
tracielouise
It’s been a troublesome 12 months for the Gold Miners Index (GDX) with the disappointing outcomes of some souring sentiment for the group and continued share-price underperformance vs. the gold worth. A number of the detractors with pitiful outcomes and/or per-share metrics (as a result of continued share dilution) have been Coeur Mining (CDE), First Majestic (AG), and IAMGOLD (IAG). In the meantime, though Evolution Mining’s (OTCPK:CAHPF) margins have been stable, we’ve seen vital share dilution with extra aggressive progress by M&A, with this being the third deal in three years (Battle North, Ernest Henry, Northparkes).
On a optimistic observe, metals costs are lastly at favorable ranges the place the standard (share dilution) suspects would possibly have the ability to keep away from issuing further shares, and the sector leaders have among the strongest steadiness sheets in years on steadiness, whereas the common million-ounce producer is paying a dividend yield double that of the S&P 500 (SPY). As well as, we’ve seen way more disciplined progress from most miners (in contrast to previous cycles), with one firm that’s performed a superb job over the previous few years of beefing up its portfolio at accretive costs being Agnico Eagle Mines (NYSE:AEM). On this replace, we’ll have a look at the corporate’s 2024 and long-term outlook, latest developments, and whether or not the inventory is worthy of funding at present ranges.
Kittila Operations – Firm Web site
2024 & Lengthy-Time period Outlook
2023 was a stable 12 months for Agnico Eagle regardless of some hiccups (Detour downtime in Q3, restrictions at Fosterville, allow delays at Kittila), however these points have since been resolved and the corporate could have one other report 12 months with manufacturing of ~3.4 million ounces. This has been helped by full possession of Canadian Malartic (50% –> 100%) and one other sturdy 12 months from Meadowbank (~322,400 ounces within the first 9 months of 2023) which helped to offset decrease grades/mining charges at Fosterville and a change within the mining technique at LaRonde. Therefore, regardless of what was anticipated to be a more durable 12 months with some uncertainty associated to manufacturing charges at Fosterville/Kittila, Agnico will are available above its steering mid-point of three.34 million ounces, in line with its observe report of over-delivering on guarantees.
Agnico Eagle 2018-2025 Manufacturing & Ahead Outlook – Firm Filings, Writer’s Chart & Estimates
Sadly, whereas manufacturing hit a brand new report in 2023, prices had been up sharply from the three-year common of $1,073/oz (2020-2022), impacted by inflationary pressures and better sustaining capital (larger deferred stripping prices at Detour Lake and Amaruq, plus full possession of Canadian Malartic). The consequence was that Agnico Eagle guided for larger prices of $1,140/ouncesto $1,190/ouncesin 2023, and prices appear to be they may are available close to the mid-point for 2023, at or under $1,175/oz. On a optimistic observe, 2024 is anticipated to be a significantly better 12 months, with Agnico benefiting from larger manufacturing (helped by Meadowbank, Macassa/Amalgamated Kirkland, Kittila, and Canadian Malartic), with Meadowbank anticipated to have a close to 500,000 ounce manufacturing profile in each 2024 and 2025. The upper gross sales mixed with what could possibly be a decrease gas worth recommend a significantly better 12 months on deck, with Agnico set to supply nearer to three.5 million ounces at ~$1,120/ouncesAISC (3% enhance in output and ~5% decline in prices).
Kittila’s manufacturing will profit from the working allow being restored to 2.0 million tonnes each year.
Sean Boyd
Dominique, do you wish to assist us with the break up between underground and open pit at Meadowbank as we transcend 2023.
Dominique Girard
Yeah, the Amaruq underground goes to deliver 100,000 ounces, 140,000 ounces to the sport. That’s going to deliver total Meadowbank getting – they’re going to achieve over 500,000 ounces, which goes to be our largest operation in these years 2024, 2025.
– Agnico Eagle Mines This autumn 2020 Convention Name
This enchancment in the associated fee profile will assist Agnico to regain its throne as one of many lower-cost million-ounce producers sector-wide and the upper gold worth ought to contribute to a major enhance in working money circulate and free money circulate when mixed with extra normalized sustaining capital expenditures this 12 months. In actual fact, Agnico is positioned to generate as much as $1.35 billion in free money circulate in 2024 if gold costs can stay above $2,000/oz, and 2025 ought to be simply as sturdy with the same manufacturing profile however at even decrease prices (in keeping with Agnico’s steering supplied at year-end 2022 that said prices would decline from 2023 ranges in 2024/2025). Nevertheless, the corporate does have its work minimize out for it within the latter half of the last decade to offset depletion, and the latest Nunavut Influence Evaluate Board’s Reconsideration and Advice Report (which we’ll talk about later) associated to the Meliadine Section 2 Enlargement has added further uncertainty.
