Agnico Eagle Reports ‘Exceptional’ First Quarter Results

Shares rise 5 percent after CEO announces ‘great’ first quarter

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As investors figure out whether they’re more concerned about inflation or interest rates, it’s been a wild ride for miners, like Toronto-based Agnico Eagle Mines Ltd., which reported first-quarter results Thursday afternoon.

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The company, Canada’s largest gold producer, reiterated that production should increase to at least 3.2 million ounces by 2022 — a 60 percent increase from the record 2 million ounces in 2021 — despite continued effects of COVID-19. 19 that caused workforce disruptions at the start of the year.

It also announced adjusted first-quarter earnings per share of 61 cents, surpassing consensus estimates of 39 cents, which Fahad Tariq, an analyst at Credit Suisse, attributed to “fundamentally … higher revenues and lower write-downs.”

Agnico’s new CEO Ammar Al-Joundi, who took over in February after the unexpected departure of CEO Tony Makuch, who had only been employed for just two weeks, called the results “amazing”.

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“We think the first quarter is our weakest quarter and the first quarter was a good quarter,” Al-Joundi told Financial Post Friday morning. “So we’re seeing continued strength through the rest of the year.”

Challenges in the first quarter came from labor disruptions from the Omicron variant of COVID-19, higher-than-expected inflation and costs of integrating Kirkland Lake Gold’s operations and workforce following its $13.5 billion acquisition in February.

Al-Joundi added that Agnico’s costs came in lower than expected, which he called “exceptional” given inflationary pressures, with the company reporting all-in support costs of $1,079.

Q1 is our weakest quarter in our opinion and Q1 was a good quarter

Ammar Al-Jound

While the gold price remains high at US$1,907 an ounce, investors are swinging between jazzed and non-plussed. Agnico’s stock price has fallen 14.8 percent since April 18 from $83.97 to $71.52 a share on April 28, but bounced 5.76 percent higher on Friday to $75.64.

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It mimics a broader trend spreading across the gold industry. Gold hit an all-time high in August 2020, briefly pausing above US$2,000 an ounce before settling in a range between US$1,700 and US$1,900 an ounce. But investors’ luster for gold mining companies quickly waned, and for much of 2021 stock prices traded at levels comparable to where they were when gold prices and their profits were much lower.

That all seemed to change in late January when Russian troops gathered on Ukraine’s borders and eventually invaded the country. Amid subsequent Western sanctions against Russia and the trade disruptions it caused, the price of gold rocketed above US$2,000 an ounce in March.

Despite the fluctuations, gold remains well above the US$1,150 to US$1,300 an ounce range that dominated from about 2014 to 2019.

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Gold bars at a vault in Germany.
Gold bars at a vault in Germany. Photo by Andreas Gebert/Bloomberg

Nevertheless, the price of the VanEck Gold Miners ETF, a basket of the world’s greatest prospectors, has been up and down. After peaking at $42.94 a share at the end of July 2020, it fell to $29.30 — a 30 percent drop, about where it was for most of 2019, when gold prices were hundreds of dollars lower.

But when Russia invaded Ukraine earlier this year, the index rose again to US$40.86 in early April, only to slide in recent weeks. It is down 16.7 percent to $35.41 on April 29.

Similarly, Agnico’s stock price has fluctuated, reaching a high of $109.74 in November 2020, before dropping all the way to $59.04 on January 22. It had risen again in recent weeks, but this month it has fallen by 15 percent.

The fluctuating gold price is largely related to a stronger US dollar and the potential for “aggressive rate hikes” by the US central bank, said Credit Suisse’s Tariq analyst Tariq.

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“As we’ve written before, weekly gold price swings seem to depend on what macro factors investors are focusing on that week – interest rates or inflation,” he wrote.

Gold typically benefits as a safe haven in times of inflation, but that can be offset if the US dollar appreciates with rising interest rates.

Agnico said it managed to keep inflation low by hedging its purchases of currency and diesel, the fuel that powers much of its business.

Weekly gold price swings seem to depend on which macro factors investors are focusing on that week: interest rates or inflation

Fahad Tariq

“These hedges have partially mitigated the effect of inflationary pressures thus far and are expected to provide some measure of inflation protection for marine diesel costs in 2022,” the company said in a press release.

Al-Joundi said the company expected inflation to be around three to five percent by the end of 2021, but was closer to five to seven percent in the first few months of 2022. seven to ten percent.

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“One of the great advantages we have is that 40 percent of our costs are labor costs,” he added, “and labor has not seen the same inflation as consumer goods.”

Agnico’s merger with Kirkland Lake Gold helped push its expectations for gold production in 2022 to record highs, but because the deal wasn’t closed until February, the quarterly results don’t reflect a fully merged company.

Kirkland’s chief executive Makuch was originally slated to become CEO of the merged company, but soon left without explanation. Still, Al-Joundi, Agnico’s longtime Chief Financial Officer and heir to the CEO spot before the merger, told shareholders “the integration has gone extremely well.”

Following Makuch’s departure, the company increased its estimates for pre-tax savings from general and administrative business synergies from $145 million in the first five years to $200 million and from $320 million in the next decade. up to $400 million.

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Meanwhile, estimates for operational synergies from the merger remain unchanged at approximately US$1.1 billion over the next decade.

It declared a dividend of 40 cents.

While Agnico announced lower first-quarter net profit of $109.8 million, from $145.2 million last year, it said its results were impacted by COVID-19 challenges, inflationary cost pressures and costs related to the merger with Kirkland Lake.

On a positive note, the company said the effects of COVID-19, which had led to sending its Nunavummiut staff home in December 2021 to prevent the accidental spread of the virus to the local community, were easing. After consultation with the government, Agnico started returning its staff in mid-March.

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