Agnico Eagle Mines: A Softer 2023 Outlook

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Fosterville Gold Mine


Just complete 4 months ago, I wrote connected Agnico Eagle Mines Limited (NYSE:AEM). I noted that nan banal looked to beryllium a bargain beneath $40.00, pinch a caller summation to an already beardown pipeline (50% liking successful San Nicolás). This could be a very high-margin task akin to LaRonde, which is Agnico's longest-running excavation and 1 of nan astir awesome VMS deposits successful Canada.

While immoderate investors mightiness person believed this to beryllium a alteration successful strategy aliases a deviation from its halfway strategy, it wasn't each that different. Agnico was already producing zinc and copper astatine LaRonde successful Quebec, and some projects having a somewhat akin metallic floor plan (copper, zinc pinch by-product gold/silver for San Nicolás and golden pinch incremental silver, lead, and zinc astatine LaRonde). Meanwhile, Agnico Eagle besides had copper already successful its pipeline pinch Upper Beaver, a high-grade gold-copper task successful nan eastbound information of nan Kirkland Lake Camp.

Since nan September update, Agnico Eagle has performed well, rebounding complete 45% disconnected its lows successful conscionable 4 months, prompting maine to return immoderate profits supra $55.00. I property nan beardown capacity to different superb acquisition which consolidates ownership of Canadian Malartic and sets nan institution up to turn output pinch reduced permitting requirements and little capex if it builds mines that provender a cardinal works vs. stand-alone projects astatine Upper Beaver and Wasamac. That strategy benefits from 40,000 tonnes per time of excess mill capacity post-2027 astatine Canadian Malartic, which is why I person nary rumor pinch nan value paid for Yamana's Canadian assets. However, nan banal has travel nether unit recently, pinch nan golden value correcting, and while nan Q4 net report met expectations, nan 2023 outlook came successful good beneath my expectations. Let's return a look below.

Canadian Malartic Mine

Canadian Malartic Mine (Company Presentation)

All figures are successful United States Dollars unless different noted.

Q4 & FY2022 Production & Sales

Agnico Eagle Mines Limited released its Q4 and FY2022 results this week, reporting quarterly accumulation of ~799,400 ounces, translating to a ~50% summation from nan year-ago period. The crisp summation successful accumulation was inorganic, pinch this being attributed to nan Kirkland Lake Gold merger, pinch an offset from nan institution placing its Hope Bay Operations successful attraction & attraction arsenic nan institution focuses connected exploration and amended knowing nan project's geological potential. On a full-year basis, Agnico Eagle reported payable accumulation of ~3.14 cardinal ounces of golden (~3.28 cardinal ounces erstwhile including a afloat twelvemonth from Kirkland Lake's operations), pinch nan erstwhile fig representing a 51% summation from 2021 levels (~2.08 cardinal ounces).

Agnico Eagle Mines - Quarterly Gold Production

Agnico Eagle Mines - Quarterly Gold Production (Company Filings, Author's Chart)

This coagulated capacity continued Agnico Eagle's peer-leading way grounds of not only accumulation growth, but accumulation maturation per share, pinch this made imaginable by its superior subject to attraction connected low-risk projects pinch multi-decade imaginable and paying nan correct value for these assets. This is simply a cardinal differentiator for Agnico, dissimilar others that person paid tremendous sums to adhd early accumulation for illustration deals for Red Back Mining (2010), Equinox Minerals (2011), Richfield (2011), Fronteer Gold (2011), Trelawney (2012), N-Mining (2020), and Great Bear (2021). The Great Bear whitethorn salary off, but if Kinross Gold Corporation (KGC) had simply waited for GBR to merchandise a sub 4.5 cardinal ounce resource, it apt could person had sewage nan woody for little than $900 cardinal (vs. ~$1.40 billion), arsenic nan banal apt would person been halved.

In Agnico's case, nan company's acquisitions person each been solid, which has contributed to accumulation maturation per share, and its fierce exploration fund has helped to adhd further worth to these projects. Examples see Riddarhyttan (Kittila) successful 2004, Pinos Altos successful 2006, Cumberland (Meadowbank) successful 2007, Comaplex (Meliadine) successful 2010, 50% of Osisko (Malartic) successful 2014, TMAC (Hope Bay) successful 2021, and Yamana's Canadian assets precocious past year. Notably, these operations each stay successful accumulation coming (ex Hope Bay which should restart successful 2026). Plus, Agnico acquired counter-cyclically aliases Agnico waited for depressed prices to get (TMAC Resources).

The objection was Yamana, but nan woody made excessively overmuch consciousness to walk on, and Agnico still didn't overpay (paying a very adjacent value fixed nan value of nan plus and worth that it could unlock for decades to come).

Agnico Eagle History

Agnico Eagle History (Company Presentation)

Getting backmost connected way and digging into Agnico's operations a small closer, nan institution had a coagulated 4th and twelvemonth crossed nan board. A mates of assets outperformed expectations, and a fewer came successful somewhat beneath expectations. In position of outperformers, Detour Lake produced 732,600 ounces (2% hit vs. guidance mid-point), Macassa produced ~200,800 ounces (12% hit vs. guidance mid-point), Meliadine produced ~372,900 ounces (1% hit vs. guidance mid-point), Canadian Malartic produced ~329,400 ounces (3% hit vs. guidance mid-point), and Meadowbank besides had a immense twelvemonth successful Nunavut, producing ~373,800 ounces, a much than 7% hit vs. its guidance mid-point. Finally, though 1 of Agnico's smallest contributors, Goldex had a coagulated year, pinch ~141,500 ounces produced, a 5% beat.

Agnico Eagle - Quarterly Production by Mine

Agnico Eagle - Quarterly Production by Mine (Company Filings, Author's Chart)

Unfortunately, this was offset by little accumulation astatine a fewer of Agnico's different operations, including a weaker twelvemonth astatine 2 of its lowest-cost assets, Fosterville and LaRonde. At Fosterville, accumulation came successful astatine ~383,300 ounces, which resulted successful a 7% miss vs. its guidance mid-point contempt a beardown decorativeness to nan twelvemonth (~88,600 ounces produced astatine an mean people of 20.30 grams per tonne of gold). Meanwhile, astatine LaRonde, accumulation came successful astatine conscionable ~356,400 ounces, a 6% miss vs. its guidance mid-point, and Agnico besides announced a softer outlook for nan adjacent fewer years, which we'll talk later. Elsewhere, its Kittila Mine successful Finland missed accumulation guidance by 11% (~216,900 ounces vs. 242,500 ounces). Finally, astatine Agnico's 2 smallest assets successful Mexico (Pinos Altos and La India), accumulation came successful 24% and 9% beneath guidance, respectively.

Fosterville Mine - Quarterly Production

Fosterville Mine - Quarterly Production (Company Filings, Author's Chart)

Overall, Agnico's accumulation results were satisfactory, and nan institution expects to spot further maturation successful output adjacent year, pinch yearly accumulation of ~3.34 cardinal ounces astatine nan mid-point, representing a 2% summation compared to FY2022 accumulation (including Kirkland Lake operations). That said, this was beneath my estimates of 3.45+ cardinal ounces fixed nan summation of nan different half of Canadian Malartic (250,000+ ounces successful FY2023 depending connected erstwhile woody closes). Let's return a person look astatine costs performance:

Costs & Margins

While Agnico Eagle met its accumulation guidance successful FY2022 (3.2 - 3.4 cardinal ounces), costs missed, pinch rate costs and all-in-sustaining costs [AISC] of $793/oz and $1,109/oz, respectively. It's worthy noting that these figures compared favorably to FY2021 rate costs and AISC of $761/oz and $1,038/oz, but they missed comparative to guidance mid-points of $750/oz and AISC of $1,025/oz, and by a comparatively wide separator for a institution that has consistently over-delivered connected promises.

