EUR 850.00 For Business Accounts Only

Morningstar | Agnico-Eagle on Track to Achieve 2 Million-Ounce Production Target by 2020

Agnico Eagle operates gold mines in Canada, Mexico, and Finland, reflecting the company’s focus on lower-risk jurisdictions. By 2020, Agnico Eagle's four cornerstone assets will all be based in Canada, consisting of LaRonde, Canadian Malartic, Meliadine, and Meadowbank.Agnico’s mine portfolio has long been anchored by LaRonde. The mine's byproduct metals establish its low cash costs. However, this could be at risk under lower metal prices. The company’s largest mine, Meadowbank, is in the Low Arctic and has not been without its problems. Agnico revamped the mine plan after costs ballooned, optimizing cash flow at the cost of a shortened mine life. The company plans to develop the Amaruq satellite deposit at Meadowbank as well. Also in Nunavut, the Meliadine development has one of the largest reserve levels of the company’s projects. Meliadine faces extreme conditions similar to Meadowbank, but Agnico’s experience should help as the company works to open the development project.Agnico paid full price for the Canadian Malartic mine as a result of a bidding war. However, we think Agnico’s strong execution skills can maximize the mine's value and early-stage projects could provide upside.Our long-term nominal gold price forecast is $1,300 per ounce in 2020. Investment demand will weaken further as the Federal Reserve raises interest rates, weighing on near-term gold prices. However, Chinese and Indian jewelry demand should eventually fill the gap left by investment demand. Strong preferences for gold in these countries drive high income elasticity, and rising incomes should result in robust jewelry demand growth over the next few years. Strong demand will lead to a production shortfall, requiring a higher incentive price to encourage additional mine production. However, cost deflation caps the potential upside from an otherwise strong demand story. Depreciation in producer currencies, lower oil prices, and general mine cost deflation stemming from the end of the Chinese-driven commodity boom have helped drive cost reductions, lowering the marginal cost of production.