AEM reported Q1/23 adjusted EPS of $0.58, well ahead of TD at $0.46 and consensus at $0.49. We estimate EBITDA at $755mm, ahead of TD and consensus at $703mm and $700mm, respectively. FCF was ~$224mm, before changes in working capital.
Impact: POSITIVE
AEM reported Q1/23 gold production of 813kozs (TD: 761kozs) and cash costs of $832/oz (TD: $841/oz) and AISC of $1,125/oz. We expect that AEM's Q1/23 results will be by far the strongest among the senior producers — we are forecasting that the other senior producers (GOLD, NEM, and KGC) will report cash operating costs either at or above $1,000/oz.
The first production blast from the Odyssey underground mine occurred in March 2023, with gold production totalling 2,799 ounces mostly from development ore. AEM reported that processing of production ore is expected to begin in Q2/23. Development continues to progress well, with greater-than-planned development performance.
At Fosterville, production continues to be affected by primary ventilation operating restrictions related to low-frequency noise constraints. Abatement works for the low-frequency noise were completed in Q1/23 and an eight-week trial of various fan speeds was conducted in conjunction with the State of Victoria EPA. AEM believes the results were promising, and it is now being considered by the EPA with respect to the current prohibition notice, which has reduced throughput at the mine by ~25%.
AEM expects to host the Supreme Administrative Court (SAC) of Finland for a site visit in Q2/23 as part of the review of the permit limitation. AEM expects a final decision from the SAC in the second half of 2023. AEM continues to rely on the current mining permit of 1.6 Mtpa while maintaining operational flexibility to reach the 2.0 Mtpa volume in the event of a positive decision by the SAC.
TD Investment Conclusion
We are maintaining our BUY recommendation and $69.00 target price. We like AEM's lower relative political risk profile, precious-metals focus, and organic project pipeline. Management expects to provide a road map to increase production in the Abitibi Belt by 500kozs by 2030 (from ~2.0Mozs/year currently) by year end.