AEM reported Q2/24 adjusted EPS of $1.07, ahead of TD at $0.92 and consensus at $0.91. Adjusted EBITDA was ~$1,176mm, slightly above TD at $1,153mm, and above consensus at $1,115mm. FCF was ~$582mm, before w/c changes (TD: $469mm). The EPS beat vs. our forecast was driven by higher production and lower costs.
Management continues to focus on risk-adjusted return capital discipline. Given two projects with similar financial metrics, management would favour an internal project, as the company would have far less uncertainty evaluating the internal project. That being said, Agnico will evaluate all opportunities where it can use its expertise and regional networks to achieve attractive risk-adjusted returns. For example, Agnico recently made a 9.9% equity investment (C$93mm) in Foran Mining, which is advancing the McIlvenna Bay copper/zinc VMS project in Saskatchewan.
Early trade-off studies at Upper Beaver suggest that a standalone mill will result in better economics than trucking ore to an existing mill. The deposit is steeply dipping
and will be accessed primarily by shaft. A shaft sets the threshold level of time and capital investment, which makes an onsite mill more attractive. The PEA contemplates
a 13-year mine life beginning in 2030 and average production of 210koz gold and 3.6kt copper (LOM: 2.8mmoz gold and 46.3kt copper). The plan estimates $0.9bln of initial capex, which includes a 5,000 tpd conventional mill, a ramp and shaft, and a dry stack tailings storage facility. At $1,900/oz, the project has an NPV of $625mm and IRR of 14% ($1.01bln and 18% at $2,300/oz).
AEM is moving quickly to derisk its project pipeline. The company approved an additional $50mm of exploration between Malartic, Detour, and Hope Bay in H2/24, and $100mm to advance Upper Beaver over the next three years. $50mm will be spent at Upper Beaver in 2024 to construct surface facilities, start site prep, and excavate the shaft collar.
Maintaining our BUY recommendation. Our target price has increased slightly to $91.00 (from $90.00). Our H2/24 EPS estimates have declined slightly, reflecting increased exploration spending.