That said, this wasn't a company-specific issue, and stickier inflationary pressures mixed pinch proviso concatenation headwinds led to dozens of misses connected costs sector-wide. Hence, I don't spot this arsenic an rumor circumstantial to Agnico Eagle, and fixed nan value of these assets and declining costs arsenic Detour/Malartic/Macassa that should use from economies of scale, I would expect 2023 to people highest costs for Agnico pinch a steadily declining costs profile. Unfortunately, while costs and margins will improve, AISC margins did descent to conscionable $497/oz successful Q4 2022, down from $669/oz successful Q4 2021, impacted by higher costs and a little mean realized golden value ($1,728/oz vs. $1,795/oz).

At 1.0 cardinal ounces per annum (plus nan imaginable added use of trolley assist), Detour Lake is apt a sub $850/oz per annum cognition (recent excavation scheme $920/oz). At Canadian Malartic and pinch nan use of aggregate feeds, costs should besides diminution materially, pinch this plus besides looking for illustration it has 1.0 cardinal ounce per annum imaginable post-2030. Finally, Macassa is simply a higher-cost cognition astatine 200,000 to 225,000 ounces per annum sloppy of its grades, but could spot AISC dip beneath $775/oz arsenic good if it tin execute and support a 320,000 ounce per annum accumulation floor plan post-2025.

Agnico Eagle - Quarterly AISC

Agnico Eagle - Quarterly AISC (Company Filings, Author's Chart)

Agnico Eagle - AISC & AISC Margins

Agnico Eagle - AISC & AISC Margins (Company Filings, Author's Chart)

Looking astatine nan floor plan above, nan quarterly inclination successful portion costs apt doesn't animate overmuch confidence, and this was Agnico's worst 4th to day pinch AISC of $1,231/oz. However, this was partially owed to elevated sustaining superior successful Q4 ($227 million), and Agnico noted that it continues to spot unit connected costs from labor, electricity, fuel, and consumables, which will effect 2023 portion costs arsenic well. The bully news is that portion costs will diminution post-2023 (as guided), and nan institution did statement that it expects "some easing connected input costs to hap later successful 2023." One logic for nan accrued costs adjacent twelvemonth is different twelvemonth of elevated sustaining capex (~$800 million), pinch higher deferred stripping costs astatine Detour Lake and Amaruq and higher superior walk pinch nan afloat ownership of Malartic, pinch constricted offset from higher income volumes.

Agnico - Updated 3-Year Guidance

Agnico - Updated 3-Year Guidance (Company Presentation)

Meanwhile, it has hedged 42% of diesel vulnerability for 2023 astatine $0.86/liter to trim volatility successful lawsuit we do spot a spike successful power prices, and it's equipped pinch a beardown balance sheet (just ~$680 cardinal successful nett debt) to proceed to put successful optimization, exertion and exploration, which should each thief to claw backmost mislaid margins. In nan lawsuit of Detour, this surely looks to beryllium nan case, pinch valuable ounces added westbound of nan West Pit (highlight intercepts see 28.9 meters astatine 10.2 grams per tonne of golden and 39.9 meters astatine 3.9 grams per tonne of gold), and nan anticipation of an underground constituent to nan asset. Assuming 5,000 tonnes per time astatine 2.4 grams per tonne of golden and a ~96% betterment rate, nan underground unsocial could lend an incremental 135,000 ounces per annum.

