DBRS Morningstar Confirms Agnico Eagle at BBB, Positive Trends; Removes from Under Review with Positive Implications

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes ratings of Agnico Eagle Mines Limited (Agnico or the Company) at BBB with Positive trends. With this confirmation, DBRS Morningstar has removed the ratings from Under Review with Positive Implications, where they were placed on September 30, 2021. The rating actions noted above are a result of the successful completion of the merger with Kirkland Lake Gold Limited (Kirkland Lake) (the Merger). The confirmation was due to the Merger being credit friendly in that Agnico issued common equity to Kirkland Lake shareholders while adding minimal debt in the form of lease liabilities (approximately $23 million) to Agnico’s balance sheet. Additionally, with the Merger, Agnico added the Detour Lake, Macassa, and Fosterville gold mines, which have attractive cost profiles and produced 1.433 million ounces (oz) of gold (Au) in 2021, or about 41% of the combined 2021 production of 3.519 million oz Au.

The Positive trend is based on a favourable growth profile for the combined company with an attractive pipeline of both greenfield projects and brownfield expansions. As well, the combined company had approximately 44.6 million oz Au in proven and probable reserves at the end of 2021 with resources of approximately 70 million oz Au, a significant proportion of which are in close proximity to its existing operations. Near-term growth milestones are as follows: (1) the publication of an updated technical report at the Detour Lake operation in Q2 2022 that will incorporate significant new resources into the mine plan, (2) the completion of the #4 shaft in late 2022 at the Macassa operation that will increase hoisting capacity, improve ventilation, and provide access to new areas for exploration, (3) the completion in 2022 of an exploration drift to access the Robbin’s Hill deposit adjacent to the Fosterville mine that will accelerate the exploration for high-grade resources, and (4) the transition at the Canadian Malartic operation to the Odyssey underground project that is expected to gradually start production in the first half of 2023. Additionally, the Merger affords an opportunity to capture synergies that management expects to be between $40 million and $60 million in 2022 and approximately $800 million in total over the next five years. The Merger has also improved Agnico’s financial risk profile with all metrics robust for the rating in the AA category. These metrics are expected to remain within the AA category based on the Bloomberg consensus 2022 and 2023 gold price forecasts of $1,822 per oz and $1,717 per oz (as of March 23, 2022), respectively.

In the near term, DBRS Morningstar estimates that the forecast gold prices would have to decline by approximately 40% for at least a year before a negative rating action would be considered. However, if the Company’s business risk assessment meaningfully improves, potentially by (1) the successful integration of the acquired operations and capturing the anticipated synergies, (2) exploration success in converting resources to reserves that more than replace mined production at a similar cost profile, or (3) additional accretive merger activity, then a positive rating action could potentially be triggered.

ESG CONSIDERATIONS
There were no Environmental, Social, or Governance factors or considerations with a significant or relevant impact on the credit rating. A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Companies in the Mining Industry (August 16, 2021; https://www.dbrsmorningstar.com/research/383106), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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 [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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