Agnico Eagle Earnings: Solid Production Helps to Offset Cost Inflation

No-moat Agnico Eagle’s AEM 2023 first-quarter earnings were solid. Adjusted net income of USD 270 million, or around USD 0.57 per share, was up around 10% versus the same quarter of 2022. Adjusted EBITDA of about USD 730 million was roughly 25% higher than the first quarter of 2022, driven by 14% higher gold sales to nearly 800,000 ounces, partially offset by higher unit cash costs. Greater volumes reflect increased production from Agnico’s Meadowbank mine and a full quarter of sales from the Detour Lake, Macassa, and Fosterville mines compared with about two months in the first quarter of 2022. Agnico bought these three mines via its merger of equals with Kirkland Lake Gold in February 2022. The company’s average realised gold price of about USD 1,890 was similar to last year. However, unit cash costs of around USD 830 per ounce were 3% higher on the same quarter of 2022 given continued inflation, partially offset by foreign exchange.

We retain our fair value estimate for Agnico Eagle of USD 53 per share. We continue to forecast gold production of between 3.3 million and 3.4 million ounces in 2023, roughly 7% higher than 2022. The increase is driven by Agnico’s purchase of the remaining 50% stake in its Canadian Malartic mine from Yamana Gold at end March 2023. While Agnico’s net debt increased to help fund this purchase, its balance sheet remains strong, with net debt/EBITDA of about 0.6 times at end March 2023. The company will pay a USD 0.40 (about CAD 0.54) dividend in June. Assuming it receives approval from the Toronto Stock Exchange, which we think is likely, the company will also repurchase up to USD 500 million in shares should it consider it value-accretive. However, with Agnico’s share price at a 6% premium to our fair value estimate, there is a risk share repurchases will be modestly dilutive at current prices.