Peter Zihlmann
AGNICO-EAGLE MINES LTD. (NYSE:AEM/TORONTO:AGE)
Home page: www.agnico-eagle.com
A SOLID REPUTATION AS EXPERIENCED MINE BUILDERS AND LOW-COST PRODUCERS
Business Summary
For almost three decades, Agnico-Eagle has been mining gold in one of the world's most productive regions -- the mineral-rich Cadillac Belt on the Canadian Shield -- and establishing a solid reputation as experienced mine builders and low-cost producers who make good their promises. And now, the future looks even brighter.
Starting with the fourth quarter of 2002, the daily throughput rate increased from 5,000 tons per day to 7,000 tons per day. This newly expanded rate will result in a substantial increase in gold production and a further decline in the unit costs to produce an ounce of gold. By the year 2004, the company expects gold production to approach 400,000 ounces per year, and the cash costs to produce an ounce of gold are expected to decline to below US$100.
Recent News: Agnico-Eagle reports second quarter results; Company to acquire Bousquet
Property and mine assets and regional exploration properties from Barrick
Agnico-Eagle Mines Limited has reported a net loss of $3.8 million, or $0.05 per share in the second quarter of 2003 compared to net income of $3.4 million, or $0.05 per share last year.
For the year to date, the net loss was $10.0 million, or $0.12 per share compared to net income of
$3.8 million, or $0.06 per share in the first six months of 2002. Included in the year to date 2003
results is a one-time net of tax non-cash charge of $1.7 million, or $0.02 per share, representing the cumulative effect of the adoption of a new US GAAP accounting standard, FAS 143, relating to future reclamation obligations.
Agnico-Eagle Continues to Add to Dominant Land Position on Cadillac Gold Belt
The Company has also announced that it has signed an asset purchase agreement with Barrick Gold Corporation to purchase a 100% interest in Barrick's Bousquet Property, immediately to the west and south of Agnico-Eagle's 100% owned LaRonde Mine in northwestern Quebec. Agnico-Eagle is also acquiring used machinery and equipment from the now closed Bousquet Mines, including underground rolling stock and the headframe at Bousquet 2.
In addition to the Bousquet Mine assets, Agnico-Eagle will increase its interest in the Bruce
Property, located one mile east of LaRonde, to 100%. The purchase and sale agreement also
contemplates the purchase of certain of Barrick's regional exploration properties including Orion B-1, Orion B-2, Joannes North, Orion South and Norgold, all located to the south and west of Cambior's Doyon Property.
The purchase consideration to be paid by Agnico-Eagle on closing is C$5 million in cash and C$2
million in common shares of Agnico-Eagle, and the assumption of specified reclamation obligations relating to the Bousquet Property, excluding certain employment-related liabilities. In addition, Barrick will retain a 2% net smelter return royalty on all the properties acquired by Agnico-Eagle.
"With this transaction, we now control 100% of over 14 miles of contiguous favourable geology along the prolific Cadillac-Bousquet Gold Belt and have the dominant land position on the Cadillac-Larder Lake Break immediately to the south," said Sean Boyd, President and Chief Executive Officer. "The first priority will be to integrate the 25 years of Bousquet geological information into the LaRonde Mine database. This information and the underground access provided by the Penna and Bousquet 2 Shafts will allow us to better evaluate our regional exploration an development options," added Mr. Boyd.
Closing of the acquisition is expected to occur on or before September 30, 2003 and is conditional upon customary regulatory approvals, including a Certificate of Liberation from the Quebec Ministry of Natural Resources releasing Barrick from remediation obligations on the Bousquet Property.
Chibex South Acquisition Solidifies Hold on Lapa Trend
Earlier in the second quarter, the Company also closed the previously announced acquisition of
Breakwater Resources Ltd.'s 66 2/3% interest in the Chibex South Property for $75,000 and a 0.66% net smelter royalty. Chibex South is located south of, and adjacent to, the Company's Chibex North Property, which in turn is located immediately south of, and adjacent to, Agnico-Eagle's 100%-owned Lapa Property. Agnico-Eagle now controls properties covering 12 miles of the same geological contact that hosts the Lapa Contact Zone.
Fundamental Considerations
The company's LaRonde Mine is a world-class gold asset. It is a very large deposit with a gold reserve and resources totaling over eight million ounces and still growing.
This mine will produce low-cost gold for many years to come. Gold production for 2002 totaled
260,000 ounces at a cash cost of US$125.
As a result of the aforementioned transaction, the company now controls 100% of over 14
miles of contiguous favourable geology along the prolific Cadillac-Bousquet Gold Belt and has the dominant land position on the Cadillac-Larder Lake Break immediately to the south, which assures further expansion of reserves and resources.
No hedging: Agnico does not give away its price upside, in order to avoid limiting the potential value of its extraordinary gold asset.
Technical Considerations
A potential gold-price of $400 by year-end remains a likely scenario.
When Agnico-Eagle Mines Limited reported a rock fall in two production stopes at its LaRonde gold mine in Quebec in March, the share price reacted negatively. While the market overreacted, it created at the same time an excellent buying opportunity.
Our recommendation: Buy!
Peter Zihlmann, www.pzim.com, or email to forex@pzim.com
Peter Zihlmann, www.pzim.com, or email to forex@pzim.com
August 11, 2003
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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