For these unfamiliar, Meadowbank/Amaruq has been a money cow for Agnico Eagle because it went into manufacturing in 2010 (producing effectively over 4 million ounces of gold up to now from Meadowbank/Amaruq), and manufacturing exceeded deliberate ranges with manufacturing initially anticipated to finish in 2020 with ~3.6 million ounces of open-pit reserves throughout three pits (Vault, Portage, Goose). Nevertheless, manufacturing is anticipated to say no in 2026 from simply shy of 500,000 ounces in 2024/2025 as mining is accomplished on the Whale Tail Pit. Agnico famous in its Q3 2023 Convention Name that it’s probably extending manufacturing previous 2027 at Meadowbank, which could possibly be achieved by finishing a pushback on the IVR Pit. Nonetheless, manufacturing can be decrease at this #3 asset by measurement (simply behind Detour and Canadian Malartic) later this decade, and it’s not clear how a lot additional the mine life might be prolonged previous 2026.
Meadowbank Operations – Firm Web site
Concurrently, Canadian Malartic’s open-pit is being depleted whereas the corporate works to deliver the extra productive and higher-grade East Gouldie Mine on-line (a part of the Odyssey Challenge), with Canadian Malartic’s manufacturing set to say no to ~500,000 ounces from 2026-2029 with out additional optimization beneath the up to date life-of-mine plan. It is a practically 200,000-ounce headwind from 2024 ranges, and whereas not practically as impactful, La India in Mexico can also be set to move offline in 2025. Lastly, though Detour Lake has the potential to be a 1.0 million ounce each year asset, 2026-2029 are anticipated to be lower-grade years for the mine. And even when we see throughputs nearer to 29.5 million tonnes at Detour Lake (28.0 million tonnes assumed in 2022 TR), manufacturing ought to common ~690,000 ounces within the interval, a further headwind on this identical 2026-2028 interval.
Detour Lake Life Of Mine Plan – Firm Filings Canadian Malartic Life Of Mine Plan – Firm Web site
So, is Decline in Manufacturing a Large Deal?
Whereas it seems to be like Agnico Eagle may see manufacturing slip to ~3.1 million ounces in 2027/2028 if the corporate doesn’t purchase one other producing asset, manufacturing is ready to return roaring again on the finish of the last decade and will develop ~30% from the 2027/2028 trough looking to 2030/2031 relying on the sequencing of initiatives. It is because Detour has the potential to be a ~1.0 million ounce each year asset if the corporate green-lights Detour Underground and may take full benefit of the ~32 million tonnes each year of permitted capability (at present working nearer to ~26 million tonnes each year). In the meantime, Canadian Malartic is a ~550,000 ounce producer whereas using simply one-third of capability, and between Camflo, near-mine alternatives, and future spokes (Higher Beaver/Wasamac alone may ship a mixed ~380,000 ounces) transported by rail to the hungry mill, the advanced may additionally produce ~1.0 million ounces each year.
On high of those natural progress alternatives, the corporate may produce upwards of ~250,000 GEOs if it green-lights San Nicolas in Zacatecas, Mexico (identical state the place Penasquitoa, Juanicipio, La Colorada and Camino Rojo function). As well as, the corporate’s Hope Bay Challenge (beforehand in operation) was purchased for a tune and has 350,000+ ounce each year potential. Lastly, whereas there aren’t any ensures, a brand new high-grade discovery at Fosterville may actually deliver this asset again into the image (at present anticipated to supply at simply ~200,000 ounces), and the latest Comet discovery south of Fosterville by Nice Pacific Gold (5 meters at 166 grams per tonne of gold) suggests this space of Bendigo in Australia could have extra left in retailer each south of Fosterville and on the corporate’s current tenements. Clearly, one gap doesn’t make a brand new discovery, however I proceed to be cautiously optimistic relating to a brand new high-grade discovery at Fosterville which may present a elevate to manufacturing later this decade.
Nice Pacific Comet Prospect & Agnico Eagle Drilling Fosterville – Agnico Eagle Web site, Nice Pacific Gold Web site
And whereas on the subject of Fosterville, Agnico continues to have exploration success at depth at Decrease Phoenix, hitting 10.8 grams per tonne of gold over 10.0 meters within the Cardinal splay at 1,830 meters depth, 190 meters down-plunge from its present mineral reserve base. The Cardinal Zone was initially recognized in 2022 by Agnico Eagle within the hanging wall of Decrease Phoenix with intercepts of 1.1 meter at 365.5 grams per tonne of gold (1,680 meters depth), 1.4 meters at 226.2 grams per tonne of gold (1,715 meters depth), and a couple of.9 meters at 168.6 grams per tonne of gold (1,680 meters depth), so this new seen gold intercept is the deepest at Cardinal up to now.
