Business context and reporting period
Agnico-Eagle Mines Limited is a Canadian-based gold producer with five operating mines in Canada, Finland and Mexico, plus development projects at Goldex, La India and Meliadine. The Form 20-F reports audited results for the fiscal year ended December 31, 2012, prepared under U.S. GAAP in U.S. dollars. The filing also provides fourth-quarter 2012 data.
Gold represented the dominant revenue source. The company produced 1,043,811 ounces of gold in 2012, compared with 985,460 ounces in 2011.
Financial and operating metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Mining revenue | $1.918 billion | $1.822 billion | +5% |
| Production costs | $897.7 million | $876.1 million | +2% |
| Operating margin | $1.020 billion | $945.7 million | +8% |
| Operating margin percentage | 53.2% | 51.9% | Improved |
| Income before taxes | $435.1 million | $(778.6) million | Returned to profit |
| Net income | $310.9 million | $(569.0) million | Returned to profit |
| Diluted EPS | $1.81 | $(3.36) | Improved |
| Cash from operating activities | $696.0 million | $667.2 million | +4% |
| Capital expenditures | $445.6 million | $482.8 million | $(37.2) million |
| Long-term debt | $830.0 million | $920.1 million | Reduced |
Gold revenue increased 10% to $1.713 billion, supported by a 6% increase in production and a 6% increase in the average realized gold price to $1,667 per ounce. Silver revenue declined 18% and zinc revenue declined 35%, primarily because of lower production and realized prices.
Total cash costs, a non-U.S. GAAP measure, increased to $640 per gold ounce from $580. The increase reflected the loss of Goldex production, reduced byproduct credits at LaRonde and a greater contribution from the higher-cost Meadowbank mine. Cash costs were $569 at LaRonde, $697 at Lapa, $565 at Kittila, $286 at Pinos Altos and $913 at Meadowbank.
At December 31, 2012, cash and cash equivalents, short-term investments and restricted cash totaled $332.0 million. Cash and cash equivalents were $298.1 million. Working capital was approximately $626.6 million, based on current assets of $903.3 million and current liabilities of $276.7 million. The $1.2 billion revolving credit facility had $1,168.9 million available after $30.0 million drawn and outstanding letters of credit.
Debt consisted primarily of $830.0 million of senior unsecured notes. The company issued $200.0 million of notes in 2012 at a weighted average yield of 4.95% and used the proceeds to repay revolving-credit borrowings. All debt covenants were reported as satisfied at year-end.
Fourth-quarter 2012 revenue was $449.4 million, operating margin was $207.0 million and net income was $82.8 million, or $0.48 diluted EPS. Fourth-quarter operating cash flow was $106.0 million.
Material changes versus the prior comparable period
- 2012 reversed the substantial losses reported in 2011, when the company recorded a $907.7 million Meadowbank impairment charge and a $302.9 million Goldex loss.
- Gold production increased 6%, mainly because of higher grades and throughput at Meadowbank and improved production at LaRonde and Kittila. Goldex produced no gold in 2012 following its October 2011 suspension.
- Operating cash flow increased modestly despite higher production costs and a $33.8 million increase in exploration and corporate development expense.
- Exploration and corporate development expense rose to $109.5 million from $75.7 million, including increased activity at Goldex and La India.
- Capital expenditures declined to $445.6 million from $482.8 million, while development spending continued at Meliadine, La India and Goldex.
- Proven and probable gold reserves were essentially stable at 18.68 million ounces versus 18.75 million ounces at December 31, 2011, with additions at Goldex, La India and Meliadine largely offsetting depletion and revisions elsewhere.
- Active leaching at the Creston Mascota Phase 1 leach pad was suspended in the fourth quarter after ore movement indicated possible liner damage. The company expected Phase 2 leaching to resume in the second quarter of 2013.
Guidance, outlook, commentary and risks
For 2013, management forecast gold production of 970,000 to 1,010,000 ounces, total cash costs of $700 to $750 per ounce and all-in sustaining costs of approximately $1,075 per ounce. Budgeted capital expenditures were $596 million, including $357 million of development capital, $201 million of sustaining capital and $38 million of capitalized drilling. Management expected approximately $729 million of operating cash flow and stated that available liquidity was sufficient to fund planned expenditures.
Goldex and La India were expected to reach commercial production in the second quarter of 2014. Management targeted approximately 1.207 million ounces of annual payable gold production in 2015, assuming continued execution of the growth program and successful project development. Kittila expansion was expected to increase throughput by 750 tonnes per day beginning in the second half of 2015.
Key operating risks include gold and byproduct-metal price volatility, foreign-exchange exposure, cost inflation, mine sequencing, geotechnical conditions at deep LaRonde operations, remote-site logistics at Meadowbank and Meliadine, permitting and construction risk, reserve and resource uncertainty, environmental obligations and potential production interruptions. A 10% change in gold prices was estimated to affect 2013 after-tax income by approximately $0.69 per share; a 10% change in the Canadian dollar/U.S. dollar exchange rate was estimated to affect net income by approximately $0.37 per share.
Contingencies include $349.0 million of estimated undiscounted reclamation obligations, $147.3 million of letters of credit, $63.6 million of purchase commitments and securities class-action litigation relating to Goldex disclosure. The U.S. complaint had been dismissed but was under appeal; Ontario and Quebec proceedings remained pending. Management reported no material related-party transactions and effective disclosure and internal controls, with unqualified external audit opinions.
Most important facts for investors to verify
- Reconcile the reported 2012 earnings recovery with the nonrecurring 2011 Meadowbank impairment and Goldex loss.
- Assess whether 2013 production and cash-cost guidance remains achievable, particularly at Meadowbank, LaRonde, Kittila and Pinos Altos.
- Monitor Creston Mascota Phase 2 restart timing and the financial impact of the Phase 1 leach-pad issue.
- Validate the schedule, capital requirements and permitting status for Goldex, La India and Meliadine.
- Review debt maturities, covenant headroom, letters of credit and the company’s ability to fund the $596 million 2013 capital program.
- Evaluate sensitivity to gold prices, byproduct prices, Canadian-dollar, euro and Mexican-peso movements, and labor, energy and transportation costs.
- Review reserve assumptions, including the metal prices used, and distinguish SEC-recognized reserves from Canadian measured, indicated and inferred resources.
- Track the Goldex-related securities litigation, reclamation obligations and other environmental contingencies.