Key Takeaways From Agnico Eagle Mines Ltd Earnings

Agnico Eagle updated investors last week, reporting increased production and higher than expected earnings.

May 14, 2014 at 1:36PM

Agnico Eagle Mines (NYSE:AEM) reported record quarterly gold production of 366,421 ounces last week, highlighting a very strong and eventful quarter for the company. Net income was $108.9 million, or $0.63 per share, handily beating the Street's expectation of $0.22 per share, according to data from Thompson Reuters. It also topped net income of $23.9 million, or $0.14 per share for the first quarter of 2013.

The surprise in net income is attributable to higher than expected gold production coupled with lower production expenses. Considering a 23% lower average realized gold price in the first quarter this year compared to last year, Agnico Eagle has definitely pulled off an impressive quarter.

Given the strong first quarter results, Agnico Eagle is now projecting that it will beat previous production estimates of 1,175,000 to 1,205,000 ounces this year and previous all-in sustaining cost estimates of $990 per ounce. President and CEO Sean Boyd stated, "Given the strong first quarter performance, we currently expect to exceed the top end of our production guidance and do better than the lower end of our cash cost forecast for 2014." 

Much of Agnico Eagle's record gold production is because of higher-than-anticipated production at the company's Meadowbrook Mine in Nunavut. The mine produced 156,444 ounces of gold in the first quarter compared to 81,818 ounces in the first quarter of 2013. Increased production was largely due to higher grades and recoveries.

Investors should note that Meadowbrook is projected to produce roughly 60% of its yearly production in the first half of the year. In the second half of the year, lower-grade ore will mined as the higher-grade deposits will be exhausted.

Growth ahead
On April 16, Agnico Eagle and Yamana Gold (NYSE:AUY) entered into an agreement to jointly purchase Osisko Mining Corp for $3.9 billion in cash and stock. Agnico Eagle and Yamana had been in a bidding war with Goldcorp (NYSE:GG), which was attempting a hostile takeover of Osisko. Agnico Eagle will pay $500 million in cash and Osisko shareholders will receive approximately 16.7% of Agnico Eagle's shares. Agnico Eagle plans to pay the $500 million from its $1.2 billion credit facility.

This acquisition will provide Agnico Eagle with a projected 300,000 ounces of gold production per year from the Canadian Malartic Mine. Boyd told investors, "We expect that the proposed Osisko Acquisition will improve the quality of our Northern Business operations through increased net free cash flow generation." 

In the first quarter, Agnico Eagle commenced production at its La India mine in Mexico, which will bring added production to the table. La India is expected to average 90,000 ounces of gold per year once it reaches full ramp up. The company is projecting total gold production of 1,323,000 ounces for 2014 and expects to hit 1,590,000 ounces by 2016.

Money matters
First quarter 2014 cash provided by operating activities was $247.7 million, as compared to $146.1 million in the first quarter of 2013. Cash and cash equivalents totaled $206.8 million by March 31, 2014, up from the Dec. 31, 2013 balance of $170 million. The increase in the cash balance was largely due to record quarterly gold production and lower costs.

The strong first quarter cash flows allowed Agnico Eagle to repay $80 million of its credit facility. At the end of the first quarter, Agnico Eagle had debt of $920 million. Between its cash on hand, expected cash flow generation, and its credit facility, Agnico Eagle believes that it is fully funded for the costs related to the Osisko acquisition and other development projects.

Foolish bottom line
After announcing record quarterly gold production, investors reacted strongly and sent Agnico Eagle's stock price up by nearly 10%. Agnico Eagle's first quarter appears very strong considering that it was able to increase production and cash flows at a time when many other gold miners are scaling back production in order to cut costs.

With the acquisition of Osisko's Canadian Malartic mine, production is expected to grow substantially over the next couple of years. Agnico Eagle appears poised to deliver solid results to shareholders if it can manage its debt and deliver on its production goals.

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