Agnico Eagle – Annual Gold Manufacturing & Conceptual Manufacturing Profile (2022-2030) – Firm Filings, Writer’s Chart & Estimates
Taking all of this into consideration, a conceptual have a look at Agnico Eagle’s manufacturing profile looking to 2030 is proven above, and we are able to see that 2024 and 2025 ought to be two vital years of free money circulate technology earlier than a slight drop off in output in 2026-2028. Nevertheless, manufacturing may enhance to three.9+ million ounces in 2030 with Hope Bay and San Nicolas (50%). And whereas a number of progress initiatives (Detour Underground, Wasamac/Higher Beaver, San Nicolas (50%), Hope Bay) would possibly look like so much to tackle without delay, it’s essential to notice that these are shared capex and/or comparatively low capex alternatives vs. constructing a large stand-alone greenfields operation like Cote with a $2.5+ billion capex invoice.
Why? Hope Bay advantages from current infrastructure, San Nicolas is shared with Teck Sources (TECK), and Hope Bay/Wasamac have already got a house for his or her ore if mines are developed at each websites. Therefore, this isn’t like the corporate is constructing three Cotes or three Greenstones without delay which might be unreasonable, and it actually has the money circulate to assist this progress with the potential for ~$1.5 billion in free money circulate in 2025. The final level price noting is that whereas progress could seem to lag a few of Agnico’s friends, the distinction is that Agnico hasn’t seen its progress drop off materially from 2019-2022 and is having to develop from a excessive watermark vs. a low watermark equivalent to bigger gold producers whose manufacturing peaked final decade (proven under).
Main Gold Producers Annual Gold Manufacturing – Firm Filings, Writer’s Chart
Lastly, whereas gold manufacturing could decline from the anticipated peak in 2024/2025 to 2027/2028, it’s fairly potential that we may see comparable income and money circulate technology if the gold worth can lastly enter a brand new bull market. And if Agnico actually wished to, it may plug this hole in a single day with a bolt-on acquisition of a comparatively low capex or already producing 300,000+ ounce each year asset. To summarize, I don’t see this manufacturing cliff as a problem to the funding thesis, however there’s no query that the corporate has some optimization work to do to clean out this profile as a lot as potential. The excellent news is that exploration success at a number of belongings continues to return in at or above expectations, permitting different belongings to keep up manufacturing profiles and lengthen their mine lives.
NIRB Report On Meliadine Enlargement Challenge
Agnico Eagle responded to the Nunavut Influence Evaluate Board [NIRB] earlier this month in relation to its Meliadine Mine (considered one of its largest operations producing ~400,000 ounces of gold each year), with its response being to the NIRB’s conclusion to not enable the Extension Proposal at Meliadine to proceed presently on condition that “the potential for vital antagonistic ecosystem and socio-economic results can’t be adequately managed and mitigation”.
Photos under spotlight Agnico Eagle’s land package deal, regional targets, and exploration success/upside on its large Meliadine land package deal subsequent to present reserves at Tiraganiaq, Wesmeg, and Wesmeg North.
Agnico Eagle Meliadine Mine & Exploration Highlights – Firm Web site Agnico Eagle Meliadine & Exploration Success – Firm Web site
To offer some background on the asset, Agnico Eagle’s present mine plan at Meliadine runs till 2032 (industrial manufacturing started in 2019), and the corporate has been a large contributor from an financial standpoint to Nunavut with its two mines (Meadowbank/Meliadine) over the previous decade and a half. The plan was to increase Meliadine’s mine life from 2032 to 2043 and the corporate had deliberate for a rise in throughput from ~4,500 to ~6,000 tonnes per day, with this anticipated to be accomplished by year-end 2024. Nevertheless, the NIRB’s latest choice to not enable this to proceed in the meanwhile has actually thrown a short lived wrench in these plans.
Agnico Eagle’s response was that it was “shocked and disillusioned“, particularly contemplating the misplaced financial profit from Meadowbank, which is beginning to run quick on mine life. In actual fact, Meadowbank’s operations ought to head offline by the top of this decade even when the corporate goes forward with a deliberate pushback to increase manufacturing previous 2027. Clearly, this may have a major impression on Nunavut’s GDP, with considered one of its two main mines in Nunavut already set to go offline later this decade and Agnico additionally said that it’s withdrawing its proposal for the Meliadine Extension instantly, however that it isn’t ruling out the submission of a brand new software at a later date when circumstances are appropriate.
