In an Oct. 24 research note, analyst Anita Soni reported that CIBC expects Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) "to deliver on growth in 2020, continue to generate strong free cash flow and potentially further increase its dividend."
This view, Soni explained, is based on the gold producer reporting an earnings per share (EPS) beat, increasing its dividend, re-generating free cash flow, increasing its 2019 production guidance for the second time and trimming its 2020 production guidance, all in Q3/19.
Soni reviewed each contributing factor.
Agnico Eagle reported an adjusted EPS for Q3/19 of $0.36, above CIBC's $0.29 estimate and consensus' $0.27 expectation. Strong production and revenues of more than $19 million along with lower depreciation led to the beat.
Because in Q3/19 Agnico Eagle generated free cash flow again after a time of intensive capital outlay, the company boosted its quarterly dividend 40%, to $0.175 per share from $0.125, Soni highlighted. During that growth period, Agnico Eagle maintained a strong balance sheet.
As for production, the gold company also surpassed expectations in Q3/19, achieving 477,000 ounces, noted Soni, against CIBC's forecast of 463,000 ounces. Based on this and year-to-date performance, Agnico Eagle increased its full-year 2019 production guidance for the second time, to 1.77–1.78 million ounces (1.77–1.78 Moz).
Contrarily, the producer cut its full-year 2020 production guidance due to "adverse weather conditions at Amaruq, which delayed dewatering and impacted development," Soni explained. Agnico Eagle's new target is 1.9–2 Moz.
In Q3/19, cash costs were as anticipated, coming in at $653 per ounce versus CIBC's $646. The all-in sustaining cost was lower than expected at $903 per ounce, compared to the bank's $941 projection.
Regarding future capex, the Canadian producer increased it for the second time, to $790 million from $750 million, due to the situation at Amaruq, Soni indicated. Also, Agnico Eagle may speed up the phase 2 expansion at Meliadine, which would cost $9 million. In view of these circumstances, CIBC now models a total capex for 2019 of $788 million.
CIBC has an Outperformer rating and a US$71 per share target price on Agnico Eagle, whose current share price is around US$59.31.
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Disclosures from CIBC, Anico Eagle Mines Ltd., October 24, 2019
Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
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Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.
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Important Disclosure Footnotes for Agnico Eagle Mines Ltd. (AEM)
CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Agnico Eagle Mines Limited in the next 3 months.
CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by Agnico Eagle Mines Limited.
