Agnico-Eagle Mines Ltd. is back in expansion mode after recovering from operational setbacks over the past year, its chief executive says – a development that may give investors new reasons to put cash into one of Canada’s oldest but most expensive listed miners.
After touching a 52-week low of $31.50 in February, the company’s stock has recovered to around $51. At that price it’s one of the more richly valued gold miners on the Toronto Stock Exchange, but the right acquisition has the potential to send it even higher at a time when gold prices are surging upward after months of stagnation.
Once a stock market darling, Agnico fell under a cloud in recent years as it pursued quick growth, doing six deals in seven years and growing from one mine in 2005 to five today. Some feared it was taking on too much too fast. The perception heightened amid massive write-downs in 2011, when the company was forced to shut its star Goldex mine in Quebec, and redesign the mine plan at Meadowbank, a large open-pit land package in the Canadian Arctic.
As it dealt with issues at Goldex and Meadowbank, the company backed off on acquisitions. It hasn’t announced any new deals for almost a year.
“We are now at the point where these assets have settled down after being newly built, so they have a couple of years of operations under their belts after commissioning,” chief executive officer Sean Boyd said in an interview, pointing at the potential to expand existing mines but insisting the company will pursue only disciplined growth.
“In addition to that, we continue to look at ‘buy small, think big’ opportunities out there,” he said.
After its string of disappointments, Agnico has now reset expectations and delivered more than it promised for two successive quarters.
The company’s shares are trading at a premium to peers, largely because, unlike many miners, it operates in politically safe jurisdictions, where the threat of expropriation or suddenly increased taxes is minimal.
Out of 23 analysts who cover the Toronto-based company, 12 have “hold” recommendations on the stock, while two have it as a “sell” and nine rate it a “buy”, according to Bloomberg.
Its relatively high valuation puts Agnico in a privileged position to do deals if it so desires by issuing shares.
“I suspect that now they are in a position where they could use that valuation to reload the development pipeline, very selectively, not with multiple assets but with something that’s meaty,” said Barry Allan, an analyst with Mackie Research Capital in Toronto.
Agnico-Eagle thinks the best deals are in properties that are not yet in the development stage. In 2006 it acquired the Pinos Altos, or Tall Pines, deposit from Mexico’s Industrias Penoles, paying $80-million for an asset, which, after $400-million in construction costs, produces 240,000 ounces of gold per year or $300-million in annual operating profit.
It bought the properties of Mexico-focused Grayd Resource Corp. in November, and announced plans earlier this month to build a 90,000 ounces-per-year gold mine there by the second half of 2014. Around the same time it will bring two new satellite deposits into production at Goldex, adding 80,000 ounces to the portfolio for four years at half the rate and double the cost of the original mine.
Agnico’s strategy to buy small, think big has stood it in good stead, allowing it to grow without risking too much on any one deal. Its diversified portfolio of properties helped it mitigate the Goldex shutdown, a nightmare scenario for any miner but even worse for those operating single mines.
However, the emphasis on buying early-stage properties backfired somewhat at Meadowbank, where Agnico failed to find any substantial additional amounts of gold.
“So we bought small, but it never became big,” said Mr. Boyd, a 27-year company veteran.
All told, Agnico will grow production 23 per cent by 2014 to about 1.2 million ounces, compared to forecasts of 975,000 ounces this year.
“I don’t believe that Agnico is going to stand still,” said Mr. Allan, the analyst with Mackie Research.