On June 19th, Agnico released an updated technical study and hosted a technical session for Detour Lake. The next day, we participated in an analyst/investor tour of the mine site. The tour was positively received, and the mine shows well in our view.
Under the 2024 PEA, annual production is expected to increase by ~43% or 300,000 ounces of gold per year, from 2030 to 2043 to approximately one million ounces per year when compared to average annual production in years 2024 to 2029 (Figure 1). The LOM, including the underground project, would be extended by two years to 2054.
Detour underground offers solid risk adjusted NAV — Based on a $2,000/oz gold price, the Underground Project is expected to have an incremental NPV-5% of ~$1 billion and an IRR of 20%, or $1.42 billion and 24.6% at $2,300/ oz. These are very strong returns given the very low risk nature of the project, in our view. The Detour underground would require minimal additional surface infrastructure, use a similar mining method used at Odyssey and Goldex, and be built by a team of experienced mine builders in what we view to be a low-risk jurisdiction. Agnico has also approved an investment of $100mm over the next three years to further study and de-risk the project. The bulk of the de- risking investment will be used to complete a 2km exploration ramp, collect a bulk sample, and continue infill and expansion drilling.
Mill throughput on track — The company continues to advance initiatives the increase the mill throughput to 29mpta by 2028 (Figure 2). Agnico is targeting 27.5mpta in 2024, and forecasts the remaining throughput increase to be gradual over the next four years. The main initiatives to further optimize the mill include implementing advanced control systems, improving the crushing and grinding circuits and optimizing maintenance practices.
Accretive to our Detour NAV by ~5% — We have updated our model to reflect the 2024 PEA, which includes updated capital and operating costs for the open pit, and the underground mine plan. Our near-term estimates have declined slightly on higher operating costs, while our NAV for Detour increased ~5% to $7.2bln (from $6.9bln).
We rate Agnico (AEM) a BUY with a target price of $78.00. We view AEM as a well-managed, lower cost senior gold producer with a strong pipeline of mostly brownfield development opportunities focused in Canada. In our view, AEM has a lower political risk profile compared to its peers with ~90% of annual production coming from Canada and Australia.