Agnico Eagle Mines Limited Ratings Trend Changed to Positive, Confirmed at BBB (low)

DBRS Limited (DBRS) changed the trends to Positive from Stable on the Issuer Rating and Senior Unsecured Notes rating of Agnico Eagle Mines Limited (Agnico or the Company) and confirmed both ratings at BBB (low). During the last 12 months ended March 31, 2018 (LTM March 2018), the Company continued to advance the construction of its Meliadine mine and Amaruq satellite orebody in Nunavut, and the positive trends reflect DBRS’s expectations that these projects should be successfully completed on schedule and budget, and will contribute payable gold production of approximately 650,000 ounces (oz.) gold (Au) per year in 2020. These developments are expected to underpin Agnico’s production growth of approximately 30% from 1.5 million oz. Au in 2018 to 2.0 million oz. Au in 2020 and offset the depletion of its Meadowbank mine that averaged approx. 365,000 oz. Au per year from 2011 to 2017. During LTM March 2018, Agnico benefited from higher gold prices and revenues compared with LTM March 2017; however, cash costs were higher, resulting in lower EBITDA while total debt increased by $166 million as the Company funded its growth projects. As a result, Agnico’s credits metrics were marginally weaker versus LTM March 2017, but remain robust for the current rating and support the confirmation.

On April 5, 2018, Agnico issued $350 million in new notes to fund, in part, the Meliadine and Amaruq projects. DBRS has included this amount in its forecasts. This has had a negative impact on the Company’s key credit metrics and is likely to cause Agnico’s credit metrics to weaken further in 2018 to become in line with the current rating. However, DBRS expects Agnico’s credit metrics to improve in 2019 and 2020 as a result of (1) the capital intensity of the Meliadine and Amaruq projects abating; (2) based on Bloomberg consensus price forecasts as of May 28, 2018, revenue increasing as a result of new production ramping up; and (3) DBRS’s expectation that Agnico will repay the $360 million in notes that mature in 2020, reducing debt to levels similar to the end of 2017.

Between 2011 and 2017, Agnico produced 9.6 million oz. of payable gold (oz. Au) from reserves while increasing its proven and probable reserves by 9.6% to 20.6 million oz. Au (as at the end of 2017) by upgrading resources to reserves and acquisitions, most notably acquiring its 50% ownership in the Canadian Malartic mine in 2014. Management is now providing guidance that payable gold production of 2.0 million oz. Au in 2020 is expected to be ongoing, compared with the average payable gold production of 1.5 million oz. Au per year since the Canadian Malartic acquisition. This track record of reserves replacement should underpin the move to higher production as the Company has a robust growth pipeline that includes the La Ronde Zone 3, Goldex Deep 2, Odyssey and East Malartic brownfield expansions as well as greenfield opportunities such as Barsele in Sweden and Santa Gertrudis in Mexico.

If management can, as per its guidance, materially increase production, which results in the recovery of the credit metrics to the “A” category while funding capital expenditures largely from operating cash flow and gold prices remain at forecast levels, this could lead to an upgrade. Alternatively, if development problems at the Nunavut projects result in lower production or higher costs than current guidance, this could set the stage for a potential negative rating action.

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

The principal methodology is Rating Companies in the Mining Industry (August 2017), which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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