Detour Lake Operations

Detour Lake Operations (Company Presentation)

Meanwhile, Agnico noted that it could spot readiness amended by up to 3% astatine nan Detour Mill by utilizing its expertise astatine Canadian Malartic for its yearly attraction strategy. An further 1.0 cardinal tonnes per annum astatine an mean people of 0.85 grams per tonne of golden equates to an further ~25,000 ounces of golden accumulation per annum conscionable pinch insignificant tweaks, and Agnico appears assured that it tin meet and perchance transcend nan erstwhile extremity of 28.0 cardinal tonnes per annum by 2025. It's worthy noting that this plus is permitted for up to 32.8 cardinal tonnes per annum, truthful location is further upside long-term, and astatine those levels pinch an underground component, this could beryllium a overmuch lower-cost cognition and Canada's largest excavation by a wide separator (950,000 to 1.0 cardinal ounces per annum).

Notably, this is conscionable 1 plus of galore wherever nan institution is investing to optimize and trim costs complete nan long-term, and location are respective opportunities crossed nan portfolio. Another illustration of leveraging existing infrastructure is perchance sending adjacent aboveground Macassa ore and provender from Amalgamated Kirkland to a quiet LaRonde works connected nan eastbound information of nan Abitibi Gold Belt vs. expanding nan mill astatine Macassa. Finally, and arsenic noted earlier, a hub & said strategy pinch nan Malartic Mill and its sizeable capacity could move this plus into a monster for decades and trim permitting requirements, pinch permits focused connected smaller footprints (no request for stand-alone processing facilities). Hence, I don't spot this short-term summation successful portion costs arsenic that material, and Agnico's early remains very agleam from a pipeline/organic maturation standpoint.

Agnico Eagle Operations - Abitibi Gold Belt

Agnico Eagle Operations - Abitibi Gold Belt (Company Presentation)

The Negatives

Although Agnico's 2022 accumulation and costs were solid, pinch outperformance from larger assets offsetting guidance misses astatine immoderate different mines and nan institution generating astir $1.4 cardinal successful rate travel and gross of ~$5.7 cardinal for nan twelvemonth contempt a anemic golden price, location were immoderate negatives. For starters, LaRonde has a much blimpish excavation scheme owed to a alteration successful improvement plans and a modulation to pillarless mining, pinch accumulation expected to diminution much than 25% year-over-year astatine this low-cost plus (275,000 ounces vs. 382,000 ounces antecedently guided). This is unfortunate, fixed that this is simply a very low-cost plus for Agnico and a awesome contributor from a accumulation standpoint.

Agnico noted that nan simplification successful guidance is chiefly related to a little mining complaint astatine nan LaRonde Mine, pinch it being prudent to alteration its mining sequence successful nan East Mine to "reduce accent levels connected secondary stopes, trim seismic risk, and beforehand sustainability of nan cognition successful nan agelong run." The operation of adjusting nan ramp creation successful nan East Mine to beryllium further from geological structures and nan move to pillarless mining will lead to little mining rates. However, pinch sizeable resources on nan Abitibi Gold Belt (especially successful nan Kirkland Lake Camp), location are outer opportunities to apical up nan works medium-term and long-term, and Agnico is besides exploring expanding nan mining complaint astatine its LZ5 Mine to 4,000 tonnes per time pinch caller ore sources (LZ5 Deep, LR11-3 Zone, Ellison, and Fringe zones).

LaRonde Mine

LaRonde Mine (Company Presentation (Q4 2021))

Unfortunately, things haven't been immoderate easier for Agnico than they were for Kirkland Lake successful Australia, pinch nan Environmental Protection Authority of nan Victoria Government placing operational constraints connected Fosterville. This has to do pinch nan debased wave sound (below nan level of quality hearing) which is being emitted by superior aboveground fans astatine Fosterville. With these fans incapable to run from midnight to 06:00 AM, it is difficult to support erstwhile mining rates. Agnico has continued to activity and complete studies to reside these issues and activity towards a resolution, and noted that if and erstwhile this is resolved, we could spot a 50,000 ounce assistance successful accumulation successful 2023/2024. For now, though, nan institution is guiding much conservatively astatine 305,000 ounces successful 2023 and 240,000 ounces successful 2024 vs. 375,000 ounces and 247,500 ounces, respectively.

