Improved metal prices, positive silver and zinc hedge books, and a deferred tax recovery helped boost Agnico-Eagle Mines‘ (AGE-T) earnings by 45% during the three months ended June 30.
The company’s second-quarter earnings amounted to US$12.8 million (or 15 a share) on revenue from mining operations of US$49.6 million, compared with earnings of US$8.8 million (11 a share) on US$45.7 million a year earlier. Cash flow from operations rose by about 28% to US$19.1 million.
The recent second-quarter figures benefited from US$4.2 million worth of non-cash mark-to-market gains on byproduct metal derivative contracts, and a deferred tax recovery of US$3.8 million.
The impressive increase came despite lower-than-expected gold output from the LaRonde mine in Quebec, which poured 61,771 oz. of gold at a total cash cost (net of byproduct credits) of US $103 per oz., down from the 65,233 oz. produced at US$77 apiece a year earlier.
Realized prices for the company’s production improved to US$427 per oz. of gold, US$7.16 per oz. silver, US58 per lb. zinc, and US$1.55 per lb. copper.
LaRonde continues to recover from a rock fall in 2003, and showed improvement from the first quarter of the year, as rehabilitation allowed improved access to some high-grade gold stopes in the lower mine.
During the quarter, LaRonde processed 751,608 tonnes of ore running 0.09 gram gold, 2.21 grams silver per tonne, 4.1% zinc and 0.36% copper. A year earlier, the plant ran through 753,724 tonnes grading 0.09 gram gold, 2.26 grams silver, 3.8% zinc and 0.54% copper. About 67% of the recent quarter’s ore was sourced from the lower mine, up from 64% in the previous quarter.
Recovery rates in the mill were slightly lower across the board, ranging from 90% for gold to 74.5% for copper. The higher lead content associated with higher zinc grades negatively impacted gold recoveries.
With the delay in mining higher-grade stopes in the first quarter, and lower recoveries in the second quarter, Agnico has trimmed its full year gold production target to 250,000-260,000 oz. at total cash costs below US$100 per oz. Byproduct production is expected to exceed 5 million oz. of silver, 74,842 tonnes of zinc, and 7,711tonnes of copper.
On a brighter note, the company has decided to advance its Goldex project, 56 km to the east of LaRonde to production. Based on a gold price of US$400 per oz. and a loonie-greenback exchange rate of 1.3, Goldex generates an after-tax internal rate of return of 15%.
The US$135-million underground operation is slated to produce an average of 170,000 oz. of gold per year over 10 years; total cash costs are placed at about US$200 per oz. The first gold pour is scheduled for the second half of 2008.
At last count, Goldex was home to probable reserves totalling 20.1 million tonnes grading 2.4 grams gold per tonne, 0.07 oz. gold per ton, for 1.6 million contained ounces. The deposit remains open.
Agnico says that a simple gravity circuit can recover 65% of the gold, with the remainder (in a sulphide concentrate) shipped for processing at LaRonde.
The plan is to primarily fund Goldex via internal cash flows and cash on hand, though the company plans to privately place 500,000 flow-through shares at $20 apiece in August for total proceeds of $10 million.
Some 11 km east of LaRonde, at the Lapa project, Agnico has advanced a shaft to a depth of more than 250 metres of a planned 825 metres. The shaft is slated for completion by mid-2006. Excavation of the first underground station is complete, and underground drilling is planned for the fourth quarter.
Lapa is home to probable reserves of 4.1 million tonnes grading 8.9 grams gold, for 1.2 million contained ounces.
Positive results from the planned drilling would see the shaft sink to an ultimate depth of nearly 1,400 metres. Incremental capital costs to bring the project into full production are estimated at US$80 million. Based on current reserves, Lapa is expected to annually produce 125,000 oz. of gold over 8 years, beginning in 2008. Cash operating costs ring in below US$200 per oz.
A feasibility study at Lapa is slated for completion in the second half of 2006; a production decision could conceivably follow in early 2007.
Looking ahead, the company expects capital expenditures in 2005 to amount to US$60 million, with US$19 million set aside for Goldex, up to US$16 million for sustaining capital at LaRonde, and the balance to fund other projects in the region.
At the end of June, Agnico had cash and equivalents US$121 million; long-term debt stood at US$141.3 million.
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