Investor Relations Agnico -Eagle Reports Solid Second Quarter 2012 Operating and Financial Results ; Increases Full Year Production Guidance ; Announces Development of Satellite Zones at Goldex ; Meliadine Continues to Grow
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Investor Relations (416) 947-1212
(All amounts expressed in U.S. dollars unless otherwise noted)
AGNICO-EAGLE REPORTS SOLID SECOND QUARTER 2012 OPERATING AND FINANCIAL RESULTS;
INCREASES FULL YEAR PRODUCTION GUIDANCE;
ANNOUNCES DEVELOPMENT OF SATELLITE ZONES AT GOLDEX;
MELIADINE CONTINUES TO GROW
Toronto (July 25, 2012) – Agnico-Eagle Mines Limited (NYSE:AEM)(TSX:AEM) ("Agnico-Eagle" or the “Company”) today reported quarterly net income of $43.3 million, or $0.25 per share, for the second quarter of 2012. These results include a loss (mainly impairment) on available-for-sale securities of $18.3 million, or $0.11 per share, stock option expense of $7.8 million, or $0.05 per share, a non-recurring tax loss of $4.3 million, or $0.03 per share, and other non-recurring expenses of $6.2 million or $0.04 per share. Partially offsetting these items was a non-cash foreign currency translation gain of $11.0 million, or $0.06 per share. Excluding these items would result in adjusted net income of $68.9 million, or $0.40 per share. In the second quarter of 2011, the Company reported net income of $68.8 million, or $0.41 per share.
For the first six months of 2012, net income was $121.8 million, or $0.71 per share. This compares with the first six months of 2011 when net income was $114.1 million, or $0.68 per share.
Cash flow generation was strong as second quarter 2012 cash provided by operating activities was $194.1 million ($142.0 million before changes in non-cash components of working capital), up from cash provided by operating activities of $162.8 million in the second quarter of 2011 ($161.7 million before changes in non-cash components of working capital).
For the first six months of 2012, cash provided by operating activities was a record $390.6 million as compared with the first half of 2011 when cash provided by operating activities was $337.6 million.
The higher net income and cash provided by operating activities in the 2012 periods were primarily due to stronger gold production and higher realized gold prices, partly offset by lower byproduct revenues when compared to the 2011 periods.
“Another good operating performance during the second quarter has resulted in continued strength in our cash flows and earnings and a strengthening of our financial position. In addition to steady production from all of our mines, including record output at Meadowbank and Pinos Altos, we are pleased to announce a higher estimate for our full year production forecast”, said Sean Boyd, President and Chief Executive Officer. “Additionally, we are pleased to announce the start of development of two satellite zones at Goldex. We expect first gold production in early 2014 while we continue the exploration of other satellite zones” added Mr. Boyd.
Second quarter highlights include:
- Record Quarterly Production at Meadowbank – record quarterly gold production of 98,403 ounces
- Record Quarterly Production at Low Costs at Pinos Altos – record quarterly production of 63,356 ounces of gold at total cash costs per ounce of $3581.
- Strong Cash Generation – quarterly cash provided by operating activities of $194.1 million, or $1.14 per share
- M and E Satellite Zones at Goldex Approved For Development – first production expected in early 2014
- Meliadine Growing – recent drilling suggests further resource and reserve growth
Payable gold production2 in the second quarter of 2012 was 265,350 ounces compared to 239,328 ounces in the second quarter of 2011. Without considering past production from the Goldex mine (operations suspended October 2011), the 2012 result was a quarterly record from the other five operating mines. A description of the production and cost performance for each mine is set out further below.
The higher level of production in the 2012 period was largely due to record production at Meadowbank, higher grades at LaRonde and the ramp up at Pinos Altos’ Creston Mascota operation (achieved commercial production March 1, 2011) which also resulted in record gold production at Pinos Altos.
In the first six months of 2012, payable gold production was 520,305 ounces. This compares with the first half of 2011 when payable gold production was 491,690 ounces. The higher production in 2012 (in spite of the suspension of Goldex) was largely due to the factors noted above.
Total cash costs for the second quarter of 2012 were $660 per ounce. This compares with $565 per ounce in the second quarter of 2011. The higher costs in 2012 were largely attributable to lower byproduct revenue at LaRonde (35% lower zinc production and 16% lower realized zinc price) and the absence of production from the relatively lower cost Goldex mine. These factors more than offset the positive impact of higher gold production on unit costs.
For the first half of 2012, total cash costs were $628 per ounce. This compares with $548 per ounce in the first six months of 2011. The increase in 2012 is due to the factors that impacted the second quarter, as mentioned above.
Agnico-Eagle is increasing its production guidance for 2012, which was expected to be between 875,000 to 950,000 ounces of gold, to approximately 975,000 ounces of gold.
1 Total cash costs per ounce is a non-GAAP measure. For a reconciliation to production costs, see footnote (ii) to the “Reconciliation of Production Costs to Total Cash Costs per Ounce and Minesite costs per tonne” contained herein. See also “Note Regarding Certain Measures of Performance”.
2 Payable production of a mineral means the quantity of mineral produced during a period contained in products that are sold by the Company whether such products are shipped during the period or held as inventory at the end of the period.
Total cash costs per ounce are expected to be near the lower end of the previously provided range of $690 to $750.
