Agnico Eagle Mines Stock Shows More Upside Potential

It looks like Agnico Eagle Mines (AEM.TO) will be able to sustain its impressive stock market momentum as the year progresses on the evidence of the company’s latest fiscal 2019 first-quarter results.

Agnico’s first-quarter profit beat Wall Street’s expectations by a wide margin, and it won’t be surprising to see its results improve as the year progresses. Let’s see why.

Off to a solid start

Agnico Eagle’s first-quarter gold production came in at 398,217 ounces, which includes pre-commercial production of 17,582 ounces at Meliadine. For comparison, the company had produced 389,278 ounces of gold in the prior-year period, which means that its output was lower on a year-over-year basis if we exclude Meliadine.

When combined with a lower average realized price of gold, Agnico Eagle’s net income fell steeply on a year over year basis. The company reported $32 million, or $0.14 per share, in net income during the quarter as compared to the prior-year period’s figure of $44.9 million.

Still, the bottom line performance was better than what analysts’ original expectation of $0.07 per share in earnings.

Agnico’s better-than-expected earnings performance was a result of the company’s focus on controlling costs. Its cash costs per ounce came in at $623 during the quarter, while all-in sustaining costs were $836 an ounce. For comparison, Agnico Eagle’s all-in sustaining costs during the year-ago period stood at $889 an ounce.

Meanwhile, total cash cost per ounce was down from the prior-year period’s number of $648 an ounce. So, Agnico mitigated the impact of lower production and weaker gold prices thanks to its lower costs, which also allowed it to beat Wall Street estimates.

More importantly, Agnico’s improving cost profile sets the stage for a better bottom line performance going forward, especially considering that its production is picking up the pace.

Better performance in the cards

Agnico Eagle Mines estimates that its full-year production will come in at 1.75 million ounces of gold, including 60,000 ounces of production from the Meliadine mine and 40,000 ounces from Amaruq.

That’s better than the prior-year figure’s production of 1.63 million ounces, which was achieved at an all-in sustaining cost of $877 an ounce. This year, Agnico estimates that its full-year all-in sustaining costs will fall in the range of $875 to $925 an ounce. So, at the mid-point, there will be a slight increase in the company’s cost.

However, don’t be surprised if Agnico outperforms its own cost estimate, as the company had originally called for all-in sustaining costs of $915 an ounce last year. But even if the company’s all-in sustaining cost for the year falls in the middle of its guidance range, it would be less than the projected increase in the production.

That’s why, it is not surprising to see that Agnico’s earnings per share is expected to rise to $0.56 this year as compared to $0.31 in 2018, even though the revenue is expected to increase in the high-single digits.

In all, Agnico Eagle investors should continue holding the stock because it shows more upside potential.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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