Concerning the NIRB’s choice, Agnico pointed to a number of inconsistencies, and it seems to be like there was some miscommunication of extension plans within the report. The problems raised are shocking relating to the problems with the Meliadine Extension with one sticking level being the consequences on caribou migration although the consequences have really been lower than predicted initially a decade in the past, and Agnico has been very accommodating at its operations with the mine shutting down for between 9-28 days in previous years (all-weather entry street and floor restrictions) to make sure no impression to caribou migration. One other sticking level in approving the Meliadine Extension was the proposal of a wind farm, however this was not an integral part of the deliberate extension.
The pushback associated to the deliberate wind farm was that this might be the primary wind farm that the caribou herd can be uncovered to and it’s unclear what destructive results this might have on the herd. Agnico Eagle pointed to wind farms on the Raglan and Diavik mines being instantly comparable, and that no antagonistic impacts had been recognized for caribou at these working wind farms in Nunavut. An extra sticking level mentioned by the NIRB was associated to worries about including further roads and water traces, however this isn’t related because the Discovery Website and Discovery Street are already a part of the permitted undertaking beneath the earlier Challenge Certificates 006 (granted in 2015).
Third, whereas the undertaking can be expanded, there can be minimal further floor disturbance as mining will happen on the F Zone, Pump, and Discovery (portals/vent raises already throughout the beforehand accredited footprint) and underground waste rock piles are throughout the quantities accredited within the 2014 FEIS. Plus, there’ll really be a discount in waste rock storage services on floor as a part of the Meliadine Extension, in addition to a decreased TSF footprint with 13.4 million tonnes for use underground. Lastly, the general enhance within the permitted footprint is a mere 190 hectares (vs. 3,369 hectares already accredited), so that is hardly a significant enhance equivalent to doubling the footprint the place it is likely to be cheap to count on some pushback and never desirous to approve the undertaking instantly.
Reconsideration Report Errors & Feedback – Agnico Eagle Response to NIRB Advice
There have been a number of different inaccuracies that Agnico Eagle identified from the Reconsideration and Advice Report and the corporate additionally famous that there have been procedural points together with that the complete sitting board of NIRB members didn’t take part within the vote, the admission of late filings triggered confusion, and though the NIRB confirmed that the appliance met data necessities, it contradicted itself within the report by stating that inadequate data was obtainable. To summarize, this seems to be extra of a misunderstanding between the 2 events (Agnico Eagle & NIRB) moderately than hostility towards Agnico Eagle, and the advantages (or misplaced economics advantages if not accredited) are large with Meadowbank already set to move offline later this decade.
General, Agnico is not any stranger to allow delays/points (Kittila, Fosterville which barely weighed on sentiment and valuations for these mines over the previous 12 months), however each permits had been since accredited and I’d count on the Meliadine Extension to be accredited as effectively. As well as, Agnico Eagle contributes over 25% to the GDP of Nunavut, has paid practically $300 million in employment earnings to Inuit workers since 2010 and has invested considerably locally whereas investing simply shy of $10 billion in Nunavut up to now. Therefore, this isn’t a case of a scarcity of group assist or a extreme environmental situation that has modified the outlook for the asset, and Agnico has at all times been among the best operators of the perfect sector-wide for caring for workers, its group, and being a accountable operator with reference to environmental impacts/wildfire.
For instance, it paid its Nunavut workers to remain residence (75% of their salaries throughout COVID lockdowns) due to the extra fragile healthcare system in Nunavut.
General, the latest choice by the NIRB is actually a destructive improvement short-term and will impression deliberate manufacturing from Meliadine in 2025/2026. As well as, it’s not superb to have added uncertainty round a serious mine when the corporate is already working laborious to offset depletion from the Canadian Malartic Open Pit, Meadowbank, La India, and decrease manufacturing from Fosterville as grades have normalized after a number of years. That mentioned, I in the end count on this to be resolved within the firm’s favor, however it’s actually a improvement price monitoring going ahead.
Valuation & Technical Image
Primarily based on ~496 million shares and a share worth of US$54.90, Agnico trades at a market cap of ~$27.2 billion and an enterprise worth of ~$28.8 billion, making it one of many highest capitalization names within the sector. That is actually justified on condition that it’s the third largest gold producer globally, and the corporate has a considerably extra favorable jurisdictional profile than its friends with over 95% of 2024 manufacturing coming from Tier-1 ranked jurisdictions. In the meantime, Agnico Eagle has the perfect per share progress metrics amongst its multi-million-ounce producer friends and in addition boasts the very best margins, with FY2025 all-in sustaining price margins set to return in close to 50% assuming a $2,000/ouncesgold worth. For my part, this justifies a premium relative to friends, particularly given the extra risky surroundings from a jurisdictional standpoint that has led to divestments and a few belongings heading offline (Kupol, Boungou, Cobre Panama, and so forth.).