Finally, astatine Kittila, and adding reproach to wounded aft a reliable twelvemonth owed to inflationary pressures successful Finland, nan institution has yet to person nan reinstatement of its 2.0 cardinal tonne per annum operating permit, pinch nan institution waiting connected a determination by nan Supreme Administrative Court of Finland. This will lead to little accumulation successful 2023 unless it's received up of time, pinch guidance reeled successful from 250,000 ounces to 200,000 ounces. For those unfamiliar, Agnico already had a very reliable twelvemonth astatine nan mine, pinch energy prices soaring to peaks of 300 to 500 Euros per megawatt hr connected a regular ground successful November and December vs. emblematic energy prices of 50 Euros/megawatt hour. The spikes successful energy prices were related to nan delayed commissioning of a atomic powerfulness works successful Finland.

On a full-year basis, energy costs were up 180% year-over-year astatine Kittila, but nan plus still managed to person a decent year, pinch ~216,900 ounces produced astatine rate costs of $980/oz fixed nan challenges. Unfortunately, pinch an moreover little accumulation floor plan adjacent year, I wouldn't expect a very robust twelvemonth for Kittila from a separator standpoint, particularly pinch a afloat twelvemonth of what person been very sticky inflationary pressures. These antagonistic developments do not effect nan semipermanent outlook for LaRonde, Fosterville aliases Kittila, but it's understandable why Agnico is seeing costs increases that will widen into 2023 erstwhile 2 of its rate cows (LaRonde and Fosterville are higher-margin operations) had tougher years and will stay beneath planned output levels successful 2023. Let's look astatine nan valuation to spot whether this is priced into nan stock.


Based connected ~490 cardinal shares (post-Yamana acquisition) and a stock value of $49.30, Agnico Eagle traces astatine a marketplace headdress of ~$24.2 cardinal and an endeavor worth of ~$24.8 billion. This is simply a very reasonable valuation for nan company's top-3 shaper whose unsocial attributes see having 90% of accumulation coming from Tier-1 jurisdictions, an unthinkable dividend way grounds (50x summation complete nan past 2 decades) and way grounds of accumulation maturation per share, industry-leading margins (sub $1,100/oz AISC long-term), and an industry-leading maturation profile. In nan second case, Agnico has nan improvement pipeline to support up to 4.5 cardinal ounces of golden accumulation per annum, pinch aggregate projects successful nan wings for illustration Upper Beaver, Wasamac, San Nicolas (50%), and Hope Bay.

Agnico Eagle - Quarterly Revenue & Cash Flow

Agnico Eagle - Quarterly Revenue & Cash Flow (Company Filings, Author's Chart)

Agnico Eagle - Historical Cash Flow Multiple

Agnico Eagle - Historical Cash Flow Multiple (

Looking astatine nan floor plan above, Agnico has historically traded astatine 12.5x rate flow, and I would reason that a aggregate of 13.0 is much than reasonable, fixed that it's nan premier awesome shaper pinch favorable jurisdictions and charismatic margins. Based connected blimpish FY2023 rate travel estimates of $4.50, this translates to a adjacent worth for nan banal of US$58.50, pointing to 20% upside from existent levels. However, this adjacent worth estimate is based connected what will beryllium a anemic twelvemonth for Agnico, and it doesn't spot immoderate worth connected its beardown improvement pipeline aliases exploration upside, wherever I deliberation we tin easy delegate a worth of $5.0+ cardinal (Santa Gertrudis, Upper Beaver, Wasamac, Hammond Reef, Hope Bay, San Nicolas [50%], exploration upside). It besides doesn't spot immoderate worth connected integrated maturation astatine existing assets for illustration Detour Lake.

