Agnico Eagle Mines (TSX: AEM; NYSE: AEM) hit the ball out of the park with its third-quarter results, driven by strong production and cash generation.
Net income was US$49.4 million, or 22¢ per share, up from last year’s US$1.3 million, or 1¢ per share. Excluding one-time items, adjusted earnings grew 44% year-over-year to US$56.6 million, or US25¢ per share. Analysts had estimated earnings per share of US19¢.
Gold production from Agnico’s nine operations totalled 416,187 oz. at by-product, all-in sustaining costs of US$821 per oz., beating BMO analyst Andrew Kaip’s 399,000 oz. and US$845 per oz. targets.
“We had a strong production quarter. We had record production at La India and record silver production coming out of Mexico. As a result, our Mexican operations had an extremely strong quarter in terms of cash generation. We also had strong production continuing at our Lapa mine,” Sean Boyd, Agnico’s CEO, said on a conference call.
Agnico’s jointly held Canadian Malartic mine in Quebec contributed the most gold in the quarter at 76,428 ounces (on a 50% basis). Meanwhile, the La India gold mine in Mexico delivered an all-time high of 30,779 oz. gold. The company expects the Lapa gold mine in Quebec will churn out ounces into 2017.
Compared to 2015’s third quarter, total production, however, fell 5% due to lower grades at Lapa and the Meadowbank mine in Nunavut. The lower production led to an 8% year-over-year increase in all-in sustaining costs.
Despite this, Agnico had impressive quarterly financials.
Revenue climbed 20% year-over-year to US$611 million, helped by higher realized gold and silver prices, and by-product revenue.
Agnico’s Mexican mines produced a record 825,000 oz. silver. The company has the Pinos Altos and La India mines, and the producing Creston Mascota deposit in Mexico. The three — comprising Agnico’s Southern business — produced more than 90,000 oz. at cash costs of below US$400 per oz., Boyd says.
They also generated over US$90 million of the company’s total operating margin of US$333.5 million for the quarter, he notes.
Free cash flow in the September quarter came in at US$157 million, marking the eighth straight quarter of positive free cash flow, CIBC analyst David Haughton says.
The strong cash generation helped Agnico strengthen its cash position and lower its net debt. Cash, equivalents and short-term investments increased to US$627 million at the end of September, up from US$474 million at the end of June. Over the same time, net debt fell by US$154 million to US$588 million.
Boyd points out the company’s net debt has declined over 50% in the last two years, helping Agnico fuel its next growth phase and keep a lid on its share count. (Agnico has 228 million shares, fully diluted.)
After more exploration success during the quarter, Agnico has added US$16 million to its annual exploration and corporate development budget of US$154 million.
It expects to increase exploration spending at the Amaruq gold project in Nunavut, the 55%-held Barsele project in Sweden, the Odyssey prospect near Canadian Malartic and the La India mine.
At Amaruq, Boyd says road construction should run until late 2017. Meanwhile, permitting should wrap up in the third quarter of 2018, followed by production in the second half of 2019.
As of mid-October, Agnico has drilled more than 125,000 metres in 500 holes at Amaruq. It expects to update the project’s resource next February. “It’s still early, but that’s a good sign,” Boyd says, adding that Amaruq has grade, size and depth working in its favour.
Given the strong year-to-date performance, Agnico anticipates surpassing the upper end of its 2016 production guidance of 1.6 million oz. gold. It has kept its annual all-in sustaining cost target at US$840 to US$880 per oz. gold.
Agnico closed Oct. 27 up 69¢ at $65.11 per share.