Agnico fails to repeat banner year

While Agnico-Eagle Mines (AGE-T) didn’t lose money in 1996, it nonetheless experienced a steep drop from the profit levels experienced in the previous year.

The company reported net income of $300,000 (1 cents per share) on revenue of $80.9 million, down from the previous year’s earnings of $18.6 million (or 50 cents per share) on revenue of $88.3 million. Operating cash flow for 1996 amounted to $15.8 million (41 cents per share), compared to a record $44.4 million ($1.20 per share) in the previous year.

Profits were reduced by lower production levels and lower metal prices, as well as by a one-time charge of $5 million to record the company’s obligation under an employment contract to the estate of the former president. The company also sufferd a $6.5-million reduction in interest and sundry income, due primarily to lower interest rates and lower cash balances.

Revenue for 1996 declined 8% as a result of a 5% decrease in gold production and lower average gold prices. The decreased gold production of about 7,600 oz. was a function of slightly lower gold grades of 0.24 oz. per ton, compared with 0.25 oz. in 1995.

Although the lower gold production contributed to a rise in unit costs in 1996 to US$210 per oz. from a record low of US$152 in 1995, the chief cause of higher cash operating costs was the drop in net byproduct revenue, which, in turn, was caused by declining copper production and much lower copper prices.

The average price of copper in 1996 fell to US97 cents per lb., compared with US$1.34 per lb. in the previous year. This decline in price, combined with lower copper production, contributed to a $6.7-million decline in byproduct revenue, which represents a unit cost increase of US$31 per oz.

During the fourth quarter, the company recorded a loss of $300,000 (1 cents per share) on revenue of $18.4 million, compared with income of $3.2 million (9 cents per share) on $21.9 million in the same period of 1995.

The decline in fourth-quarter income was caused by a decline in the average gold price to US$337 per oz., which itself was the result of a book adjustment of the carrying value of the bullion held in inventory amounting to $1.7 million. The lower average gold price also reflects the impact of pricing and settling fourth-quarter gold production during the first quarter of 1997, when the physical gold was received.

Contributing to lower fourth-quarter income was a reduction in interest income of $1.3 million due to lower interest rates and reduced cash balances.

Exploration success in 1996 was topped off by an increase in the mineral resource at the LaRonde mine near Cadillac, Que., along with the identification of new mineralization at the nearby Goldex extension property near Val d’Or, Que.

A total of 101,000 ft. of diamond drilling, including 76,000 ft. of definition work, was completed at LaRonde in 1996. The program succeeded in defining known reserves, upgrading resources to reserve status and adding to the overall mineral resource.

The definition drilling enabled Agnico-Eagle to define three separate areas: the Main zone at depth; zones 6 and 7 at shaft No. 2; and zones 20 North and 20 South at shaft No. 3. The end result was the replacement of the gold ounces mined in 1996, so that proven and probable reserves were maintained at more than 1 million ounces of contained gold.

The proven and probable figure for all five gold zones now stands at 5.3 million tons in total grading 0.19 oz. gold, 1.15 oz. silver, 0.64% copper and 1.29% zinc. Proven and probable reserves for the 20 North zinc zone are estimated at 2.38 million tons grading 0.02 oz. gold, 2.29 oz. silver, 0.09% copper and 8.59% zinc.

Exploration drilling continued to probe the central areas and depth extension of the 20 North zone, as well as the down-plunge extension of 20 South at shaft No. 3. Drill hole intersections in the central area and at depth continued to confirm the gold-copper and zinc-silver zoning, as well as the continuity of 20 North mineralization and the down-plunge extension of 20 South. The drilling also indicated that zone 19, originally thought to be a separate zone, is actually the gold-copper portion of the 20 North zone.

Drilling on 20 North at depth was focused principally on following up earlier drill results. Previously, drill hole 20-131A had returned 0.22 oz. gold, 0.38 oz. of silver, 0.55% copper and low zinc grades over a true width of 22 ft. at a depth of 7,040 ft. below surface. Hole 20-131A was drilled 1,151 ft.

west of hole 20-115A, which had returned 0.18 oz. gold, 8.1 oz. silver, 1.31% copper and 5.08% zinc over a true width of 38 ft.

Hole 20-131C (850 ft. above hole 20-131A) intersected both the 20 North and 20 South zones at a depth of 6,190 ft. below surface, returning 10 ft. of 0.05 oz. gold, 0.21 oz. silver, 0.31% copper and 0.39% zinc. The same hole returned 10 ft., in the Zinc zone, of 0.01 oz. gold, 0.21 oz. silver, 0.26% copper and 2.77% zinc, and also 48 ft. of 0.01 oz. gold, 0.42 oz. silver, 0.02% copper and 0.88% zinc.

Hole 20-131F (500 ft. above hole 20-131A) intersected zones 20 North and 20 South at 6,490 ft. below surface, hitting 10 ft. of 0.15 oz. gold, 0.1 oz.

silver, 0.02% copper and 0.11% zinc, plus 10 ft. of 0.21 oz. gold, 0.73 oz.

silver, 0.08% copper and 1.18% zinc.

In the central area of the shaft No. 3 mineralization (5,400 ft. below surface), hole 20-258, drilled 5,666 ft. below surface, hit zone 20 South, with 24 ft. of 0.13 oz. gold, 5.05 oz. silver, 0.58% copper and 1.09% zinc, and then 12 ft. of 0.04 oz. gold, 1.33 oz. silver, 0.02% copper and 10.7% zinc. The hole also hit zone 20 South, with 9 ft. of 0.21 oz. gold, 0.96 oz.

silver, 0.13% copper and 3.05% zinc.

Definition drilling in 1997 will be focused primarily on the gold-copper zones. Exploration drilling from the 20th-level drift is continuing in 1997, with 3 drills currently in operation. All drills are testing for extensions of the resource at depth and to the west of the known mineralization.

Also in progress is the shaft No. 3 development program. Definition drilling will be resumed from shaft No. 3 in the third quarter. The entire shaft No. 3 underground program includes 450,000 ft. of diamond drilling, with the first drill expected to begin testing the mineralized zones during the third quarter of 1997.

Direct access to the mineralized zones is expected to be available for the first time by early 1998 when the first of four development drifts off of shaft No. 3 is completed. The pace of exploration will also be increased upon completion of the ramp from shaft No. 1 by early 1998. This ramp will open up new areas for exploration below the Main zone and to the west of shaft No. 3.

The underground program at the Goldex project was completed in the third quarter, with a mill test of 113,000 tons of mineralized material having returned positive results. The anticipated grade of this sample (based on drilling) was 0.05 oz. gold, while the actual grade realized was higher, at 0.07 oz.

As part of a review of the feasibility of the Goldex project, a consultant was hired to review the resource estimate, which now stands at 22.8 million tons grading 0.065 oz. gold. This is slightly lower than the previous estimate of 25.3 million tons grading 0.073 oz. gold, though a 35,000-ft.

drill program is currently attempting to extend the resource outside of the known outline. Currently, three underground drills are in operation at Goldex. The program is expected to be completed by the end of April, and the results will be used to form the basis for a feasibility study.