Our view: RBC recently hosted investor meetings with Agnico Eagle’s Jamie Porter (CFO) and Dominique Girard (COO Quebec, Nunavut, Europe). In this note, we review key questions asked by investors and summarize management’s responses.
Key points:
• What are capital allocation priorities today for AEM? Budgeting for 2024 was completed at gold prices of $1,800/oz, representing cash flow breakeven after project development and funding of the dividend. Management estimates that each additional $100/oz gold price increase would yield ~$250m in additional after-tax cash flow annually, resulting in windfall FCF today. Capital allocation priorities today are focused on debt repayment (~$800m due by YE25). Thereafter, excess cash will be built up to fund future project development or accelerate high-priority exploration opportunities. Development of Detour underground, Upper Beaver, and Hope Bay represent potential priority opportunities for the company to advance. Assuming the advancement of these projects, corporate capital spending could increase from $1.7b/a to a manageable $2.0b/a in future years. Opportunistic incremental share repurchases may occur ($20m in 1Q), while increasing the dividend is viewed as being a lower priority (~50% of FCF in 1Q).
• What are upcoming milestones for AEM’s project portfolio? The company expects to provide an initial outlook at Detour underground in late 2Q and at Upper Beaver mid-year, evaluating development standalone or via trucking feed to LaRonde. At Hope Bay, recent exploration results have improved the prospects for development, and initial economics could be provided in 2H25+; management continues to target ~300–400koz in annual output. Support for the project is high, and development economics could benefit from federal grants. Following recent Odyssey exploration results, there is growing confidence in the potential development of a second shaft, and quarterly exploration results are a focus. San Nicolas permitting is guided for ~1H25, followed by a capital/operating cost update for a development decision. At Wasamac, the company recently deferred a planned update, and it is evaluating a smaller development project and ore trucking to Malartic. Given the breadth of opportunities that AEM maintains, management views M&A as a lower priority.
• What is the outlook for Detour’s output expansion? In June, AEM will be issuing a mine plan update at the Detour Lake mine (22% of NAV), where the company is targeting to increase mine production to 1moz from its current 700koz. Production from the underground is viewed as potentially increasing production to ~850–900koz, with the balance of the 1moz target being satisfied by expanded plant throughput.
What is the outlook for Detour’s output expansion? (cont’d) Management expects to take a measured approach to the underground project, which could include advancing a development ramp for drill access and establishing continuity prior to a formal investment decision. Management expects Detour’s study to represent an initial interpretation, with further upside to be realized over time, mirroring the evolution of Odyssey, which has grown considerably in both resources and value.
• What is the outlook at Malartic? In upcoming years, Malartic (21% of NAV) will transition from a fully open-pit mine at 60ktpd throughput to fully underground mine that utilizes one-third of mill capacity at 3x the grade to generate stable output. A key opportunity for upside remains filling the mill’s spare capacity. Over the last six years, AEM has defined 16moz in resources at Malartic underground, and a more recent shift to step-out exploration could contribute to further growth. Recent drilling 1km east of East Gouldie reserves has outlined the potential for material resource upside, raising prospects for a second shaft to eventually be advanced. AEM views filling half of the mill (i.e., ~30–35ktpd) as a potential pathway for Malartic to deliver 1moz/a. Potential development of a second shaft would be a large contributor to this target, with costs of development projected to be less than that of the original shaft costs of ~$400– 500m. Separately, AEM recently started drilling in the Malartic Goldfields area, where historical mining of 2moz at 6 g/t occurred within 800m from surface. No exploration has thus far been completed at depth, and upside is viewed as being prospective.
• What is the outlook for production costs today? Annual cost inflation is trending toward a manageable ~3–4%, down from 6% in 2024. Half of AEM’s costs are contributed by labour and contractors; a 4% salary increase was negotiated in 2024, and CPI trends would be indicative of lower increases going forward. A shortage of skilled labour remains a headwind, while AEM views itself as better positioned in the industry given its culture and regional focus, which has yielded half the turnover levels of its peers. More recently, AEM is seeing significantly better drilling contractor availability and exploration costs down 10–15%. However, mining equipment and replacement part costs remain elevated, and price increases are still occurring. In 1Q, AEM benefited from lower sustaining capital spending; the company expects costs be within its annual ranges in 2024, and spending to pick up in upcoming quarters. Despite higher gold prices, management emphasized that it would remain disciplined and focused on continuous improvement.