Agnico Eagle Mines Limited (TSE: AEM).
Agnico Eagle Reports First Quarter 2019 Results; Solid Production and Cost Performance; Nunavut Development Projects Advancing as Planned with Meliadine Expected to Achieve Commercial Production in May; Exploration Drilling Continues to Advance Project Pipeline
April 25, 2019
Stock Symbol: AEM (NYSE and TSX)
(All amounts expressed in U.S. dollars unless otherwise noted)
TORONTO, April 25, 2019/CNW/ - Agnico Eagle Mines Limited (NYSE:AEM, TSX:AEM) ("Agnico Eagle" or the "Company") today reported quarterly net income of $37.0 million or $0.16 per share, for the first quarter of 2019. This result includes derivative gains on financial instruments, mark-to-market and other adjustments of $4.0 million ($0.02 per share), non-cash foreign currency translation gains on deferred tax liabilities and non-recurring tax gains of $3.2 million ($0.01 per share) and non-cash foreign currency translation losses of $2.2 million ($0.01 per share). Excluding these items would result in adjusted net incomel of $32.0 million or $0.14 per share for the first quarter of 2019. In the first quarter of 2018, the Company reported net income of $44.9 million or $0.19 per share.
Included in the first quarter of 2019 net income, and not adjusted above, is non-cash stock option expense of $6.2 million ($0.03 per share).
In the first quarter of 2019, cash provided by operating activities was $148.7 million ($170.8 million before changes in non-cash components of working capital), as compared with the first quarter of 2018 when cash provided by operating activities was $207.7 million ($180.5 million before changes in non-cash components of working capital).
The decrease in net income and cash provided by operating activities during the first quarter of 2019 compared to the prior year period was mainly due to lower gold sales volumes, lower realized gold prices and lower by-product revenue, partially offset by lower costs at several operations, principally at Goldex, Kittila, Pinos Altos and Creston Mascota. Lower gold sales were as a result of the expected lower gold production in the period primarily due to reduced throughput levels at Meadowbank as the mine transitions to the Amaruq satellite deposit in the second half of 2019.
"Operationally, 2019 is off to a very good start with strong production and cost performance in the first quarter from Goldex, Kittila, Pinos Altos and Creston Mascota. We have also seen significant exploration results from several of our key pipeline projects in the first quarter", said Sean Boyd, Agnico Eagle's Chief Executive Officer. "With commercial production expected shortly at Meliadine, and Amaruq on schedule for start-up in the third quarter of 2019, we anticipate higher gold production to result in increased earnings and cash flow in the second half of the year. This should allow the Company to continue to advance its development pipeline, increase financial flexibility and potentially raise dividends", added Mr. Boyd.
First quarter 2019 highlights include:
* Solid quarterly production and cost performance--Payable gold production2 in the first quarter of 2019 was 398,217 ounces (including 17,582 ounces of pre-commercial gold production at the Meliadine project) at production costs per ounce of $727, total cash costs per ounce3 of $623 and all-in sustaining costs per ounce4 ("AISC") of $836. Production costs, total cash costs and AISC per ounce exclude the pre-commercial production ounces relating to the Meliadine project
* Meliadine mine expected to achieve commercial production in May 2019--Commissioning of the process plant commenced in the first quarter of 2019, and pre-commercial gold production totaled 17,582 ounces for the quarter. Mill throughput is expected to average approximately 3,000 tonnes per day ("tpd") in the second quarter of 2019, and the plant has operated at 3,700 tpd on several occasions. Three underground mining areas are now in operation, with operations in a fourth area expected to commence in the second quarter of 2019
* Amaruq remains on schedule to begin production in the third quarter of 2019 - Dewatering of Whale Lake commenced early in the first quarter of 2019, followed by the ramp-up of open pit mining activities. The long-haul truck fleet is performing as planned with ore being mined and trucked to the Meadowbank mill where it is being stockpiled for future processing. Underground ramp development is progressing on schedule.
* A quarterly dividend of $0.125 per share was declared
* Exploration drilling continues to enhance organic growth opportunities
** Amaruq drilling continues to infill and expand known mineralized zones--At Whale Tail, results continue to demonstrate the extension of high-grade mineralization below the proposed pit outline, including 14.5 grams per tonne ("g/t") gold over 7.3 metres at 396 metres depth. Drilling at the V Zone continued to expand the known mineral resources. Highlights include 29.8 g/t gold over 3.4 metres at 357 metres depth
** Santa Gertrudis drilling discovers new high-grade structure at Trinidad and further extends known resource areas - Highlights include 14.7 g/t gold over 11.5 metres at 170 metres depth at Trinidad and 5.1 g/t gold over 4.5 metres at 33 metres depth at Greta. Additional work is planned to test new targets and further expand the mineral resource potential
** Kirkland Lake drilling expands near-surface deposits at Upper Beaver and extends mineralization at depth-Shallow drilling has yielded 3.63 g/t gold and 0.21% copper over 14.0 metres at 102 metres depth, while deeper drilling has encountered 7.62 g/t gold and 0.36% copper over 3.4 metres at 1,983 metres depth, approximately 400 metres below any previous intersection
2 Payable production of a mineral means the quantity of a mineral produced during a period contained in products that have been or will be sold by the Company whether such products are shipped during the period or held as inventory at the end of the period.
3 Total cash costs per ounce is a non-GAAP measure and, unless otherwise specified, is reported on a by-product basis. For a reconciliation to production costs and for total cash costs on a co-product basis, see "Reconciliation of Non-GAAP Financial Performance Measures" below. See also "Note Regarding Certain Measures of Performance".
