Agnico-Eagle (AEM) reported a very strong first-quarter result, with higher production and lower costs — showing once again why it is the best in class, asserts Adrian Day, resources sector expert and editor of Global Analyst.
Cash costs of $929 per ounce, and All-In Sustaining Costs (“AAISC”) of $1,190 and below average for major miners. Earnings of 76 cents per share came in well above analysts consensus of 61 cents, and free cash flow was a record of $393 million, the second consecutive quarter of record free cash flow.
Canadian Malartic reported record production, partially offset by Canada's Detour mine, because of low grade sequencing; it should recover in coming quarters. The company reiterated its annual guidance.
It also reported encouraging exploration results, at Detour, where they are aiming to produce 1 million ounces a year; Malartic, where they are transitioning to underground; and Hope Bay, where no production decision has yet been made but results are positive.
During the quarter, Agnico repurchased 375,000 shares for a total of $19.9 million. It is in a strong financial shape, with almost $525 million in cash, net debt of $1.32 billion (down from $1.5 billion over the quarter), and total liquidity of $2.5 billion.
It should be noted that Agnico has about $800 million of debt maturities over the next 15 months, which will “either be repaid or refinanced”. We would expect the company to use most of its free cash flow over the coming year to build up cash so that it can pay down most of these maturing debts.
Agnico, like some other miners, has shown that margins are expanding in the first quarter, as the gold price moves up more than costs.
The firm's margins are right at the top among the larger miners as costs seem (for now) under control; it has the largest increase in organic reserves, providing an excellent pipeline; the geopolitical risk profile is low; and the dividend (2.4%) is at the top end. It has solid management, and a strong balance sheet.
Though its valuation is higher than its peers –– and the stock has appreciated far more than peers this year –– up over 20%; in our view, the quality of the company justifies this strong performance.
On so many metrics, Agnico is at the top or close to the top of the pack. For any investor just building a gold equity portfolio, Agnico definitely belongs there.
