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

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Agnico Eagle Mines Limited (Agnico or the Company) at BBB (low) with a Stable trend. The rating remains underpinned by the Company’s solid business profile and a financial risk profile that is strong for the current rating.

In the last 12 months (LTM) ended March 31, 2016, Agnico delivered a solid performance on production and costs. Revenues rose by 5.5% and EBITDA rose by 16.0% despite weaker gold pricing. A free cash flow surplus allowed for debt reduction of $168 million. As a result, all key credit metrics improved during the period and are now even further above the range associated with the current rating. Based on Bloomberg consensus pricing forecasts for gold, silver, zinc and copper, DBRS projects that the Company’s credit metrics are likely to remain strong even through the heavy investment period expected over the next few years, contingent upon success in achieving production guidance.

As a gold producer, replacing produced reserves is critical to cash-generation prospects and debt-servicing capacity. While Agnico has historically demonstrated an ability to replace reserves both via acquisitions and its own drilling program, this will remain a significant challenge and limits the extent to which its rating may improve. One third of 2015 production capacity is expected to be depleted over the next few years (especially from Meadowbank, Nunavut, which accounted for 23% of 2015 output) and, while the Company’s plans for replacing these reserves (mining deeper, higher-grade ore at LaRonde in Québec, and starting up Amaruq, a Meadowbank satellite) are achievable, they involve significant development risks.

To achieve its guidance of producing at least 1.50 million ounces of gold per year in the coming years (1.68 million ounces in LTM ended March 31, 2016), LaRonde will need to ramp-up as projected. To maintain a similar output level beyond 2018, the Amaruq startup would need to proceed on schedule. To this end, key milestones at Amaruq are: (1) completion of the road from Meadowbank by YE2016; (2) approval of the amendment to the Type B water licence, allowing for bulk sample mining; and (3) conversion of the inferred resources to at least Measured and Indicated resources. In subsequent years, successful ramp-up of the Meliadine mine in Nunavut could enable Agnico to achieve a major step-up in its annual production capacity.

Development problems at key growth projects and the associated downward pressure on production could result in a negative rating action. Alternatively, increased confidence that annual output over the long term will remain above 1.50 million ounces (with the possibility of a material Meliadine step-up) could lead to a positive rating action, assuming that the Company’s commitment to a strong balance sheet remains intact.

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 (October 2015), which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.