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A Better Way to Make a Mint

Christopher Barker
November 21, 2008

Compared to the overheating printing presses of Ben "Just Say When" Bernanke and Hank "Make the Market Tank" Paulson, the precious-metal miners provide a very different definition of "making money."

While gold and silver miners fashion large sums of tangible money from earthbound ores, it takes a heap of greenbacks to get these projects running and keep them in shape. Surprisingly low metal prices are plaguing miners' near-term results, particularly as base metal byproducts plunge in value. Now, even the strongest miners, with unimaginable riches in the ground, are clearly strapped for capital.

Agnico-Eagle Mines (NYSE: AEM  ) this week resorted to a private placement of 8 million of its Toronto-listed shares, aiming to raise $252 million for mine development and capital expenditures. After reporting back in May that development projects were fully funded, this surprise announcement led me to examine the company's balance sheet, and those of its competitors, to gauge the impact of this financial tsunami.

In just six months, Agnico had added $300 million in long-term debt (as of Sept. 30). The cash position dwindled by 62% to $112 million over the same period. Based upon Agnico's sensitivity to zinc and other byproduct prices, I expect a lean fourth quarter, even as the company's Kittila mine in Finland moves into production.

As frustrating as the dilutive offering must be for Canadian shareholders, the problem appears manageable in scale compared to the $1 billion loan AngloGold Ashanti (NYSE: AU  ) announced this week, or Teck Cominco (NYSE: