Agnico Eagle Mines Ltd. (AEM, Financial)(TSX:AEM, Financial) closed the third quarter generating an adjusted net income of $56.6 million, or adjusted net income of 25 cents per share, up 2,400% year over year, and exceeded analysts' expectations with a 38.9% surprise. Third-quarter earnings per share were 56.3% higher than those of the second quarter.
Agnico reported revenue of $610.86 million, up 20% year over year, and beat analysts' estimate by $55.4 million.
As I previously wrote, better performance than the second quarter could be reasonably expected from the third-quarter report because of an 18.7% increase year over year in the price of the precious metal on the London bullion market. As a matter of fact third-quarter results were so strong that they led the net income per share for the first nine months of 2016 to increase 126% on a year-over-year basis.
“For the first nine months of 2016, the company reported net income of $96.2 million, or 43 cents per share. This compares to the first nine months of 2015 when net income was $40.1 million, or 19 cents per share. Financial results in the 2016 period were positively affected by higher revenues as a result of higher realized gold prices (approximately 8%), silver prices (approximately 9%) and other higher byproduct metals revenues.” – Agnico's NR
Increases in CFO on a quarter-over-quarter and year-over-year basis were also expected, and third-quarter cash provided by operating activities increased 97% year over year from $143.7 million to $282.9 million.
For the first nine months of 2016, cash provided by operating activities increased 38.4% year over year from $475.5 million to $658 million.
The third quarter increases on a year-over-year basis in CFO and earnings were possible for a high quality, long-life assets base that allows Agnico Eagle Mines to take the best from higher realized precious metal prices that the miner has successfully built up through acquisitions and exploration activities over time. Agnico's assets base is the miner's real strength to produce robust results in terms of increased revenue, earnings and cash flow.
In the third quarter, Agnico produced 416,187 ounces of gold at total cash costs per ounce on a byproduct basis of $575 and AISC on a byproduct basis of $821 per ounce and reported two new quarterly record productions in Mexico: 30,779 ounces of gold produced at the La India mine and 825,000 ounces of silver produced at the Mexican mines.
The current assets give Agnico Eagle Mines the potential to produce from 30% to 40% more gold by 2020; that can assure a continued strong operational performance over time.
"In the third quarter of 2016, our operations continued to deliver solid production and cost performance. As a result, we now expect to exceed the upper end of our 2016 production guidance of 1.6 million ounces," said Sean Boyd, Agnico Eagle's CEO (Agnico's NR).
"Furthermore, our strong operating performance resulted in increased operating cash flow and an increase in our cash position which further supports our development plans to grow production to approximately 2.0 million ounces in 2020," added Boyd (Agnico's NR).
The choice to give the opportunity to its shareholders to benefit from a 25% dividend increase in the third quarter was a sign that the miner was going to deliver another strong quarter.
“Agnico Eagle's board of directors has declared a quarterly cash dividend of 10 cents per common share, payable on Dec. 15 to shareholders of record as of Dec. 1. Agnico Eagle has declared a cash dividend every year since 1983.” –Â Agnico's NR
However, the increase in the quarterly dividend is sustained by a strong balance sheet and financial flexibility: the cash and cash equivalents and short-term investments increased 35% from $473.7 million in the second quarter to $627.4 million in the third quarter, and the long-term debt is characterized by a manageable repayment schedule – 60% of total long-term debt ($1.210 billion) matures after 2020 – and amounted to $1.073 billion as of the third quarter. The net debt decreased 26.2% from $741.9 million in the second quarter to $587.9 million in the third quarter.
Total capital expenditures (including sustaining capital) made by the company in the third quarter were $146.8 million, including $41.8 million at Meliadine, $22.2 million at Kittila, $22.1 million at Goldex, $15.7 million at LaRonde, $14.9 million at Canadian Malartic (50% basis), $12.8 million at Meadowbank, $10.4 million at Pinos Altos, $2.7 million at La India and $2.3 million at Creston Mascota.
Total capex (including sustaining capital) and total sustaining capex for the first nine months of 2016 were $378.9 million and $225.1 million. Total sustaining capex in the third quarter was $80.0 million.
Drilling test results and expansion projects:
“Whale Tail drilling yields deepest intersection to date – Hole AMQ16-1045 intersected the deepest mineralization in the Whale Tail deposit to date: 5.4 grams per tonne (g/t) gold over 3.3 meters at 658 meters depth and 5.5 g/t gold over 16.1 meters at 725 meters depth including 13.1 g/t gold over 3.5 meters at 732 meters depth (capped gold grades over estimated true width).
"Infill drilling yields widest intercept to date in the Sisar Central Zone – Hole ROD16-702D intersected 6.6 g/t gold over 12.7 meters at 1,303 meters depth (uncapped gold grade over estimated true width).
"Lapa Mine Life Extended Through Year-End 2016 – Production is now forecasted to continue through year-end 2016, and the company is evaluating a number of opportunities that could potentially see the mine life extend into 2017.” –Â Agnico's NR
The gold stock gained 85.58% year to date, but it looks overvalued by the stock market considering both Enterprise Value/EBITDA (14.36) and the price-book (P/B) (mrq) (2.49).
Nine analysts out of 19 recommend holding this gold stock. The recommendation rating is 2.6. The rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).
The average analyst price target is $56.59 (down 2.43% from the target price of Oct. 14) versus a current share price of $48.77.
Disclosure: I have no position in Agnico Eagle Mines.
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