DBRS Assigns Agnico-Eagle BBB (low) Issuer Rating

DBRS has today assigned an Issuer Rating for Agnico-Eagle Mines Limited (Agnico or the Company) of BBB (low) with a Stable trend. Agnico’s rating is underpinned by its cost-competitive operations – especially the LaRonde mine, which is a low-cost, internationally competitive gold producer with an expected mine life of approximately 15 years at current planned production rates. LaRonde anchors Agnico’s earnings base, as well as serves as the core of the Company’s technical expertise in exploration, ore reserve development, mine operations and ore processing.

Agnico has opened four new gold mines in 2008 and 2009 and is about to bring a fifth new mine into production in 2010. Each of Agnico’s five new mining operations is expected to be cost-competitive. In terms of net cash costs per ounce of gold produced after by-product credits, Agnico’s operations are expected to be, on average, in the lower half of the gold mining industry, providing robust cash margins at current gold prices.

Agnico’s gold production expanded from 231,000 ounces in 2007 to 493,000 ounces in 2009 and is expected to be 1.1 million ounces in 2010. When current development projects are fully operational in 2014, planned production is 1.5 million ounces per year. The added gold production at competitive costs will provide significant growth in cash flow over the next few years. Additionally, it will help diversify the Company’s production facilities while maintaining operations in lower-risk political jurisdictions that not only have an understanding of the mining industry, but also possess sufficient manpower and infrastructure resources to support operations.

During the course of its rapid expansion, the Company has maintained a conservative financial profile. Acquisitions of development properties such as Kittila, Meadowbank and Pinos Altos for approximately $789 million were made largely using Agnico equity as currency. Agnico’s approximately $2.0 billion in capital expenditures since 2005 have been financed via cash generation from the LaRonde mine, equity issues ($925 million) and approximately $715 million in debt drawn on its $900 million available borrowing facilities. At the end of 2009, the Company’s gross leverage was 21% (net leverage 17%) and cash flow-to-total debt in 2009 was 0.33 times versus 0.58 times in 2008, as increased cash from operations failed to keep pace with rising debt during the most intense period of mine construction. Liquidity remains adequate, with $164 million in cash on hand, $163 million in unused credit facilities. Cash flow for 2010 is expected to approximately fund the $463 million in planned capital expenditures plus other outflows.

DBRS believes that the outlook for the gold market remains positive, as declining world mine production, a renewal of interest in gold among financial investors and the apparent reversal of central banks from net sellers to net buyers of gold are expected to keep prices firm. With the bulk of the Company’s planned expansion expenditures expected to be completed in 2010 and substantially higher gold production at currently forecasted costs, the Company should be capable of paying down a significant portion of its bank loans in advance of maturity of the facilities in 2012 and 2013. Moving to a period of strong net free cash flow generation will improve the Company’s financial metrics and could lead to positive rating actions. In addition, the current duration of the Company’s debt is quite short and lengthening the term of debt maturity to better match the life of the new mine projects would be viewed as a positive development.

Agnico does face challenges in the near to medium term. Of the five new mine operations, only Goldex has reached original designed milling rates, whereas Lapa, Kittila and Pinos Altos have recently achieved commercial production status and are working out production issues to meet design processing rates. Meadowbank is only scheduled to come into production in the first half of 2010 and will need to be brought up to design processing rates. Agnico’s period of intense mine-building activity has diminished its inventory of undeveloped properties and potential mine expansions. The Company is expected to continue to be an active explorer and seek out new properties for development in order to maintain its growth profile. DBRS expects that on the acquisition front, the Company will focus on late-stage exploration/early-stage development properties of a moderate size. We would also expect equity to fund a significant part of any asset acquisition. Once properties have been acquired, the Company will invest in another round of mine construction, which will bring with it the risks inherent to new mine development.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.