DBRS Confirms Agnico-Eagle Mines Limited at BBB (low) with a Stable Trend

DBRS has today confirmed the Issuer Rating of Agnico-Eagle Mines Limited (Agnico or the Company) at BBB (low) with a Stable trend. Agnico has stabilized its production profile following the build of five new mines in the 2008-2011 period and the unexpected loss of production from the Goldex underground mine due to serious rock subsidence and water inflow problems in Q4 2011.

Agnico continues to benefit from the high gold prices and increasing gold production that followed its intense period of mine construction (2008-2011). The new mining operations led by Pinos Altos in Mexico (the largest generator of gross profit before amortization in 2012) and Meadowbank in Canada (the Company’s largest gold producer) have reduced the influence of the important LaRonde mine, even though its contribution to gross profit has declined only modestly as its operations move to deeper, higher-gold grade sections of the mine. As a result, average total cash cost per ounce increased 10% in 2012 to $640 per ounce, well above the $106 per ounce achieved in 2008 when only the LaRonde, with high by-product credits, and Goldex mines were in production.

With a relatively modest calendar of expansion projects underway, Agnico was able to reduce net debt by $213 million in 2012, and with high gold prices and improving operating performance, credit metrics remained strong for the rating. DBRS expects the Company will commit to new expansion/mine development projects as it faces relatively short-lived reserve bases in its Lapa and Meadowbank operations.

DBRS expects that Agnico’s near-term earnings will be flat to down in 2013, with the Company forecasting gold production of just under one million ounces, ongoing cost inflation and uncertainty as to the direction of gold, zinc and copper. Over the medium term, new gold production from the short-lived La India and Goldex satellite projects plus higher gold grades at LaRonde will help increase output despite declining production at Lapa and Meadowbank as they approach the end of their current reserve bases. As an offset, inflationary cost increases are expected to continue and tax/royalty rates for Québec operations may rise due to the new government there. Stabilizing the Company’s average unit cost of gold production can be expected to lead to an improved rating outlook.

Over the longer term, the Company is expected to invest in new mining projects, including Meliadine, which are expected to keep the trend of production generally upward and earnings potential on the rise.

With a view that gold prices will remain firm (and high by historical standards), DBRS expects Agnico’s credit metrics to remain solid. Nonetheless, the Company faces a major investment decision related to its large Meliadine project, meaning that uncertainty will remain until the scale of that project is better quantified. DBRS also expects the Company to continue hunting for acquisitions, requiring its ongoing fiscal discipline.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Mining Industry (June 2011), which can be found on our website under Methodologies.