Agnico-Eagle Mines Limited — 2011 Fourth Quarter and Fiscal-Year Summary
Reporting period: Form 20-F annual report for the year ended December 31, 2011, including fourth-quarter data for the three months ended December 31, 2011. Financial statements are presented in U.S. dollars under U.S. GAAP. Agnico-Eagle is a Canadian-based international gold producer with mines in Canada, Finland and Mexico.
Key Financial Metrics
| Metric | Q4 2011 | Q4 2010 | FY 2011 | FY 2010 |
|---|---|---|---|---|
| Mining revenue | $455.5 million | $439.0 million | $1,821.8 million | $1,422.5 million |
| Production costs | $227.6 million | $196.0 million | $876.1 million | $677.5 million |
| Operating margin | $227.9 million | $243.0 million | $945.7 million | $745.0 million |
| Operating margin percentage | 50.0% | 55.4% | 51.9% | 52.4% |
| Net income attributable to common shareholders | $(601.4) million | $88.0 million | $(568.9) million | $332.1 million |
| Basic net income per share | $(3.53) | $0.53 | $(3.36) | $2.05 |
| Operating cash flow | $132.0 million | $90.6 million | $663.5 million | $483.5 million |
| Gold production | 227,792 ounces | 256,471 ounces | 985,460 ounces | 987,609 ounces |
| Realized gold price | $1,640/oz | $1,387/oz | $1,573/oz | $1,250/oz |
FY 2011 revenue increased 28%, primarily because of higher realized gold and silver prices. Gold represented approximately 86% of mining revenue and gold and silver together represented 95%. Total cash costs, a non-U.S. GAAP measure, increased to $580 per ounce from $451 per ounce in 2010.
Liquidity, Capital Resources and Debt
- Cash, cash equivalents, short-term investments and restricted cash totaled $221.5 million at December 31, 2011, including $179.4 million of cash and cash equivalents.
- Operating cash flow was $663.5 million; investing cash flow was $(760.5) million, including $482.8 million of capital expenditures and $163.0 million for the Grayd acquisition; financing cash flow was $182.5 million.
- Long-term debt was $920.1 million, consisting principally of $600 million of senior unsecured notes and $320 million drawn under the revolving credit facility.
- The $1.2 billion unsecured revolving credit facility matured in 2016. Approximately $849.4 million remained available at year-end after borrowings and letters of credit. Required financial covenants were met.
- 2011 capital expenditures were $482.8 million. Management budgeted approximately $382.3 million for 2012 and expected to fund capital needs through operating cash flow, cash balances and credit-facility drawdowns.
Material Changes Versus the Prior Comparable Period
- Revenue increased substantially because the realized gold price rose 26% to $1,573 per ounce and silver pricing also improved, while gold production was broadly flat.
- Net income deteriorated to a loss because of a $907.7 million pre-tax impairment charge on Meadowbank and a $302.9 million pre-tax loss on Goldex. These items drove the Q4 net loss of $601.4 million.
- Goldex mining operations were suspended on October 19, 2011 after suspected rock subsidence and ground-stability issues. The company wrote off substantially all of its investment, recorded closure and remediation provisions, and reclassified remaining reserves to resources.
- Meadowbank’s revised mine plan reflected lower grades, persistently high operating costs and a shorter mine life extending to 2017 rather than 2020. Proven and probable reserves fell to 2.2 million ounces from 3.5 million ounces.
- Gold production at Pinos Altos increased with the Creston Mascota deposit reaching commercial production in the first quarter of 2011. The LaRonde mine extension also achieved commercial production in late 2011.
- Company-wide proven and probable gold reserves declined to 18.75 million ounces from 21.3 million ounces, primarily because of the Goldex reclassification, Meadowbank’s revised mine plan and 2011 production.
Guidance, Outlook, Risks and Unusual Items
- For 2012, management forecast gold production of 875,000 to 950,000 ounces at total cash costs of $690 to $750 per ounce, compared with 985,460 ounces and $580 per ounce in 2011.
- 2012 guidance reflected the Goldex suspension, a greater contribution from higher-cost Meadowbank, underground transitions at Pinos Altos and Kittila, stronger Canadian-dollar costs, and higher labor, shipping and transportation costs.
- Expected 2012 cash costs were approximately $570 per ounce at LaRonde, $650 at Kittila, $750 at Lapa, $415 at Pinos Altos and $1,040 at Meadowbank.
- Management targeted approximately 20 million ounces of gold reserves in 2012, subject to exploration success and resource conversion. Meliadine feasibility work was expected to continue, with potential first production no earlier than 2017; La India first production, if approved, was not expected before 2015.
- Principal risks include gold and byproduct-metal price volatility, foreign-exchange exposure, high operating costs, mine-safety and geotechnical incidents, permitting and environmental requirements, remote-site logistics, reserve-estimation uncertainty, and debt-covenant compliance.
- The company was named in proposed U.S. securities class actions concerning disclosures during the March 26, 2010 to October 19, 2011 period. A further proposed class action filed in March 2012 sought $250 million in damages and alleged inadequate disclosure of Goldex water-inflow risks. The filing states that the outcomes could not be predicted.
- Management and Ernst & Young reported effective disclosure controls and internal control over financial reporting as of December 31, 2011, with an unqualified audit opinion.
Investor Verification Priorities
- Verify the assumptions and sensitivity of the $907.7 million Meadowbank impairment, including gold prices, grades, operating costs, recovery rates and the 2017 mine-life assumption.
- Assess the likelihood, timing and economics of any restart or redevelopment of Goldex, including the $51.4 million estimated closure costs and remaining mineral resources.
- Reconcile 2012 production and cash-cost guidance with actual performance, especially at Meadowbank, LaRonde, Kittila and Pinos Altos.
- Review liquidity after planned capital spending, dividends and potential further credit-facility borrowings, including compliance with debt covenants.
- Evaluate the status and potential exposure of the securities litigation and Goldex-related proposed class action.
- Distinguish mineral reserves from measured, indicated and inferred resources; the filing cautions that SEC reporting rules do not recognize the latter resource categories as reserves.