Investors and analysts punished Agnico Eagle Mines Ltd. after the big Canadian gold miner shocked the market with a host of unforeseen operational problems across multiple mines.
Last year, Toronto-based Agnico put two new mines into production in the Arctic, but the ramp-up isn’t going to plan, with the company dealing with various challenges such as unanticipated equipment shortages.
At La Ronde, the company’s flagship mine in Quebec, Agnico is grappling with ground stability issues three kilometres underground, and reinforcements are needed.
Also in Quebec, at its Canadian Malartic open pit mine, which it co-owns with Yamana Gold Inc., the company is processing lower grade ore than expected.
All of these complications forced Agnico to cut its 2020 production forecast by 4 per cent to 1.87 million ounces and increase its all-in sustaining cost projections by 16 per cent to roughly US$1,000 an ounce.
“We should have done better in anticipating some of these issues and reacting better,” chief executive officer Sean Boyd said in an interview, after the release of the company’s fourth-quarter financial results.
“I take it personally. I’m letting people down. So we’ve got to fix this and we will, because these [problems] aren’t showstoppers."
On Friday, Agnico shares fell by 15.6 per cent, to close at $66.06 apiece on the Toronto Stock Exchange, their worst single-day performance since October, 2011. During the session, the miner shed close to $3-billion in market value.
Analysts at both Canaccord Genuity Group Inc. and TD Securities Inc. downgraded their ratings on Agnico shares to hold from buy, and slashed their target prices.
The poor performance from Agnico is an anomaly for a company considered among the best managed in the industry. In a note to clients, Credit Suisse analyst Fahad Tariq called the quarter “a rare letdown.”
Agnico is Canada’s second-biggest gold miner by market value after Toronto-based Barrick Gold Corp. But unlike many of its senior competitors, which have been trading far below their historic highs, Agnico had recently come close to cresting its 2010 peak.
For much of the past decade, Agnico has traded at a premium compared to its peers, because of its track record of consistently hitting profit and production targets – which made the company virtually takeover-proof. Only once has Agnico, which was founded more than 60 years ago, been approached by a bidder, in the mid-1990s, after the death of its founder Paul Penna.
Mr. Boyd, who has been CEO for the past 22 years, says he isn’t worried that the violent sell-off now makes the company vulnerable to an opportunistic takeover, calling even the notion of it “silly."
Nor is Mr. Boyd concerned that the company’s long-standing stock premium will be permanently erased. “We’re very resilient. We may have a bad quarter every once in a while in terms of performance, but we tend to bounce back very quickly.”
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