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

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Agnico Eagle Mines Limited (Agnico or the Company) at BBB (low) with Stable Trends based on robust key credit metrics. During the last 12 months ended March 31, 2017 (LTM March 2017), Agnico benefited from 9.6% higher gold prices compared with LTM March 2016, resulting in 10.2% higher revenue, 16.9% higher EBITDA and 20.4% higher adjusted operating cash flow as sales of payable gold were only up a marginal 0.3%. During LTM March 2017, the net issuance of debt increased by $121 million compared with net repayment of $168 million in LTM March 2016. As a result, the Company’s key credit metrics improved moderately during the period and remain strong for the current rating. Based on Bloomberg consensus price forecasts as of June 8, 2017, DBRS expects that Agnico’s credit metrics are likely to remain strong heading into 2018 even as the Company faces net free cash flow deficits in 2017 and 2018 from the capital-intensive process of bringing the Amaruq and Meliadine projects into production.

Between 2011 and 2016, Agnico produced 7.9 million ounces of payable gold (oz. Au) while increasing its proven and probable reserves by 6.4% by upgrading resources to reserves and acquisitions, most notably acquiring its 50% ownership in the Canadian Malartic mine in 2014. By the end of 2018, however, Agnico faces the depletion of reserves at its Meadowbank mine, which contributed 19% of its 2016 production and has limited near-mine resources at current operating margins. In February 2017, the Company announced that both Meadowbank’s Amaruq satellite deposit and the Meliadine project had received board of director approval for development with initial production expected to begin in Q3 2019. DBRS notes that any potential delays in the permitting process could increase the risks to this development timeline. Management also provided production guidance of between 1.5 oz. Au and 1.6 million oz. Au per year between 2017 and 2019, rising to 2.0 million oz. Au in 2020.

To achieve the 2017 and 2018 guidance, DBRS believes that production at the brownfield expansions, particularly LaRonde Zone 5 and Goldex Deep 1, will have to ramp up as projected, followed by the successful startup of Amaruq and Meliadine in 2019. DBRS believes that the key milestones at Amaruq are the completion of the 64-kilometre road linking Meadowbank by YE2017 followed by the successful advancement of the infill drilling and bulk sampling programs by the end of 2018. The bulk sampling program, if completed, should demonstrate the ability to deliver tonnage to the Meadowbank mill at a grade that is high enough to offset the incremental transportation costs. A bulk sampling program at Amaruq that successfully demonstrates the economic viability of the resources, along with advancing the Meliadine project on time and budget, would demonstrate the capacity to materially increase production, which could lead to a positive rating action if the Company’s commitment to a strong balance sheet remains intact and gold prices remain at forecast levels. Alternatively, development problems at Amaruq could create a production gap beginning in 2019, cloud the future of the existing Meadowbank infrastructure and result in lower production than current guidance, setting the stage for a potential negative rating action.

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 principal methodology is Rating Companies in the Mining Industry (September 2016), which can be found on dbrs.com 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.

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