Agnico Close to Net Cash but Vows to Maintain Discipline

Al-Joundi says gold miner won’t do anything stupid

Another record quarter for Agnico Eagle Mines (TSX/NYSE: AEM) has the company approaching a net cash position.

The Canadian gold miner produced 873,794 ounces of gold in the March quarter at production costs of US$879 an ounce, total cash costs of $903/oz and all-in sustaining costs of US$1183/oz.

“In a year where gold prices have increased by over US$1000 an ounce, our gold production of 874,000 ounces and our cash costs of $903 per ounce were almost identical to our production and cost numbers in the first quarter of last year,” Agnico CEO Ammar Al-Joundi said on a conference call on Friday.

“This means we are delivering the full benefit of these rising gold prices to our owners. That's why our owners invest in us and that's our job to deliver. We do this by delivering solid production and controlling costs safely, responsibly and reliably.”

Agnico reported quarterly net income of US$815 million, or US$1.62 per share and record adjusted net income of US$770 million, or US$1.53 per share.

Operating cashflow was US$1.04 billion, while free cashflow was US$594 million.

“Not surprising, with good operational performance and record gold prices, we continue to deliver record financial results record operating margins, record adjusted net income and not just on an absolute basis but also record adjusted net income on a per share basis,” Al-Joundi said.

“It's the per share metrics that matter and it's the per share metrics that we will always focus on.”

Agnico maintained full-year guidance of 3.3-3.5 million ounces at total cash costs of US$915-965/oz and AISC of US$1250-1300/oz.

Focus on returns

Agnico’s quarter-end cash balance was US$1.13 billion, up US$212 million on the previous quarter.

The company had debt of US$1.14 billion and net debt of just US$5 million.

Agnico declared a quarterly dividend of US40c per share and repurchased US$50 million worth of shares on-market.

The company has applied to the Toronto Stock Exchange increase its buyback to US$1 billion.

Al-Joundi said the company was well-placed to continue to increase shareholder returns.

“At these prices Agnico Eagle, and frankly a lot of our peers, should be making a lot of money,” he said.

“We should be generating a lot of cash, and that cash belongs to our owners. We will be returning the cash.

“The most important thing, in my opinion, is don't waste that cash. This is why we keep repeating, it's your cash, it's not our cash, and we're going to continue to be disciplined, which means that we're going to build the business, we're going to strengthen the balance sheet and we are going to increase returns to shareholders.

“And it may be in a dividend, maybe it's share buybacks, maybe it's probably a combination of all of those, but the real important point is stay disciplined. Don't waste that money. Don't go out and do stupid things with our owners’ money.

“And, that again, that's why we emphasise from the beginning, cost control. That's why we emphasise also capital discipline.”

Growth projects advancing

Al-Joundi said the company’s strong cashflow generation allowed it to continue to advance what he described as “the best pipeline in the business”.

At Canadian Malartic, ramp development reached the bottom of the first mining horizon at East Gouldie, while excavation of the mid-shaft loading station between levels 102 and 114 commenced and the temporary service hoist was commissioned.

The company expects to begin excavation of the ramp at Detour Lake in the coming weeks as part of the underground expansion.

At Upper Beaver, the box cut for the exploration ramp was completed with excavation and the sinking of the exploration shaft expected to begin in the December quarter.

Agnico was also active on the business development front, making a record number of investments in junior explorers.

The company made or increased investments in in Rupert Resources (TSX: RUP), Collective Mining (TSX: CNL), Cartier Resources (TSXV: ECR), Ongold Resources (TSXV: ONAU) and ATEX Resources (TSXV: ATX).

Al-Joundi said Agnico would continue its strategy of getting in early to projects it thought had a lot of potential.

“And that really gets to this whole capital allocation and our strong view that capital allocation has to be based on intelligence,” he said.

“So, we make small investments early on in projects that are interesting, and we do it on purpose to learn about those projects and to be able to make a logical decision, and we want to continue to be, by the way, the partner of choice for some of these juniors in the regions we operate.

“It's a strategy that's worked really, really well for us. We're going to continue it.”