DBRS Changes Trend on Agnico-Eagle BBB (low) Issuer Rating to Stable

DBRS has today changed the trend on the BBB (low) Issuer Rating of Agnico-Eagle Mines Limited (Agnico or the Company) to Stable from Positive following the Company’s announcement that it is suspending mining operations and gold production at its Goldex mine in Val d’Or, Québec, effective immediately. Two rock mechanics consulting firms have confirmed the rock subsidence is occurring above the northeastern limit of the deposit and advised the Company to suspend operations.

DBRS changed the trend on the rating of Agnico to Positive in March 2011 (see the March 2, 2011, DBRS press release “DBRS Places Agnico-Eagle BBB (low) Issuer Rating on Positive Trend”) in anticipation of Agnico’s new but underperforming Meadowbank mine in Nunavut Territory and Kittila mine in Finland being on track to operating at closer to design capacity, bringing the Company’s suite of cost-competitive gold-mining operations in stable political jurisdictions to six. Although progress has been made in improving the operations at Meadowbank and Kittila, the sudden loss of the Goldex operation warrants caution on the part of DBRS; hence, the trend has been change to Stable from Positive.

Agnico’s rating remains underpinned by the LaRonde mine in Québec, which is a low-cost, internationally competitive gold producer. The Company’s reliance on this single-mine operation has decreased with the five new mines that were built since 2008, increasing expected gold production in 2011 to more than 1.0 million ounces per year from 231,000 ounces in 2007. The potential loss of the Goldex mine, which produced 80,000 ounces in the first six months of 2011 at a cash cost per ounce of US$407, is a material setback for the Company.

Although the outcome for the Goldex operation is unclear at this stage, the loss of its production will reduce the diversity of the Company’s operations and lead to a higher average cost for gold production. In addition, Agnico indicates it will write off its investment in Goldex (a charge of approximately $260 million ($170 million after tax)) and move the remaining 1.6 million ounces of proven and probable gold reserves at Goldex to resources. The Company expects it will spend approximately $25 million in 2011 and a further $20 million in 2012 on monitoring and remediation activities at Goldex.

DBRS views that the Company has strong credit metrics and solid liquidity, which will assist it in dealing with the issues at Goldex without unduly interfering with its other operating and development plans. Gold prices remain high and it can be expected that as some of Agnico’s other operations improve, a portion of lost Goldex production could be made up.

Over the longer term, DBRS continues to expect that Agnico will maintain a conservative financial profile, utilizing a balance of debt and equity to fund property acquisitions as it remains an active explorer and continues to seek properties for acquisition.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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