Agnico Eagle Mines Ltd T.AEM

RBC

[retiredcf]

Seem to have the lowest target on the Street but there's potential here for them to raise it following these results. GLTA

July 26, 2023

Agnico Eagle Mines Limited
2Q23 results; first impressions slightly positive

NYSE: AEM | USD 52.21 | Outperform | Price Target USD 55.00

Sentiment: Positive

Our view: Slightly positive. AEM reported operating results that were mildly ahead of RBCe and consensus expectations, supported by slightly higher production (+1-2%) and slightly lower costs (-1%). Financial results were throttled due to lower sales than production (859koz vs. 873koz), but still largely in line or ahead of our estimates. Management reiterated existing 2023 guidance targets, which we view as conservative—in our view, AEM is tracking to the top end of production guidance and low end of cost guidance. Key upcoming deliverables include a Kittila permitting update with incremental +1% 2023 production upside (3Q23 update guided), as well as more material growth potential from a Detour UG evaluation and an Abitibi asset evaluation (both guided for 1H24). 2Q results are mildly positive vs. RBCe/cons; however we note AEM's favourable execution materially contrasts weaker recent performance reported by senior producer peers, while its relative share price performance has not varied.

Conference call: Thursday, July 27, 11:00 am ET,

Details:

• 2Q production was 873koz (+1% RBCe, +2% cons) at AISC of $1,150/oz (-1% RBCe, -1% cons). AEM noted Canadian wildfires  and caribou migration patterns were challenges across some operations. Relative to RBCe, production upside was driven by Malartic and LaRonde, partially offset by lower output at Kittila and Meadowbank. Record throughput was reported at Detour Lake of 74.7ktpd (27mtpa annualized, slightly below 28mtpa expanded targets guided in 2025). Costs were reportedly aided by favourable FX rates as well as an easing of inflationary pressures. At Fosterville, the company reported a resolution of noise issues, and normal throughput rates have resumed as of June.

• Financial results were slightly better, but impacted by lower sales. Adj. EPS was $0.65 (RBCe $0.60, cons $0.55), supported by lower taxes—despite better operating results, sales lagged (859koz sold vs. 873koz produced). We calculate FCF of $298m (RBCe $312m, cons $279m), where working capital inflows and lower cash taxes offset lighter sales. 2Q cash declined to $433m (1Q: $745m), and net debt was $1.5b (1Q: $1.6b), reflecting debt repayments. AEM repurchased no shares under its NCIB in 2Q.

• AEM reiterated 2023 production guidance of 3.24-3.44moz (RBCe 3.44moz, cons 3.38moz). TCC (by-product) guidance is $840– 890/oz (RBCe $842/oz, cons $841/oz) and AISC (by-product) guidance is $1,140–1,190/oz (RBCe $1,144/oz, cons $1,147/oz), with capex of ~$1.5b (RBCe $1.61b, cons $1.58b). At Kittila, guidance assumes 1.6mt in 2023, while a decision by the Supreme Court is guided in 3Q, and if positive could increase output by 30koz in 2023. AEM increased its depreciation guidance, reflecting the Malartic consolidation, and it approved $32m in additional exploration.

• At Odyssey, initial production was achieved, in line with prior disclosures. Modest production of 7koz was reported. Commissioning of the paste plant is now guided for 3Q23 (vs. June prior), which will enable steady-state throughput of 3,500tpd in 2024 (unch.). AEM noted positive reconciliation, previously reviewed by management at its June site tour.

• Material milestones upcoming in 1H24 at Detour and in the Abitibi. At Detour AEM is advancing an underground resource and a mining scenario study in 1H24, while a new ore sorting pilot test for ~1.5mt of low-grade material is now being evaluated. The company also reiterated an asset evaluation and optimization update for its Abitibi portfolio in 1H24, focused on Macassa near surface upside, AK deposits, Upper Beaver, and Wasamac. Upside from near surface Macassa ore and AK at LaRonde could add 20-40koz beginning in 2024. Upside at Upper Beaver and Wasamac was reviewed as generating 150-200koz each in 2030 and 2029, respectively. At San Nicolas, AEM guided submission of its EIA in 3Q23 (prev. 2023) and is targeting a FS in 1H24 (prev. 2024).