Strong Agnico Eagle able to ‘Do it All’
‘The company is really in the strongest position in its history’
Agnico Eagle Mines (TSX/NYSE: AEM) executive vice president, finance and chief financial officer Jamie Porter says the company’s competitive advantage will allow it to continue to deliver superior returns.
Agnico shares are sitting at close to all-time highs and the company briefly overtook Newmont Corporation (NYSE: NEM) this year as the world’s largest gold miner by market capitalisation – though the two were neck and neck as of Tuesday’s close.
For 2024, the company produced a record 3.49 million ounces of gold at all-in sustaining costs of US$1239 an ounce, generating record free cashflow of US$2.14 billion.
Porter said the thing that differentiated Agnico was its regional focus.
“We are active in four countries, but 85% of both our value and production comes from Canada and three primary operating regions – the Abitibi in northern Quebec, northern Ontario and Nunavut.
“In those regions, we've developed a distinct competitive advantage. We're the employer of choice. We have employee turnover rates, in many cases, that are half of the industry average. We've been operating there for decades. We have long standing supplier relationships.
“We've got economies of scale for the largest mining company in Canada, so that helps in terms of keeping costs low, and all of that contributes, again, to that competitive cost advantage, which is the big factor behind how we've been successful in keeping costs low while the gold price has been increasing and therefore delivering significant margins.
“The strategy has worked. It's a focus, again, on geological regions with geologic potential, low political risk, where we see the ability to operate multiple mines over multiple decades.”
Porter said Agnico’s gold production had increased 14-fold over the past 20 years.
“More importantly, our production per share has increased by a factor of three,” he said.
“There's very few companies in the sector that can say that they've done that and that's what investors want when they buy gold equities. They want exposure to margin expansion when the gold price goes up, by virtue of a company controlling costs, but they also want exposure to more gold per share, and Agnico’s delivered on that.”
‘A little bit of everything’
The strong 2024 performance allowed the company to deleverage, reducing its net debt position from US$1.5 billion at the start of the year to US$200 million at December 31.
“In 2024, we did a little bit of everything – generated about US$2.1 billion in free cashflow, we returned US$920 million directly to shareholders through dividends and share buybacks, and we deleveraged the balance sheet by US$1.3 billion, but we're able to, again, really do it all,” Porter said.
“We've got an organic project pipeline of five projects that we're increasing our level of investment in to provide growth into the 2030s, so we're in a great position of being able to deliver strong returns to shareholders, reinvest in the business, reinvest in exploration, and really commit to growing the company longer term.”
The company’s two largest growth projects are expansions at Detour and Canadian Malartic to take each mine’s production to 1 million ounces per annum.
For 2025, Agnico has the largest exploration budget in its history at more than US$500 million.
“The company is really in the strongest position in its history,” Porter said.
What about Fosterville?
Porter admitted he often got asked about the Fosterville mine in Australia and its place in the portfolio.
“Over its history, Fosterville has gone from a very small, barely break-even operation to one of the most profitable gold mines in the world,” Porter said.
That profit surge was due to the discovery of the Swan Zone, with an eye-watering reserve grade of 58.8 grams per tonne gold, which boosted production to more than 500,000 ounces per annum,
“So there's tremendous potential there from an exploration perspective,” Porter said.
“We're spending about US$30 million a year trying to find the next Swan Zone. Our geologists believe that the potential for another super high-grade zone exists.
“While production has come down, grades have come off, we're now producing 150,000-170,000 ounces a year there.
“At these gold prices, we’re still generating about a million dollars a day of free cashflow and as our VP of Australia likes to put it, it's the single best gold exploration option in the world that happens to generate a million dollars a day of free cashflow.
“So it's certainly not costing us anything. It's a very profitable operation, and we've got a potential lottery ticket in the event that we hit something.”