New Agnico Eagle positioned for growth, says chairman Sean Boyd

A little more than two weeks following the closure of the $10 billion merger of Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Kirkland Lake Gold, Agnico’s new CEO Tony Makuch has resigned, handing the reins to the incoming president and CEO Ammar Al-Joundi with immediate effect.

Under terms of the merger that created the world’s third-largest gold producer, Agnico Eagle CEO Sean Boyd became executive chair of the board. At the same time, Kirkland Lake Gold CEO Tony Makuch was installed as the combined company’s chief executive.

Al-Joundi brings to the table more than 20 years of experience in mining, capital markets and banking, with specialization in finance and business strategy. 

He joined Agnico Eagle as president in 2015, after serving as chief financial officer at Agnico from September 2010 to June 2012, and as CFO and senior executive vice president at Barrick Gold (TSX: ABX; NYSE: GOLD) from July 2012 to February 2015. Before joining Agnico in 2010, he spent 11 years at Barrick.

Chairman Sean Boyd tells The Northern Miner that the management shakeup was a collective decision to put forward a broad management team, including Al-Joundi as the CEO.

“I think we’re comfortable in the decision to place Al-Joundi in the CEO role, given his experience and skillset, knowledge of the asset and shareholder base, the experience here at Agnico, and his experience where he was the CFO of Barrick.

“And so when we went back on the original discussions when the merger was announced, clearly, there was a plan at that time to move in a certain direction. It’s sort of a forward-looking view where we look at the opportunity sets, we look at the skill set of the combined team led by Amar, and we’re extremely comfortable with that group and his skill set and its ability to deliver the promise of the merger,” said Boyd.

He credits Makuch for building Kirkland Lake Gold and being the driving force behind combining the two companies. “We’re thankful for that contribution by Tony. As we look forward, there’s no change in strategy. There’s no change and sort of a view on the benefits of the merger,” he said.

Makuch could not be reached for comment on the reorganized executive team.

“I think the key thing about this combination was that it was the basis for doing that was a regional consolidation concept, where we’re putting sizable assets, major geological belts with opportunities in relative proximity to each other together. And that created the ability to drive more than US$2 billion in synergies over the next ten years. So very much the focus is to realize those synergies [and] spend aggressively on exploration.”

“We saw that both companies over the last 12 to 18 months have demonstrated they’ve been able to create a lot of value through that exploration spend, or we’ve seen both companies’ deposits grow a lot. So, that’s a big difference from a lot of the bigger gold companies where we can still generate value through exploration even though we’re bigger.”

He added the merger was, in particular, a good news story for Canada with the creation of the largest producer of gold in Canada and the third-largest producer around the world.

With a renewed sense of driving value through the drill bit, the company has released a 2022 exploration budget of about US$324 million (US$193 million of expensed exploration and US$131 million of capitalized exploration), with a primary focus on the expansion of mineral reserves and mineral resources at operating mines such as Detour, Macassa, Fosterville and Meliadine, as well as the pipeline projects including the Odyssey and Hope Bay projects.

Boyd also stressed a key difference was that the company’s operating assets were mature, thereby negating much of the portfolio risk found in miners with younger assets in the portfolio.

“We have mines that I call are mature. It’s not that there are these big new builds that we haven’t had a chance to test infrastructure or geology. So, I think that means that our management teams have a good feel and handle on those assets, which we would suggest that the production would be lower risk production.

“And that’s why we’re comfortable in terms of the guidance and the targets as far as costs. The numbers we put out didn’t really bake in the synergies that we expect to see from a per ounce basis. So, we hope to do better. And all in sustaining costs, I think the midpoint of our range is US$1,025 per ounce. Our expectation is we can do better than US$1,000.”

In 2022, the company expects to realize merger-related corporate and operational synergies of about US$40 million to US$60 million, of which US$12 million have already been realized.

In the years to come, Agnico expects to ramp up these synergies to about US$165 million per year. A further $590 million over ten years is expected to be realized through strategic optimizations, including the development of the Amalgamated Kirkland deposit at the Kirkland Lake camp, with initial gold production potentially as early as 2024.

Meanwhile, Agnico has growth in mind across the portfolio.

As mentioned at the Detour Lake mine, successful exploration programs in 2020 and 2021 led to a significant increase in open-pit mineral resources in 2021. These new mineral resources and ongoing business improvement initiatives will be incorporated into a new technical report expected to be filed in the second quarter of 2022.

