Agnico Beats With Higher Production and Lower Costs
Contributed Opinion

Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) showed once again why it is best in class, reporting with higher production and lower costs than expected, while Newmont Corp. (NEM:NYSE) had higher costs and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) had lower production than expected.

The company reported record operating margins and the third consecutive quarter of free cash flow, enabling it to continue paying down debt and repurchasing shares. Contributing to the higher production were Malartic (with both high grades and throughput) and Fosterville (with higher throughput); company-wide cash costs were at $870.

Agnico reiterated its full-year guidance, which it is on track to meet. The company ended the quarter with $922 million in cash and a net debt of $920 million. It said it had repaid $250 million in debt after quarter end. The company also approved $20 million for developing the Upper Beaver project and is considering putting in a second shaft at Malartic to help in filling its mill.

With strong production, cost control, debt reduction, and project advancement, everything headed in the right direction for Agnico this last quarter. With a low political risk profile, a strong balance sheet, and a deep pipeline, Agnico remains the premier large gold company. On some metrics, such as price-to-free cash flow, it is of better value than its large-cap peers, close to its lowest multiple in history. After a move from $65 at the beginning of last month, however, we will wait for a pullback before buying again.

But it is a very strong long-term Hold.

It Keeps Getting Better for Orogen

Orogen Royalties Inc. (OGN:TSX.V) reported that First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), the operator of its sole cash-flowing royalty mine, announced a new discovery at depth and adjacent to the Ermitaño mine. Six out of seven drill holes into the Navidad zone hit mineralization, with some grades.

Although this is early days, First Majestic has moved four drill rigs to the area, to the west of the main mine. Given the depth, it may plan to put in a drift from existing workings rather than drill from surface. This would also mean that eventual mining in the new zone would have lower capital costs and come sooner.

It is possible that mining Navidad would continue without pause after the main Ermitaño is exhausted in four or five years, thus extending Orogen's cash flow well into the 2030s. There are two other major prospective areas as well included in Orogen's royalty area: Luna to the east, which has seen some drilling but is deeper and so far lower grade than Navidad, and potentially Cumobabi, well to the south and east, which has not yet received any drilling from First Majestic.

There are also some gold targets to the east. All in all, there is potential for the overall mine to continue for many years to come, particularly given the mill facilities are already in place. Separately, shareholders and analysts are expecting an update on Silicon-Merlin, and in particular, the extensive drilling to the west, when AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) reports Tuesday morning. The market is also waiting for the decision from Altius Minerals Corp.'s (ALS:TSX.V) arbitration on the area of interest of its own royalty. Once that decision is out, we expect Altius to move rapidly towards concluding a transaction on its royalty, which will then put Orogen's royalty into play.

We continue to buy Orogen.

Metalla Strengthens Top Management

Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) has named Jason Cho as president, while Brett Heath remains CEO.

The appointment follows the departure of Drew Clark, VP of Corporate Development, at the end of March. Mr. Cho has 25 years of experience in the sector, including most recently as VP of Corporate Development at Eldorado Gold.

Concurrent with his appointment, Mr. Cho invested CA$1 million in a private placement at CA$4 per share (approximately US$2.90). Though at a discount, the investment demonstrates a commitment.

I do not know Mr. Cho, but I look forward to meeting him next month. The appointment of a separate president is part of Metalla's strategic revamp as some of its large royalties come on stream.

Metalla is a Strong Buy at this level.

Vista Works on New Study for MT Todd

Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) continues its evaluation of a smaller-scale Mt. Todd project, with ongoing drilling underway and a Feasibility Study on the smaller-scale project expected sometime next year, but no material disclosures were made on progress toward a transaction on the project.

CEO Fred Earnest said the company was "committed to seeing (Mt Todd's) development…but we'll do so when the time is right."

Vista now has a strong cash balance of just over $20 million, following the final payment from Wheaton for a royalty. Recurring costs of G&A and holdings costs for Mt. Todd are running at around $6 million a year.

In addition, there are additional expenditures of around $4.5 million planned over the next year on drilling and a new feasibility study of up to $1 million, with another up to $1.5 million to finish the FS next year.

Hold.

TOP BUYS this week, in addition to above, include Nestlé SA (NESN:VX; NSRGY:OTC), Gladstone Investment Corp. (GAIN: NASDAQ), Hutchison Port Holdings Trust (HPHT:Singapore),Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Lara Exploration Ltd. (LRA:TSX.V),and Fox River Resources Corp. (FOX:CNSX).

Important Disclosures:

1. 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., Orogen Royalties Inc., Altius Minerals Corp., Barrick Gold Corp., Metalla Royalty & Streaming, Fortuna Silver Mines Inc., and Lara Exploration Ltd
2. 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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