Agnico Eagle Earnings: Higher Gold Prices and Sales Volumes Offset by Higher Costs and Share Count

No-moat Agnico Eagle’s AEM 2023 second quarter result was solid. EBITDA of USD 975 million was 6% higher than the previous corresponding period, or PCP, driven by higher gold sales volumes and a higher realized gold price, partially offset by increased unit cash costs. However, EBITDA per share of roughly USD 2 was similar to the second quarter of 2022 due to Agnico’s increased share count driven by its purchase of the remaining 50% of its Canadian Malartic mine from Yamana Gold in March 2023. This acquisition also drove higher depreciation and amortization, with adjusted net income falling 10% to roughly USD 320 million, or USD 0.65 per share. On balance, we think the roughly unchanged EBITDA per share compared with the PCP is a more accurate reflection of Agnico’s second-quarter performance.

We retain our fair value estimate for Agnico Eagle of USD 53 per share, with the shares trading at a small 5% discount to our fair value estimate. We continue to expect gold production of 3.3 million to 3.4 million ounces in 2023, 7% more than 2022, with Agnico’s unit cash costs currently tracking close to our forecast for 2023 of about USD 870 per ounce. We forecast gold production to rise to between 3.5 and 3.6 million ounces toward the end of our five-year forecast period, driven by incrementally higher production at most of the company’s mines. The company will pay a USD 0.40 (roughly CAD 0.53) per share dividend in September, the same as in the PCP. This represents a roughly 60% payout ratio and is consistent with its quarterly dividend payout policy. Agnico may also repurchase shares should it consider this to be value-accretive, but at current prices we think any repurchases will be close to value-neutral. Free cash flow was roughly USD 300 million in the second quarter and its balance sheet remains sound. Net debt of USD 1.5 billion at end June 2023 is around 0.4 times EBITDA.