Business Context and Reporting Period
Company: Agnico-Eagle Mines Limited
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2009 (and Year-to-Date)
Business Overview: Agnico-Eagle is a Canadian gold producer with operations in Canada, Finland, and Mexico. The quarter marked significant milestones, including record gold production and the achievement of commercial production at the Lapa and Kittila mines.
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Net Income | $1.2 million ($0.01/share) | $8.3 million ($0.06/share) | $55.6 million ($0.36/share) | $37.3 million ($0.26/share) |
| Operating Cash Flow | $26.4 million | $92.8 million | $75.2 million | $146.6 million |
| Gold Production (Ounces) | 119,053 | 67,757 | 210,864 | 118,649 |
| Total Cash Costs per Ounce | $326 | $113 | $320 | ($123) |
| Realized Gold Price | $962/oz | $804/oz | $965/oz | $940/oz |
| Cash & Equivalents | $173.9 million | $149.9 million | $173.9 million | $149.9 million |
| Long-Term Debt | $485 million | $200 million | $485 million | $200 million |
Note: Q2 2009 Net Income includes a non-cash foreign currency translation loss of $16.7 million and stock option expense of $5.0 million. Excluding these items, net income increased significantly compared to Q2 2008.
Material Changes vs. Prior Period
- Production Surge: Gold production increased 76% in Q2 2009 compared to Q2 2008, driven by the ramp-up of Goldex, Lapa, and Kittila mines which were not in commercial production in the prior year.
- Cash Flow Decline: Operating cash flow dropped significantly ($26.4M vs $92.8M) primarily due to working capital changes related to a build-up of gold inventory, despite higher revenues.
- Cost Increases: Total cash costs per ounce rose to $326 from $113. This increase is attributed to lower byproduct metal prices (silver, zinc, copper) and start-up costs at new mines (Lapa and Kittila).
- Debt Expansion: Long-term debt increased to $485 million from $415 million (Q1 2009) as the company replaced a $300 million credit line with a new $600 million revolving facility.
Guidance, Outlook, and Management Commentary
- Production Guidance: Full-year 2009 gold production guidance remains unchanged at 550,000 to 575,000 ounces.
- Capital Expenditures: Full-year 2009 CapEx is expected to be approximately $550 million, an increase of $10 million from previous guidance due to new expansion expenditures at Goldex.
- Project Milestones:
- Lapa & Kittila: Achieved commercial production on May 1, 2009.
- Pinos Altos: First gold poured from heap leach in July 2009; milling expected to start Q3 2009.
- Meadowbank: On schedule for Q1 2010 start-up.
- Approvals: Board approved expansions at Goldex (expected IRR 76%) and Pinos Altos/Creston Mascota (expected IRR 17%).
- Risks & Contingencies: Management highlights risks related to metal price volatility, currency fluctuations, permitting delays, and the uncertainty of converting mineral resources to reserves. The filing includes standard forward-looking statement disclaimers regarding these uncertainties.
Investor Verification Checklist
- Inventory Build-up: Verify the impact of the gold inventory build-up on working capital and future cash flow realization.
- Start-up Costs: Monitor the trajectory of total cash costs at Lapa and Kittila as they ramp up to design capacity; current costs ($948 and $658/oz respectively) are significantly higher than long-term expectations.
- Byproduct Prices: Assess the sensitivity of margins to the continued low prices of silver, zinc, and copper, which negatively impacted cost performance at LaRonde.
- Debt Covenants: Review the terms of the new $600 million revolving credit facility and the $95 million bonding facility with Export Development Canada.
- Reserve Conversions: Track the progress of converting "inferred" and "indicated" resources to "proven and probable" reserves, particularly for the Goldex "M" zone and Kittila expansion studies.
