Loss sends Agnico-Eagle shares into tailspin (November 10, 2003)

Shares in Agnico-Eagle Mines (AGE-T) lost about a fifth of their value after the mid-tier producer posted a third-quarter loss on the poor performance of its LaRonde gold-copper mine in Quebec.

The company lost US$11.9 million (or 14 per share), compared with a loss of US$600,000 (a penny a share) in the corresponding period of 2002. For the first nine months of the year, the company lost US$21.9 million (26 a share), a staggering reversal from the US$3.2 million (a nickel a share) earned during the initial nine months of 2002.

Cash flow from operations was negative US$6.6 million during the recent quarter and negative US$6.5 million for the first nine months of 2003, compared with positive cash flow of US$2.3 million and $14.9 million in the corresponding periods of 2002.

The company produced 51,192 oz. in the third quarter, slightly better than a year earlier but well below expectations, despite the mining of record number of (lower-grade) tonnes. Total cash operating cash costs, including the El Coco royalty paid to Barrick Gold (ABX-T), soared by US$160 per oz. to US$368 per oz. The stronger Canadian dollar also caused costs to escalate. The El Coco royalty and ore will be largely exhausted by the end of the year.

The company says that “production drilling challenges” meant that five mining blocks containing about 27,000 oz. of gold were not mined during the quarter, despite plans to do so. At the mill, recoveries suffered at the hands of numerous stop-start cycles resulting from ore shortages, electrical problems, and variations in ore types.

“While there has been steady progress in resolving LaRonde’s operating issues this year, our progress has been slower than expected and our third-quarter operating results are disappointing,” says CEO Sean Boyd. “We are taking the steps necessary to ensure that LaRonde will become a strong cash-flow generator for many years and form the foundation for our regional growth plan.”

The company concedes it will not meet its already-lowered production forecast of 300,000 oz. for the year (previously 375,000 oz.); it does however expect fourth-quarter production to recover to around 70,000-75,000 oz. Cash costs are projected at US$210-230 per oz. (US$240-260 per oz. including the El Coco royalty).

Meanwhile, the company is reworking the mine plan at LaRonde to include an annual production rate of 300,000 oz., with more tonnes being sourced from the upper levels of the mine than originally planned. The new plan will be put into effect by year-end and should result in increased byproduct production.

Looking to overcome its drilling problems, Agnico-Eagle has added a rig, which it acquired when it picked up the neighbouring Bousquet gold property from Barrick this past summer.

A rock fall in the first quarter has been completely backfilled, and normal mining operations in the immediate area have resumed.

At the end of September, Agnico-Eagle had cash and equivalents totalling US$115 million and working capital of US$144 million.

The loss sent shares down $4.10, or more than 22%, to $14.33 in Toronto on Oct. 29, near its 52-week low of 14.14. The shares have fallen around 40% since the beginning of the year.