Agnico pursues growth amid capital cuts

Despite the weaker gold price, slumping profits and spending cuts, Agnico Eagle Mines (TSX: AEM; NYSE: AEM) says it’s on track to grow its gold production to 1.2 million oz. by 2015.

During a July 25 conference call, Sean Boyd, Agnico’s president and CEO, said the miner is reviewing all of its assets in light of the lacklustre price of the shiny metal and is reining in spending, with plans to trim capital and exploration costs by US$50 million for the remainder of 2013. The pullback will continue into next year, with Agnico knocking off more than US$200 million from its 2014 budget of US$600 million, by minimizing or deferring work and expenditures at its projects.

“And we are able to do it in a way where it doesn’t impact our ability to achieve our 20% growth in production through to 2015,” Boyd assured analysts on the call.

Nearly half of the capital cuts slated for next year would occur at Agnico’s Meliadine gold asset, near Rankin Inlet in Nunavut.

“It is a prolific deposit, there’s lots of gold in the system,” Boyd says. “But as we look at the volatile nature of the gold market we felt it was prudent to ensure we have significant financial flexibility in our business. And as a result we decided to reduce our capital spending at Meliadine from around [US]$125 million from the original plan down to [US]$45 million.” The miner intends to keep developing a ramp to access the orebody to keep Meliadine on path for a potential 2018 start-up, given board approval and a better gold environment, Boyd says.

Along with Meliadine, Agnico will lower expenditures at two of its other gold mines, namely Kittila in northern Finland and Goldex in northwestern Ontario. Agnico plans to slash its 2014 exploration budget by US$50 million, with firmer reduction numbers expected later in the year.

 “We are still going through these numbers,” Boyd says. “As we go through our budgeting process we will be looking for additional savings, efficiencies and optimizations.” 

For the last half of the year, Agnico’s CEO anticipates that output will increase by 15%. Helping lift output are several factors, including: resuming Kittila, which operated for only 14 days during the June quarter due to an extended maintenance period; ramping up production at the Creston Mascota heap-leach operation in Mexico and the LaRonde mine in Quebec; higher grades at the Meadowbank mine in Nunavut; and restarting Goldex in the fourth quarter.

“As we look forward on a quarterly basis, we’re anticipating 260,000 to 265,000 oz. per quarter in the second half of 2013,” Boyd explains.

For the period ended June, it generated 224,089 oz. gold at total cash costs of US$785 per oz. It posted an adjusted loss of US3¢ per share, missing the consensus of US8¢ per share. “Much of the reason for the lower-than-expected earnings would be attributable to the low realized metal prices,” Salman Partners analyst David West writes in a brief note. “The company realized an average gold price of US$1,336 per oz. over the quarter, versus the actual average of US$1,415 per oz.”

Also hurting profits were the extended shutdown at Kittila and the 35% quarter-over-quarter drop in silver prices, which affected revenue from by-product metals at LaRonde and the company’s Pinos Altos mine in northern Mexico.

Despite Kittila barely contributing ounces, Agnico says production for the June quarter was in line with expectations.

It has backed its full-year 2013 forecast of 970,000 to 1,010,000 oz. gold at total cash costs of US$735 to US$785 per oz. All-in sustaining costs for the year remain at US$1,100 per oz.

Agnico anticipates annual gold output of 1.1 million to 1.14 million oz. in 2014, as the new La India mine in Mexico reaches commercial production early that year and output increases at LaRonde and Goldex. Annual gold production is slated to reach 1.2 million oz. in 2015, driven by further growth from the LaRonde and Pinos Altos mines.