JOHANNESBURG -
Agnico-Eagle yesterday hosted a visit to its new Kittila gold mine in northern Finland; the chartered Boeing 737 was well populated, with more than 60 buy side customers and sell side analysts. The general impression from attendees after the visit was positive, reinforcing Agnico-Eagles relative premium rating for high quality growth assets, technical capability and an enviable first world political risk profile.
Agnico-Eagle is placed within the loosely-defined global Tier II gold miner classification, one that is outperforming practically all other resources subsectors. Where a selection of more than 100 gold stocks listed across the world have now bounced by 24% from (very recent) lows, stock prices remain 70% off highs, measured on a value-weighed basis. The Tier II gold division, which includes 19 names has, however, bounced 38% off lows. The Philadelphia gold & silver index, of which Agnico-Eagle is a member, is up 19% from its lows.
Some of the more impressive performances among the Tier II grouping have come from Eldorado, Randgold Resources and Red Back; some of the less impressive from High River (on liquidity worries) and Centerra (mainly on worries over Centerra's agreements and licenses at the Kumtor mine in Kyrgyzstan).
Kittila is a good news story, coming at a time when miners everywhere are desperate for even neutral news. The story is particularly positive for Agnico-Eagle. As the numbers stand, the group is the most heavily market capitalised of Tier II names, at USD 4.5bn, having by now left its erstwhile key rival, Yamana, a good way behind.
Given its rate of growth, and quality in that growth, Agnico-Eagle would be moving into the elite Tier I grouping in the foreseeable future. Its current market capitalisation already exceeds that of a number of names in the top group, including Polyus, Harmony, Lihir, Gold Fields, and Buenaventura
At Kittila, the 3m ounce gold reserve, with an enviable grade of 5.1 grams/ton, is being ramped up to annual gold production of around 150,000 ounces. Operating and capital expenditure have crept higher, in line with global industry developments; cash costs have shifted from USD 300/oz in the original forecast towards USD 380/oz. Capital expenditure has increased sharply from USD 210m towards circa USD 300m.
Kittila's autoclave, considered the most significant technical risk, had been running for 18 hours as visitors arrived on site. Recoveries are budgeted at 92%; the general impression was that the plant could push out 10 to 20% more production than the budgeted 150,000 ounces a year.
Mining dilution had been budgeted at 17%, but Agnico-Eagle has indicated that it may improve this by implementing some innovative blasting techniques. According to one sales-trader focused on Kittila, the biggest issue occupying the minds of analysts after the visit is - guess what - parent company balance sheet strength.
Agnico-Eagle recently increased its debt capacity by USD 300m, and holds USD 100m in cash, for funding fund growth. It is thought that an equity top up of around USD 200m would be possible, but not necessary for Agnico-Eagle, so long as gold and zinc prices don't weaken materially from current levels.
Flexibility, growth curves and room to maneuver may be some of the features attracting investors to the global Tier II gold subsector. From Agnico-Eagle, forthcoming events include ongoing extension of resources at its flagship LaRonde mine in Canada, the country's biggest gold deposit; continuing build up success at Goldex in Canada, and after Kittila, new projects at Lapa, Canada, Pinos Altos, Mexico, LaRonde extension, and at Meadowbank, Canada.
