Agnico-Eagle: Q3 2007 Results Showing Margin Pressure
This report reflects the research and analysis I've performed on this company. It is provided for informational purposes only and does not constitute personalized financial advice nor an endorsement or solicitation to purchase stock in this or any other company. Please do your own due diligence or hire a financial advisor before making any investment decisions.10/28/2007 - by Davy Bui
- Results for Q3 2007 (all numbers US$ unless noted)
- Net income came in at $11.5M vs. $45.2M YOY for the quarter. Earnings per share was down 78% YOY, down 70% from the last quarter. The strong Canadian dollar, increased operating costs and lower realized zinc prices were blamed.
- Operating cash flow came in at ~$50M, down 33% YOY, 37% from Q2. Changes in working capital, mostly stemming from income and royalty taxes accounted for most of the change.
- Gold production down 6% to 55,830 oz. The company expects to come in at full-year guidance despite the weak production as Q4 is looking like it will be the best quarter for production this year.
- Total cash costs per ounce of production came in at -$307 vs. -$709 YOY. The strong Canadian dollar, increased minesite costs and lower byproduct credits revenue factored into the weaker number, same as last quarter.
- Costs per tonne came in at C$66 and projected lower for Q4, which is inline with management guidance from last quarter.
- CapEx came in at $141.7M for the quarter and now expected @ $450M for the year, due to the Meadowbank and Pinos Altos developments. These figures are expected to moderate next year.
- Now 33 months without a loss-time accident.
Here are the performance measurements I laid out for Agnico-Eagle in my investment report:
- Performance Measurements:
- Stay on schedule for Goldex, Lapa, Kittila mines.
- Maintain production at LaRonde as well as keep expansion on-track.
- Keep production costs inline.
- Increase dividend without compromising business position.
- Deliver exploration results.
Agnico-Eagle's results were less than stellar and they took a little bit of a hit after-hours on the day they announced. Digging into the numbers, it's apparent that one of the core strengths of the company, assets in politically stable regions such as Canada and Finland, are subjecting it to escalating input costs priced in local currencies while their main products, gold and zinc, are priced in an ever-weakening greenback. This trend should be expected to continue as 4 of their 6 main assets are located in Canada. Management made no mention of hedging currency exposure, which I think is a minor mistake.
From an operational standpoint, the quarter was slightly disappointing but not cause for too much concern. Production was down slightly but the company expects marginally lower production for the LaRonde mine until 2010 as they seek to maximize the orebody with historically high zinc prices. Production costs are up but that's including lower zinc prices YOY. From another view, minesite operating costs are up only 5% YOY and down to C$66 from C$71 last quarter.
The company also announced project updates. Basically, everything is on-schedule with the exception of Goldex, which was moved up slightly. Management also laid the ground for raised expectations on reserves and resource on Pinos Altos, Kittiala and Meadowbank.
In this environment with Helicopter Ben on the loose, it's a matter of prudence to keep some gold insurance in the portfolio. The upside potential and the Fed are the reasons I'm still holding onto my shares even as AEM sits above my target price.
The company will announce a 2008 operating forecast and dividend decision in mid-December along with an earnings guidance and resource update (with updated exchange rates) in Februry 2008. With that in mind, here are our revised performance measurements:
- Revised Performance Measurements:
- Production schedule:
- Goldex: Q2 2008
- Kittila: Q3 2008
- Lapa: Q2 2009
- Meadowbank: Q3 2010
- Keep production costs somewhat under control.
- Deliver significant resource upgrades at Pinos Altos (Mascota), Meadowbank and Kittila early next year.
- Increase dividend without compromising business position.
- Maintain production at LaRonde as well as keep expansion on-track.
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