4 All-in-sustaining costs per ounce is a non-GAAP measure and, unless otherwise specified, is reported on a by-product basis. For a reconciliation to production costs and for all-in sustaining costs on a co-product basis, see "Reconciliation of Non-GAAP Financial Performance Measures" below. See also "Note Regarding Certain Measures of Performance".
First Quarter Financial and Production Highlights
In the first quarter of 2019, solid operational performance continued at the Company's mines, which led to payable gold production of 398,217 ounces (including 17,582 ounces of pre-commercial gold production at the Meliadine project), compared to 389,278 ounces in the first quarter of 2018.
The lower level of gold production, in the first quarter of 2019 (when excluding the Meliadine project pre-commercial production ounces), when compared with the prior-year period, was primarily due to expected reduced throughput levels at Meadowbank as the mine transitions to the Amaruq satellite deposit in the second half of 2019. A detailed description of the production of each mine is set out below.
Production costs per ounce in the first quarter of 2019 were $727, compared to $759 in the prior-year period. Total cash costs per ounce in the first quarter of 2019 were $623, compared to $648 in the prior-year period.
Production costs per ounce and total cash costs per ounce in the first quarter of 2019 were lower, when compared to the prior-year period, primarily due to lower costs at several mines and the weakening of local currencies against the U.S. dollar, partially offset by lower gold production. The lower total cash costs per ounce in the first quarter of 2019, when compared to the prior-year period, were partially offset by lower by-product revenues.
AISC in the first quarter of 2019 were $836 per ounce, compared to $889 in the prior-year period. The lower AISC when compared to the prior-year period is primarily due to lower sustaining capital and lower total cash costs per ounce compared to the first quarter of 2018. A detailed description of the cost performance at each mine is set out below.
Cash Position Remains Strong
Cash and cash equivalents and short-term investments decreased to $196.5 million at March 31, 2019, from the December 31, 2018 balance of $307.9 million, primarily as a result of the capital spending at the Company's Nunavut projects.
The outstanding balance on the Company's credit facility remained nil at March 31, 2019. This results in available credit lines of approximately $1.2 billion, not including the uncommitted $300 million accordion feature.
Approximately 35% of the Company's remaining 2019 Canadian dollar exposure is hedged at an average floor price of approximately 1.29 C$/US$. Approximately 45% of the Company's remaining 2019 Mexican peso exposure is hedged at an average floor price of approximately 19.00 MXP/US$. Approximately 15% of the Company's remaining 2019 Euro exposure is hedged at an average floor price of approximately 1.17 US$/EUR. The Company's full year 2019 cost guidance is based on assumed exchange rates of 1.28 C$/US$, 18.00 MXP/US$ and 1.18 US$/EUR. The Company anticipates adding to its operating currency hedges, subject to market conditions.
Approximately 40% of the Company's diesel exposure relating to its Nunavut operations for the July 2019 to July 2020 consumption period is hedged at prices better than the 2019 cost guidance assumption of C$0.85 per litre (excluding transportation costs). The Company anticipates adding to its diesel hedges, subject to market conditions.
Total capital expenditures (including sustaining capital) in 2019 remain forecast to be approximately $660 million. Precommercial production at Meliadine and Amaruq are incorporated in, and netted against, the total 2019 capital expenditure forecast. As a result, some variability is likely depending on the timing of the achievement of commercial production, prevailing gold prices and foreign exchange rates.
Total development capital expenditures related to the construction of the Company's new Nunavut mines, Amaruq and Meliadine, are expected to be below the combined capital expenditure forecast of $1.23 billion. At Amaruq, total development capital expenditures are forecast to be approximately $350 million and at Meliadine, total capital expenditures are expected to be below the 2018 forecast of $900 million, primarily due to strong project execution which has resulted in lower contingency costs and owners' costs.
2019 Production and Cost Guidance Unchanged
Production guidance for 2019 remains unchanged at 1.75 million ounces of gold (including pre-commercial production from Meliadine of approximately 60,000 ounces of gold and from Amaruq of approximately 40,000 ounces of gold). The Company anticipates that total cash costs per ounce and AISC for 2019 will continue to be in the range of $620 to $670 and $875 and $925, respectively. Approximately 55% of expected gold production in 2019 is anticipated to occur in the second half of 2019.
2019 Tax Guidance
Income and mining taxes expense for the first quarter of 2019 was $15.5 million, or an effective tax rate of 29%. The tax rate is lower than prior guidance partly due to the distribution of earnings by jurisdiction in the first quarter of 2019. The Company anticipates the overall effective tax rate to increase over the remainder of 2019 to the previous guidance range of approximately 45% to 50% for the full year 2019. The anticipated increase in the tax rate is due to the expected higher percentage of total gold production coming from Canada.
As previously outlined in the Company's news release dated February 14, 2019, the Company expects its effective tax rates by jurisdiction for the full year 2019 to be:
Canada - 40% to 50%
Mexico - 35% to 40%
Finland - 20%
Dividend Record and Payment Dates for the Second Quarter of 2019
Agnico Eagle's Board of Directors has declared a quarterly cash dividend of $0,125 per common share, payable on June 14, 2019, to shareholders of record as of May 31, 2019. Agnico Eagle has declared a cash dividend every year since 1983.
(1) Adjusted net income is a non-GAAP measure. For a discussion regarding the Company's use of non-GAAP measures, please see "Note Regarding Certain Measures of Performance".