Agnico Eagle Earnings: Higher Prices and Volumes Partially Offset by Increased Costs

No-moat Agnico Eagle’s AEM 2023 third-quarter result met our expectations. Adjusted EBITDA of USD 760 million increased 13% on the same quarter of 2022, driven by higher gold sales volumes and price, partially offset by increased unit cash costs. Adjusted net profit after tax of roughly USD 220 million was similar to last year due to higher depreciation and amortization from the purchase of the remaining 50% of the Malartic mine from Yamana Gold in March 2023. However, the increased share count from this acquisition meant EPS was 10% lower, at USD 0.44 per share. Similar to last year, and consistent with its quarterly dividend payout policy, Agnico will pay a USD 0.40 (roughly CAD 0.56) per share dividend in December. Free cash flow was roughly USD 80 million, down from USD 140 million last year due to increased working capital, likely mostly temporary. The balance sheet is sound. Net debt was USD 1.6 billion at end September 2023, around 0.5 times trailing 12 months EBITDA.

We retain our fair value estimate for no-moat Agnico Eagle of USD 53 per share, with shares trading at an 11% discount to fair value. We think this is likely due to concerns over rising real interest rates, which are a headwind for gold prices. Agnico reiterated 2023 guidance and we continue to forecast gold sales of 3.3 million to 3.4 million ounces in 2023, compared with 3.1 million in 2022. We continue to forecast unit cash costs for 2023 of about USD 870 per ounce.

We forecast production to rise to about 3.5 to 3.6 million ounces over our five-year forecast period, driven by incrementally higher production at most of its mines. Agnico’s average unit costs place it comfortably within the second quartile of the industry cost curve, lower cost than larger competitors no-moat Newmont and no-moat Barrick Gold. We also think it is exposed to lower sovereign risk than its larger rivals. About 80% of its forecast 2023 production comes from the more stable jurisdictions of Canada and Australia.