At the Macassa mine, the sinking of the #4 Shaft was completed in January, over a year earlier than initially planned. Completion of other #4 Shaft development activities is expected in late 2022.

Boyd said the #4 Shaft was expected to provide numerous benefits, including increased hoisting capacity, improved unit costs, better ventilation, and enhanced capabilities to pursue exploration potential across the Kirkland Lake camp.

Gold production at Macassa is forecast to increase from 170,000 to 190,000 oz. in 2022, with a target of about 330,000 to 350,000 oz. in 2024.

Agnico sees a longer potential mine life in Australia for the high-grade Fosterville mine.

“Based on current exploration results, the company’s long-term goal for Fosterville is to establish the mine as a long-life asset through success in replacing mineral reserves. The company believes there is potential to discover additional high-grade zones that could potentially support higher production levels and improvements in unit costs,” said Boyd.

Other projects in the pipeline include the Odyssey project, which entails underground development and surface construction activities, which were said to remain on schedule and budget. In 2022, the company plans to undertake about 136,835 metres of surface and underground drilling to infill and expand mineral reserves.

From 2023 to 2028, the mine’s gold production is forecast to be about 932,000 ounces at total cash costs of approximately US$800 per oz. on a 100% basis.

Agnico is also in the midst of an expansion of its Kittila mine in Finland, where the mill expansion was completed ahead of schedule in late 2020, and shaft sinking is expected to be completed in the second half of 2022. Commissioning of the production hoist is scheduled for late 2022 or early 2023. Completion of the shaft is expected to result in lower operating costs and provide additional drilling access 

Ostensibly one of the reasons for creating the new Agnico was to drive optimization and consolidation of mining assets and infrastructure in the Kirkland Lake gold camp, said Boyd.

“There are several development assets in the Kirkland Lake area with significant mineral reserves and mineral resources. Studies are underway to evaluate the potential to advance some of these assets into production, including the AK, Upper Beaver and Upper Canada deposits either as standalone projects or by leveraging existing infrastructure at Macassa or the Holt processing complex,” said Boyd.

Aside from having a strong asset base with which to leverage an expected increase in the gold price given the hyperinflationary global economic environment and increased geopolitical tension, Agnico believes in returning capital to owners.

The board recently announced a 14% increase in the quarterly dividend from US35c per share to US40c per share. “We’ve now paid a dividend for 38 consecutive years. That hasn’t been easy to do in the gold space given the volatility in gold,” said Boyd.

“This year, we’ll be 65 years of history for Agnico, starting in 1957, in the town of Cobalt, Ontario, mining silver. We’ve used the same philosophy and strategy for decades, and it’s worked very well. And we would conclude that the gold mining business has gotten a lot more disciplined. And ultimately, our job as managers is just to manage a high-quality business that just happens to be mining for gold. It’s not the other way around.”

The reconstituted Agnico Eagle released record gold production figures for 2021 of 2.03 million ounces at all-in sustaining costs (AISC) of US$1,038 per ounce.

For the full year 2021, the company reported a net income of US$543.0 million, or US$2.23 per share, compared with US$511.6 million, or US$2.12 per share in 2020.

The company announced 2022 production guidance of 3.2 to 3.4 million ounces at an AISC of US$1,025 per oz., maintaining these levels through to 2024.

The company sports a combined reserve base of 44.6 million ounces of gold.

Boyd said Agnico was prepared for a higher gold price. “At US$1,900 per oz., we’re not far off an all-time high. I think that presents an interesting investment opportunity here. The businesses are better positioned with stronger balance sheets and better positioned to return capital to shareholders,” said Boyd.

“So, I think the opportunity for investors is to take advantage of the disconnect in terms of share prices relative to where the gold price is, historically. And that’s really the opportunity I think people should recognize.

“I expect we’ll see a new high in the gold price this year, simply because of inflationary pressures. And the fact that inflationary expectations are settling into the employees’ mindset. And once that happens, there are expectations for getting paid more and, and that’s almost like a self-fulfilling prophecy,” said Boyd.

Agnico’s Toronto-quoted equity has dropped almost 10% over the past 12 months to $64.03, which gives it a market capitalization of about $29.12 billion.