Agnico Eagle EV/EBITDA A number of vs. Friends/Historic A number of & Margins – TIKR, FinBox Agnico Eagle – Historic Money Movement A number of – FASTGraphs.com
how the inventory’s valuation stacks up relative to friends, Agnico is among the costlier names (largely justified by its superior margins, scale, jurisdictional profile, and constant per-share progress), however we are able to additionally see that it trades at a major low cost to the place it has because the secular bear marketplace for gold led to 2015. In the meantime, the inventory additionally stays fairly valued from a worth to money circulate standpoint, sitting at simply ~9x FY2024 money circulate per share estimates vs. a historic a number of of ~13.4x (15-year common). And even when we use extra conservative multiples of 1.40x P/NAV and 11.5x money circulate and a 65/35 weighting (P/NAV vs. P/CF), I see a good worth for the inventory of US$69.00. This factors to a 25% upside from present ranges or nearer to a 28% upside on a complete return foundation when together with its ~3.0% dividend yield.
As for the technical image, buyers have bid up high-flying retail and tech names to ranges of serious extension previous their most up-to-date base breakouts, with names like e.l.f. Magnificence (ELF), Nvidia (NVDA), Tremendous Micro Pc (SMCI), and Costco (COST) up between 70% and 250% final 12 months alone. Nevertheless, if one is prepared to buy round in several sectors, names like Agnico Eagle are quietly constructing decade-long cup and deal with bases, with the present base in Agnico Eagle being fairly much like the one which despatched the refill ~350% in only three years from its 2005 breakout. Given the scale of the corporate relative to 2005, I’d not count on a repeat from a share standpoint. Nonetheless, if the inventory does get away of this base, the measured transfer would simply exceed its earlier highs of $90.00 per share, pointing to a major potential upside from present ranges.
AEM Yearly Chart – Worden.com
Some buyers would possibly query what the catalyst can be for Agnico Eagle to move again to new all-time highs, however as I’ve pointed above, the inventory really trades at a really cheap valuation in the present day and effectively under the ~20x money circulate a number of that it traded at its 2020 peak. That is although the corporate has a stronger pipeline, a bigger manufacturing profile, and has held the road on prices higher than friends. Plus, Tier-1 jurisdiction operators have by no means been in additional demand after we simply noticed one of many largest copper mines taken offline in Panama which had led to huge losses for First Quantum (OTCPK:FQVLF) buyers. Therefore, even when the inventory traded at ~15x money circulate which isn’t that a lot of a stretch given the premium that Tier-1 operators ought to command, this might translate to a share worth of ~$90.00 primarily based on FY2024 estimates.
Abstract
Agnico Eagle has had one other transformational 12 months in what’s been a transformational decade for the corporate and its 2024 outcomes ought to be even higher. That is evidenced by the corporate gaining 100% possession of two ~700,000 ounces each year belongings with every asset having the potential to function ~1.0 million ounces each year in an upside case situation. The truth that these are Tier-1 jurisdiction operations is a large benefit for buyers that desire a “sleep-well-at-night” funding, and the corporate’s sturdy pipeline exterior of those belongings (San Nicolas 50%, Hope Bay, Hammond Reef optionality, Higher Beaver/Wasamac as spokes for Canadian Malartic) means Agnico Eagle will not be determined for M&A to develop and will have the ability to develop right into a ~4.0 million ounce producer by 2030.
Agnico Eagle Shares, Dividend Per Share & Manufacturing Progress Per Share – Firm Filings, Writer’s Chart
Whereas this will not make Agnico the most important producer, the corporate’s self-discipline and laser give attention to staying true to its mannequin (regional miner) and per-share progress make it arguably the perfect producer, and in addition one of the constant names from an earnings standpoint with a dividend that’s grown at a better tempo (24% compound annual progress charge) than many Dividend Aristocrats. Lastly, the corporate has an exceptional observe report of including worth to its mining belongings, and being one of the aggressive drillers within the sector has paid off by extending mine lives and never needing to do over-priced M&A like a few of its friends to fill gaps in its manufacturing profile (in the end affecting different producers’ per share progress).
In abstract, with a really cheap valuation, a shiny future forward, and a disciplined staff on the helm, I see Agnico Eagle as a staple for any valuable metals portfolio, and I’d view any sharp pullbacks as shopping for alternatives.