Agnico Eagle - Revenue, Expenses & Net Income (Q1-Q3 2022)

Agnico Eagle - Revenue, Expenses & Net Income (Q1-Q3 2022) (Company Filings)

Given that valuing nan banal connected rate travel understates nan company's semipermanent potential, I judge nan champion measurement to worth Agnico Eagle Mines Limited banal is connected a P/NAV basis. Based connected an estimated nett plus worth of ~$23.7 cardinal aft adjusting for G&A expenses, and assigning a 1.45x P/NAV aggregate fixed its beardown history of reserve replacement, I spot a adjacent worth for Agnico banal of ~$35.0 billion. After dividing by ~490 cardinal shares (year-end 2023), this translates to a adjacent worth for nan banal of US$71.40, translating to a 44% upside from existent levels aliases ~47% upside connected a full return basis.

Importantly, this doesn't relationship for upside successful nan golden price, pinch these assumptions based connected a $1,700/oz golden price, successful statement pinch nan three-year average. Given its undervaluation, I proceed to spot Agnico arsenic 1 of nan champion buy-the-dip candidates sector-wide. So, while nan Q4 study was undoubtedly fixed, I do spot immoderate of nan negatives priced into nan banal already, but that doesn't mean we won't spot immoderate trading pressure.


Agnico Eagle Mines Limited put together coagulated Q4 and FY2022 results successful a challenging twelvemonth and has entered 2023 overmuch stronger. Its improvement pipeline is beefed up further, and this being a unsocial improvement pipeline that leverages disconnected existing infrastructure. That said, nan Agnico Eagle Mines Limited 2023 outlook is softer than I expected for some output and costs. I would person seen this arsenic little worldly if nan golden value were supra $1,950/oz fixed that this would offset nan higher costs, but it looks apt that we'll spot immoderate separator compression successful 2023 aft Agnico already suffered mean separator compression successful 2022.

GDX Index & Gold Miners Sentiment

GDX Index & Gold Miners Sentiment (Author's Data & Chart)

Given that this is impermanent and costs are guided to inclination little post-2023, I don't spot immoderate alteration to nan finance thesis and proceed to spot Agnico Eagle Mines Limited arsenic a halfway holding. However, pinch nan banal short-term extended and sentiment successful nan assemblage over-heated (shown above), I took immoderate profits supra $55.40. Assuming this weakness continues and if Agnico's correction were to widen to complete 25% from its caller highs, I would see adding backmost immoderate vulnerability to Agnico Eagle Mines Limited stock.

I americium neutral short-term connected Agnico Eagle Mines Limited from $49.30 fixed that I antecedently expected to spot separator description successful 2023 ($1,850/oz golden value presumption pinch declining costs). However, I stay semipermanent bullish, pinch Agnico Eagle Mines Limited continuing to beryllium a top-3 shaper sector-wide and 1 of nan safest ways to get vulnerability to gold, pinch a squad that has a adjacent flawless way grounds of superior discipline.

This article was written by

Taylor Dart floor plan picture

"A bull marketplace is erstwhile you cheque your stocks each time to spot really overmuch they went up. A carnivore marketplace is erstwhile you don't fuss to look anymore."- John Hammerslough - Disclosure: I americium not a financial advisor. All articles are my sentiment - they are not suggestions to bargain aliases waste immoderate securities. Perform your ain owed diligence and consult a financial master earlier trading aliases investing.

Disclosure: I/we person a beneficial agelong position successful nan shares of AEM either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: Disclaimer: Taylor Dart is not a Registered Investment Advisor aliases Financial Planner. This penning is for informational purposes only. It does not represent an connection to sell, a inducement to buy, aliases a proposal regarding immoderate securities transaction. The accusation contained successful this penning should not beryllium construed arsenic financial aliases finance proposal connected immoderate taxable matter. Taylor Dart expressly disclaims each liability successful respect to actions taken based connected immoderate aliases each of nan accusation connected this writing. Given nan volatility successful nan precious metals sector, position sizing is critical, truthful erstwhile buying small-cap precious metals stocks, position sizes should beryllium constricted to 5% aliases little of one's portfolio.

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