Agnico Eagle Mines Ltd. (AEM, Financial) announced March 27 it agreed to issue and sell a volume of 5,003,412 ordinary shares, each valued at $43.97, directly to a U.S. institutional investor for a total amount of $220 million.
The Canadian miner expects the deal to be closed by March 31. The net proceeds from the sale are going to be used for "general corporate purposes." Maxit Capital LP and Sprott Capital Partners will provide the necessary financial advisory for the offering.
With the addition of the newly issued shares, the company will have approximately 230.5 million shares outstanding. In addition, the institutional ownership will increase 0.8 percentage points to 62.7%.
As of Dec. 31, 2016, the miner's top institutional investors are Van Eck Associates Corp., First Eagle Investment (Trades, Portfolio) Management LLC and FMR LLC.Â
CEO Sean Boyd expressed his excitement about the offering.Â
"Agnico Eagle is pleased to welcome an important new strategic institutional investor to our share register, and we look forward to continuing to develop this relationship over time," Boyd said.
He added the offering "also further enhances our financial flexibility as we build out our platform of high-quality growth projects."
Total net proceeds from the offering will increase the total liquidity of the Canadian miner to approximately $2 billion, which will be combined with approximately $770 million in cash and securities and a $1.2 billion line of credit.
As mentioned earlier, the company says it will use the net proceeds from the offering for general corporate purposes. The miner already has a strong balance sheet, however, so why does it need these funds to support its general expenses?
In order to understand the meaning of this fundraising operation, the offering must be considered in the context of higher costs and lower gold production expected in 2017. Additionally, gold prices are difficult to predict.
In 2017, Agnico Eagle expects lower gold production, 1.55 million ounces versus 1.66 million ounces produced in 2016, and to sustain higher total cash costs per ounce of gold, $610 versus $573 in 2016. The miner will likely close fiscal 2017 with lower internal cash flow if gold does not trade at least at the same price level of 2016, meaning it will have difficulty funding the development of its Amaruq and Meliadine projects.
As a result, the company needs extra financial resources to continue funding the advancement of its projects without using too much its cash liquidity or withdrawing from its line of credit.
Agnico Eagle Mines is currently trading around $43.09 per share, down $1.55 or -3.47% from the previous trading day, with a price-sales (P/S) ratio of 4.54 and a price-book (P/B) ratio of 2.18. The forward price-earnings (P/E) ratio is 52.99 and the EV/Ebitda ratio is 12.31.
The recommendation rating is 2.6. Half of the analysts surveyed recommend buying shares, while the other half recommend holding.
The average target price per share is $51.75, which represents a 20% upside from the current share price.
Disclosure: I have no positions in Agnico Eagle Mines Ltd.
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