Agnico-Eagle Mines Ltd TSX:AEM announced its financial results for the three and six months ended June 30, 2012. Net income of $43.3 million or $0.25 per share was reported for 2Q, compared to $68.8 million net income or $0.41 per share for 2Q 2011. For the first six months of 2012, net income was $121.8 million or $0.71 per share, compared to $114.1 million or $0.68 per share for the first six months of 2011. Revenues for the first six months of 2012 were $390.6 million, compared to $337.6 million for the same period in 2011.
Gold production for 2Q was 265,350 ounces at $660 per ounce, compared to 239,328 ounces at $565 per ounce for 2Q 2011. Production guidance for 2012, previously estimated at between 875,000 to 950,000 gold ounces, is now forecast to be approximately 975,000 ounces at a cash cost of the lower end of the previously estimated range of $690 to $750 per ounce. As of June 30, 2012, cash and cash equivalents were $289.1 million, up from $199.1 million March 31. Capital expenditures for 2Q were $104.4 million and are expected to total approximately $452 million for 2012, up $34 million from previous guidance.
Meadowbank has demonstrated a capacity to run at high volumes, not only process high volumes but mine high volumes. That has driven record production in the quarter at good costs and with good cash generation. There is the potential to add a few years to the mine life, which is currently at about six years, and so we’re also looking at that right now—Sean Boyd
Agnico’s share price rose 10% in the two days after the release of the quarterly report. President/CEO Sean Boyd tells ResourceClips.com, “We’ve been an outperformer all year, so that’s a continuation of the outperformance and reflects two successive quality quarters from an operational cashflow-generation standpoint.
“It’s a tough business; we had our challenges last year. But we’ve been around for 55 years and a steady performer for many years with good returns, until we ran into a few hiccups last year. We were fortunate that we were able to address our issues quickly. Our employees were able to come up with plans to deal with the issues and were successful.”
Boyd elaborates on some of these ‘hiccups’: “Meadowbank is our Nunavut mine, and we put that into production in 2010. We had an extremely difficult year last year with a tough winter. We had a fire in our kitchen, and our costs were higher than anticipated. We then had to redo the mine plan as a result of those challenges and put out a revised mine plan earlier this year. That mine plan reduced the requirement to move waste rock. It removed marginal ounces from the mine plan. It shrank the pit and outlines the open pits. It shortened the mine life, but it was really driven to maximize cashflow. That has worked well, and we had record output in 2Q out of that mine. We’ve had sharp reduction in our cash costs in 2Q from that mine, and so that plan worked well.
“The other issue we had last year was a stability issue underground at our Goldex Mine in Quebec. We were forced to shut the mine down and forced to suspend production from the mining area indefinitely. That is still the case. We continue to maintain the suspension of operations in that main area, but we’ve been able to identify satellite zones of mineralization that we’ll be able to develop over the next 1.5 years, so we can restart production in the newer areas at a lower rate at higher costs.”
Boyd’s says of Agnico’s Meadowbank Mine in Nunavut, “It has demonstrated a capacity to run at high volumes, not only process high volumes but mine high volumes. That has driven record production in the quarter at good costs and with good cash generation. There is the potential to add a few years to the mine life, which is currently at about six years, and so we’re also looking at that right now.”
As for the future of Nunavut mining, given its infrastructural challenges, Boyd comments, “It’s going to take time. There is a lot of resource potential. This is a multidecade proposition, and we’re the biggest game in town in terms of mine development and operations. There aren’t many companies with our skillset that are doing business there. We like it there. It is a pro-mining region, but it is a high-cost part of the world in which to do business. So we take the longterm view. We’ve been in Quebec for almost 50 years, and we like to be in places where we can see ourselves being there over many decades”
Boyd says of Agnico’s Pinos Altos gold-silver mine in Mexico, “It’s a great mine with great returns and the potential to generate about $300 million in profit this year on an asset we bought for $80 million and spent about $400 million to build. The payback is fast; it’s lower risk; and we’ve got a new project there that we’re focused on laying out a development plan for. So it’s a growing business for us and a business that is generating increasing cashflow.”
Boyd concludes with a forecast of Agnico in two years’ time, “We’ll be producing more gold. We laid out a growth plan earlier this year that saw our production rising about 24% from where it was last year. So we’ll be producing more gold and generating more cashflow. We’ll be building and likely working on construction of a couple of new mines in our portfolio.”
by Kevin Michael Grace