VANCOUVER — For mining companies pursuing growth, it is a good time to buy. Several years of depressed base metal prices combined with a recent downturn in the gold price means junior miners and explorers are generally cheap, which is the first requirement of the essential “buy low, sell high” rule of investing.
The problem is that buying requires cash, and not many companies have cash to spend. Most of the world’s big mining companies are shedding non-core assets, reassessing growth plans, focusing on profits and paying down debts. Purse strings across the sector are pretty tight.
Agnico Eagle Mines (AEM-T, AEM-N), however, is not part of that cash-strapped camp. The company’s five mines generated net earnings of US$311 million in 2012, enabling Agnico to finish the year with US$332 million in the bank. Agnico’s two development-stage projects will eat up some of those funds, but with reliable cash flows, the company also has the flexibility to spend its hard-earned cash as it pleases.
This presents an exciting opportunity in a low market, and the company has been making the most of it. Since March Agnico has inked four deals for stakes in juniors that have promising projects in the Americas, plus a fifth deal to buy out another junior entirely, in a buying spree worth $66 million.
In April, with two of these deals done, president and CEO Sean Boyd used part of the first-quarter conference call to acknowledge the market’s growing curiosity over Agnico’s moves.
“We are certainly getting a lot of questions and interest in our investment strategy, and the answer is that we actually see this as a time where we should be active,” Boyd says. “We have an active project evaluation group — some of our recent investments we have been following for a couple of years now. And it just so happens that the timing lines up, in terms of interest from the junior companies and our evaluations. Things have matched up and opportunities are presenting themselves to us.”
The first two opportunities involved Atac Resources (ATC-V) and Urastar Gold (URS-V). In mid-March Agnico put $13 million into Atac, buying 9.6 million units for $1.35 apiece. Each unit comprised one Atac share and half a warrant exercisable at $2.10 for 18 months. The investment gave Agnico an 8.5% stake in the Yukon-focused junior on a non-diluted basis.
Atac’s flagship project is Rackla, a gold discovery in the Yukon with grades that sparked an area play and a style of mineralization that caused a complete geologic rethink of the region. Rackla is home to Carlin-style gold mineralization, with gold hosted primarily in altered carbonates. It is a type of mineralization that hadn’t been found outside of Nevada until Atac discovered Rackla — and it’s behind several of the largest hydrothermal gold deposits in the world.
Results from Rackla to date are intriguing, but the project remains an early stage venture in an isolated area. At a time when investors are seeking development-ready opportunities, Atac’s share price gas has fallen from a high of $10 in 2011 to less than a dollar today.
With that kind of contrast in mind, Boyd’s comment about “things lining up” certainly makes sense.
Agnico’s next deal was the total takeover of Urastar Gold for $10 million, which added three Mexican gold prospects to Agnico’s portfolio. The most advanced of those is El Antimonio, a 125 sq. km property spanning the Mojave-Sonora shear zone. Drilling to date suggests the property could host a large, near-surface gold zone in a mining-friendly area, which is a good fit for Agnico.
Two weeks later Agnico made another move, putting $24 million into Sulliden Gold (SUE-T) in exchange for 27 million shares and 18.9 million warrants exercisable at $1.31 for two years. This 15.8% stake in Sulliden gives Agnico exposure to a development-stage gold story in South America: the Shahuindo project in northern Peru, where Sulliden has completed a feasibility study and is now focused on getting its final permits.
Agnico’s investment came shortly after Sulliden arranged a US$125-million loan, and the two sources of funding mean Sulliden has enough money to build its Shahuindo mine. For US$132 million Sulliden expects to develop a 10,000-tonne-per-day operation producing 84,500 oz. gold and 167,200 oz. silver annually for 10 years. Sulliden says the mine could be bigger and the defined mine life longer, but the company prefers to start with a modest, manageable mine that can later be expanded.
Three deals in three weeks is quite the pace, but Agnico wasn’t done yet. In late April, two weeks after announcing the Sulliden deal, Agnico shelled out $4.8 million for a 10% stake in Kootenay Silver (KTN-V), plus warrants that could increase its holding to 14.2%. Kootenay is advancing the Promontorio project in Mexico, a silver-lead-zinc deposit that already hosts 75 million oz. silver equivalent and offers exploration upside.
Then a month passed without news of another Agnico investment. Perhaps the company was done picking up stakes in junior miners? Not so fast: on May 23 the company sealed another deal.
This one saw Agnico invest $15 million in Probe Mines (PRB-V), monies that bought 7.5 million shares and 5.6 million warrants exercisable at $2.10 for two years. The deal gives Agnico a 9.94% stake in Probe on a non-diluted basis, which is a nice toehold in a junior with a promising gold project in Ontario.
Probe has advanced its Borden project rapidly, turning a 2010 gold discovery into a deposit that today contains more than 4 million oz. New results from a winter drilling campaign suggest there is more gold to be found, including a high-grade core zone of considerable size.
Hole 378 was collared 500 metres southeast of the known high-grade zone and returned 25 metres grading 4.6 grams gold per tonne, including 12.9 metres of 7.4 grams gold. Infill drilling also returned better grades than expected, such as 11.9 grams gold over 24.8 metres, while a stepout to the northwest cut 20 metres of 2 grams gold, extending the zone 300 metres in that direction.
Probe’s president and CEO David Palmer said the large stepouts were a calculated risk, one his team is glad they took: “The project has grown significantly over the last four months, evolving from a high-grade core that distinguished the deposit from its peers to a high-grade zone the size of which may put the deposit in a whole new category.”
Probe updated the Borden resource in January with a pit-constrained estimate that pegged indicated resources at 112.8 million tonnes at 1.02 grams gold, for 3.7 million contained ounces. Inferred resources add 18 million tonnes at 1.08 grams gold, for another 625,000 oz. gold.
The Agnico investment topped up a healthy Probe treasury, bringing the company’s cash balance to $40 million. Probe is spending $15 million exploring Borden this year and has four drills turning.
So does Agnico have more investments up its sleeve? The company won’t say, but its bank balance could handle another few withdrawals. And as a new National Bank Financial report notes, the few miners able to acquire assets at the moment face a world of opportunity.
“Many producers need to get their own portfolios in order and execute at existing operations before shareholders would support mergers and acquisitions, or even strategic investments,” the bank’s mining analysts wrote in the report. “However . . . thos
e companies that are in a position to execute on strategic investments or even bite-sized acquisitions are likely to pick away at assets, if even to hold them in inventory until market conditions improve.
“We believe that these companies will not and should not sit idle,” the report continues. “Here’s why: inventory of high-quality assets in favourable jurisdictions are limited; valuations are compelling; and, bottom line, companies need to get on with business.”
Agnico, it seems, agrees.