects production to expand 20% through the end of 2015 factoring in contributions from La India.
However, one of Agnico-Eagle’s main issues has been persistently high operating costs across a number of mines. Total cash cost rose around 6% year over year in the third quarter, mainly due to lower by-product revenues at LaRonde and Pinos Altos mines.
Agnico-Eagle is seeing higher costs in LaRonde due to lower byproduct metal production and prices. Moreover, lower realized silver prices are contributing to higher costs at the Pinos Altos mine.
Agnico-Eagle is also exposed to a weak gold price environment, which may continue to hurt its bottom line. Moreover, any potential delay associated with the development projects may jeopardize its future production.
Other Stocks to Consider
Other companies in the gold mining industry with favorable Zacks Rank are Lake Shore Gold Corp. (LSG), Pretium Resources Inc. (PVG) and Golden Star Resources, Ltd. (GSS). All of them retain a Zacks Rank #2 (Buy).
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