DBRS Places Agnico-Eagle BBB (low) Issuer Rating on Positive Trend

DBRS has today confirmed the Issuer Rating of Agnico-Eagle Mines Limited (Agnico or the Company) at BBB (low) and changed the trend to Positive from Stable. Agnico’s rating is underpinned by the LaRonde mine, which is a low-cost, internationally competitive gold producer. The Company has lessened its reliance on this single-mine operation by building five new mines since 2008. Gold production in 2010 has increased to an annual rate of about 1.0 million ounces per year from 231,000 ounces in 2007, with planned production expect to be 1.5 million ounces per year by 2014. In addition, Agnico’s strong credit metrics provide necessary financial flexibility as it continues to grow in the face of potentially volatile gold and other metal prices. Nonetheless, operating performance of some of the Company’s new mines (particularly Meadowbank and Kittila) has not yet achieved original design parameters. Once it becomes clear that the new mines will operate at closer to expected levels, an upgrade of Agnico’s rating is likely.

Agnico’s 2010 net earnings (before items considered as non-recurring by DBRS) of $332 million almost quadrupled over 2009 as gold production doubled and gold and other metal prices increased. Despite the output increase, cash cost per ounce of gold rose by about 30% as new mines produced at a higher cost than the core LaRonde mine. As well, some new mines had not yet achieved per-ounce cost targets during their ramp-up in production. Higher costs for input materials including energy, chemicals and labour were exacerbated by the impact of stronger currencies against the U.S. dollar in Canada, Mexico and Finland.

The Company’s already strong credit metrics improved in 2010 as debt levels decreased by $65 million to $650 million, resulting in: (1) debt-to-EBITDA less than 1.0 times; (2) cash flow-to-total debt greater than 0.9 times; and (3) interest coverage greater than 13 times and gross leverage of 15%. Agnico’s acquisition of the Meliadine gold property in 2010 for approximately $668 million was funded largely by equity. The Company significantly improved its liquidity in 2010 by issuing $600 million in term debt, and securing a new $1.2 billion credit facility.

DBRS expects Agnico’s credit metrics to remain strong as gold production is expected to grow again in 2011, but expansion expenditures will decrease as Meadowbank and other operations reach target production levels. Persistence of high gold and other metal prices should support expanded operating cash flow, although the impact of higher cost input materials, a continued weakening of the U.S. dollar and proportionately less influence of the low-cost LaRonde mine will reduce profit potential. The increase in dividends announced in late 2010 should be easily funded by increased operating cash flow.

Over the longer term, DBRS expects that Agnico will maintain a conservative financial profile, utilizing a balance of debt and equity to fund property acquisitions. The Company faces the challenge of expanding its reserves to sustain production and growth. Its proven and probable reserve base at producing properties stands at about 19 million ounce of gold, sufficient for 12 years of production at planned rates of 1.5 million ounces per year. Although Agnico added about 2.6 million ounces to its probable reserve base with the acquisition of the Meliadine property, the Company has diminished its inventory of undeveloped properties and potential mine expansions. Hence, DBRS expects the Company to remain an active explorer and to seek properties for acquisition.

An upgrade of Agnico’s rating will depend on stabilization of the production parameters of Agnico’s new mining operations at close to planned rates as well as ongoing increases in reserve bases at these operations combined with a positive outlook for gold markets and a continuation of the Company’s financial prudence.

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.