Agnico Eagle Mines Ltd AEM

More RBC

[retiredcf]

Current and upside scenario targets are US$80.00 and US$98.00. GLTA

July 5, 2024

Agnico Eagle Mines Limited 
Detour Lake site tour takeaways

Outperform

NYSE: AEM; USD 68.05; TSX: AEM

On June 19–20, AEM hosted an update and site tour at its cornerstone Detour Lake mine (21% of NAV, 22% of EBITDA). The update refreshed open-pit mine economics for inflation and assessed growth via development of an underground mine. Further to our first impressions analysis, we update our estimates. Overall, higher upcoming capital spending has reduced near-term FCF while long-term growth for AEM has improved.

Key points:

• Detour’s project update reaffirms AEM’s long-term approach to capital allocation. In 2022, AEM acquired the Detour Lake mine as the cornerstone asset of its KL acquisition. At the time of acquisition, AEM had outlined an objective to increase Detour Lake mine output to ~1moz but did not provide the details to support this. Now, more than two years later, with additional drilling and technical efforts, the company has issued a preliminary economic assessment for a combined open- pit (OP) and underground (UG) mine that supports this target. With the underground project advancement and ramp-up in 2030, production is guided to total an average ~1moz from 2030 through 2043 (+0.3moz vs. the current standalone OP production from 2024 through 2029).

• Refreshed economics on the existing OP mine were issued, largely incorporating inflation. Broadly, the refreshed OP mine plan reaffirms the mine’s existing 5-year production outlook, updates costs for industry inflation, and incorporates higher throughput as of 2028. We calculate that life of mine (LOM) site costs including capital have increased by 5%, from $1,022/oz to $1,077/oz—although LOM cost projections on announcement were below RBCe, higher up-front capital has reduced our near-term projected FCF. Overall, revised economics reflect increased maintenance costs associated with higher throughput and updated costs associated with three years of inflation.

• Initial underground economic evaluation outlines a favourable return project. Alongside AEM’s refreshed OP economics, AEM has outlined an inaugural UG mine plan for Detour. Ultimately, AEM projects this opportunity to increase LOM production via the acceleration of processing higher-grade resources. The UG mine integration would see a 22% / 4moz increase in LOM gold production and a 1% / $10/oz reduction in LOM site costs (i.e., TCC + capex) vs. the standalone updated OP economics. Detour’s overall projected 1moz would firmly rank the asset as AEM’s largest producing portfolio asset. Economics as outlined by AEM state an IRR of 18% at $1,900/oz, supporting a decision by the company to advance $100m in spending over the next three years to advance further studies, complete additional exploration, and develop an underground portal to recover a bulk sample. We view the project favourably and as meriting this further evaluation.