Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) updated plans for the Canadian Malartic mine as it transitions from open-pit to the underground, called Odyssey, by 2028. The underground mine life has been extended a few years to 2042 with a total 23% increase in gold production. There will be a few weak years, up to 2027, as the open pit winds down, with lower production and higher costs.
But from 2028 onwards, annual production is expected to be above 500,000 ounces each year, with cash costs estimated at US$768/ounce, up from a previous estimate of US$630. Capex is expected to be US$1.71 billion, up from a 2020 study, attributable to inflation pressures; construction remains on schedule. Despite the increases, Malartic will still have a lot of excess mill capacity as the mines move from open pit to higher-grade underground. Initially, it plans to cut back on the mill operation to reduce costs.
But further out, as we have discussed, Agnico plans to utilize the excess capacity with ore from other deposits, both nearby and in the general district. It has budgeted US$10 million for exploration on the nearby regional targets.
It also has large projects in the Abitibi district, including some it purchased from Kirkland last year, whence ore could be shipped to the existing mill facility, thus reducing costs. Malartic, Canada's second-largest gold mine, and now 100% owned by Agnico, represents a little over 20% of Agnico's NAV and a little less of its revenue.
Many Nearby Deposits Can Be Mined at Low Cost
Obviously, the higher capex and operating costs are negative, while not unexpected, and the production during the transition years is less than expected.
However, there is plenty of exploration potential in nearby deposits that could see those production numbers revised. In addition, the overall production increases, and mine life extension is positive.
The most important factor remains that the multiple deposits around Malartic can use the excess mill capacity, thus reducing costs for these new deposits. Agnico, with top management, a clear strategy, low jurisdictional risk, a solid balance sheet, and a strong pipeline, remains our favorite large miner.
It is a Buy.
New Exploration and a New Acquisition From Two Top Juniors
Midland Exploration Inc. (MD:TSX.V) announced a US$1.3 million exploration program in the Labrador Trough with SOQUEM , focusing on copper.
The program will focus on discoveries of mineralization last year. No drilling is yet planned.
As per our discussion in the last Bulletin, Midland is a Strong Buy at the current level.
Orogen Royalties Inc. (OGN:TSX.V) has acquired another project in Nevada. The Firenze gold-silver project, on government land, was acquired through staking by Orogen's joint venture with Altius. With gold outcrops, Firenze has not been subject to modern-day exploration and is undrilled.
This is a good example of Orogen's strategy of acquiring prospective projects cheaply and making them available for sale or option.
For the reason discussed in Bulletin #867, Orogen is a Strong Buy.
TOP BUYS this week, in addition to the above, include Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE), Altius Minerals Corp. (ALS:TSX.V), Gladstone Investment Corp. (GAIN: NASDAQ), Hutchison Port Holdings Trust (HPHT:Singapore), Ares Capital Corp. (ARCC:NASDAQ), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), and Nova Royalty Corp. (NOVR:TSX.V).
*See Bulletin #864 for a discussion of Gladstone's quarterly and bonus distributions.
Bearing in mind the possibility of weak gold markets as the Federal Reserve and other central banks raise rates more and the U.S. Treasury's massive bond issuance in the months ahead, withdrawing liquidity from the market, if you are underweight, the following can be accumulated: Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE).
UPCOMING APPEARANCES This Wednesday, at 2 pm Eastern, I'll be presenting during the MoneyShow Virtual Expo, which runs from 27 to 29, with a talk on gold. Then in July are two live events.
First up is FreedomFest, July 12-15, this year in Memphis, Tenn. I will be on panels on international investing and another on gold. And next is the ever-popular Rule Symposium, a top conference for resource investors with William Bonner (via video), Robert Friedland, Robert Quartermain, and many more; Osisko's Sandeep Singh, Wheaton's Randy Smallwood, and Lara's Miles Thompson (from companies on our list) will also be there, July 23-27 in Boca Raton, Fla.
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Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Midland Exploration Inc., Orogen Royalties Inc., Wheaton Precious Metals Corp., Altius Minerals Corp., Fortuna Silver Mines Inc., Pan American Silver Corp., Nova Royalty Corp., Osisko Gold Royalties Ltd.,Franco-Nevada Corp., and Barrick Gold Corp.
- Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with All. I determined which companies would be included in this article based on my research and understanding of the sector.
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