Agnico Eagle Mines Ltd T.AEM

TD Notes

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Q3/22 Preview and Deck Change

Lowering Near-term Gold Estimates on Rising Rates and Strong US$

• The gold price was generally weaker in Q3/22 with significant volatility in the quarter, averaging $1,728/oz ($1,873/oz in Q2/22). Gold started the quarter with a significant decline, breaking support of $1,700/oz in mid-July, as investors seemed cautious, given rising rate expectations and a surging U.S. dollar. After a brief test of $1,800/oz, the downward trend continued, with gold ending the quarter at ~$1,627/oz. Gold ETF outflows during the quarter totaled 7%. The S&P/TSX gold index (U.S. dollar) decreased 8.6% in the quarter.

• We have lowered our precious metals price deck in the face of increasing real rates and a strengthening U.S. dollar, both of which have negative correlations with the gold price. We are now forecasting an average 2022 gold price of $1,795/oz (previously $1,819/oz) and a 2023 gold price of $1,750/ oz (previously $1,800/oz). In Q4/22, we expect still elevated inflation and equity- market turbulence to attract some safe-haven support for the price. In 2023, the likelihood that the Fed will have to maintain higher interest rates for longer is increasing, which would strengthen the U.S. dollar, increase real rates, and reduce the outlook for gold price, in our view.

• Company messaging appears to be that inflationary cost pressure has mostly peaked. But costs are expected to remain higher through 2023; it is not until 2024 that cost pressures are showing some signs of rolling over. But it is not just inflationary pressure that is adding to costs (both operating and capital costs). The need to move towards decarbonization (EVs and renewable energy) at the operating level and the requirement to comply with updated global standards for tailings dams are also adding cost pressure over the medium term.

• Production generally expected to be stronger in the second half of 2022. Several companies have indicated that H2/22 will likely see higher production than the first half, and we should see that improvement surface in Q3/22. Mine sequencing, maintenance, COVID-19-related impacts, and geopolitics have all played a role in negatively affecting H1/22 production. Barrick, Newmont, Alamos, Eldorado, and New Gold have guided towards stronger H2/22 production.

• We are maintaining our sector OVERWEIGHT recommendation. We have made no recommendation changes. With a 12-month view, we expect an improvement in precious metal prices as the current rate-tightening cycle ends and expectations for future interest rates decline. Our large-cap top-picks are Agnico Eagle and Franco-Nevada. Among the mid-caps and small-caps, we prefer B2Gold, SSR, and K92, and our top developer pick is Augusta Gold.