Second Quarter 2012 Results Conference Call and Webcast Tomorrow
The Company’s senior management will host a conference call on Thursday, July 26, 2012 at 11:00 AM (E.D.T.) to discuss financial results and provide an update of the Company’s exploration and development activities.
Via Webcast:
A live audio webcast of the meeting will be available on the Company’s website homepage at www.agnico-eagle.com.
Via Telephone:
For those preferring to listen by telephone, please dial 416-644-3414 or Toll-free 800- 814-4859. To ensure your participation, please call approximately five minutes prior to the scheduled start of the call.
Replay archive:
Please dial 416-640-1917 or Toll-free 877-289-8525, access code 4507255#.
The webcast along with presentation slides will be archived for 180 days on the website. The conference call replay will expire on August 26, 2012.
Bank Debt Termed Out, Strengthening Financial Position
On July 24, 2012, Agnico-Eagle closed a private placement of an aggregate of $200 million of guaranteed senior unsecured notes due 2022 and 2024 (the "Notes") with a weighted average maturity of 11 years and weighted average yield of 4.95%. Net proceeds from the sale of the Notes will be used to reduce amounts outstanding under the Company's bank lines, thereby providing additional liquidity and strengthening the Company’s financial position. This reduction is expected to occur in the third quarter of 2012.
The Notes will not be registered under the Securities Act of 1933 (the "Securities Act") as amended, or under any state securities laws, nor will the Notes be qualified by a prospectus under Canadian securities laws. Unless so registered or qualified, as the case may be, the Notes may not be offered or sold in the United States or Canada, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws or the prospectus requirements of Canadian securities laws, respectively.
In addition, on July 20, 2012, the Company amended its non-amortizing, unsecured $1.2 billion revolving credit facility to extend the scheduled maturity to July 2017. Pricing terms were amended to reflect improved market conditions.
Cash and cash equivalents totaled $289.1 million at June 30, 2012, up from the March 31, 2012 balance of $199.1 million, as strong operating cash flows exceeded capital expenditures and dividend payments.
Capital expenditures in the second quarter of 2012 were $104.4 million, including $31.2 million at Meadowbank, $27.0 million at Meliadine, $17.9 million at LaRonde, $14.4 million at Kittila, $9.2 million at Pinos Altos and $2.3 million at Lapa.
Capital expenditures are expected to total approximately $452 million in 2012, up $34 million from previous guidance. The increase is primarily due to the development of the M and E zones at Goldex ($24 million) and other newly approved projects such as the accelerated development of the Vault pit at Meadowbank into 2012 from 2013 ($9 million).
| 2012 Capex Variance | Project | Cost (millions) |
| Meadowbank | Goose, Vault, Central Dyke | $17.0 |
| Meliadine | Various | $8.7 |
| Lapa | Exploration to Extend Mine Life | $5.2 |
| Kittila | Paste Plant, Feasibilty Study | $4.4 |
| Deferred Capex | Moved from 2012 to 2013 | ($15.3) |
| Foreign Exchange | Impact of CAD, Euro | ($10.0) |
| Goldex | Development of M and E Zones | $24.0 |
| Total | $34.0 |
Agnico-Eagle believes that, over the next five years, total capital expenditures are likely to be in the neighbourhood of $500 million to $600 million per year, on average. Expenditures considered in this estimate include the 25% expansion at Kittila, new mines at La India in Mexico and Meliadine in Nunavut, and the development of the M and E zones at Goldex. With its current cash balances, anticipated cash flows and available bank lines, management believes that the Company remains fully funded for the development and exploration of its current pipeline of expansions and new gold projects in Canada, Finland, Mexico and the USA.
Available bank lines under the credit facility, as of June 30, 2012, were approximately $970 million.
LaRonde – Transition to Lower Mine Continues to be Challenging
The 100%-owned LaRonde mine in northwestern Quebec, Canada, began operation in 1988. Current mine life is estimated to be through 2026.
The LaRonde mill processed an average of 6,294 tonnes per day (“tpd”) in the second quarter of 2012, compared with an average of 6,587 tpd in the corresponding period of 2011. The lower throughput in the 2012 period was largely due to the transition to the lower mine where factors such as heat, congestion and the unbudgeted replacement of a hoist rope negatively impacted the tonnage milled during the second quarter.
Minesite costs per tonne3 were approximately C$97 in the second quarter of 2012. These costs are higher than the C$84 per tonne experienced in the second quarter of 2011. The increase is largely due to the fourth quarter 2011 transition into the deeper ore at LaRonde.
3 Minesite costs per tonne is a non-GAAP measure. For reconciliation to production costs, see footnote (v) to the “Reconciliation of production costs to Total Cash Costs per Ounce and Minesite Costs per Tonne”
contained herein. See also “Note Regarding Certain Measures of Performance”.
Approximately two thirds of the ore milled is now coming from the deeper, relatively higher grade mine.
For the first six months of 2012 the LaRonde mill processed an average of 6,691 tpd. Minesite costs per tonne were approximately C$93, slightly higher than the C$90 per tonne estimated for the full year.
On a per ounce basis, net of byproduct credits, LaRonde’s total cash costs per ounce were $784 in the second quarter of 2012 on production of 40,206 ounces of gold. This is in contrast with the second quarter of 2011 when total cash costs per ounce were $231 on production of 27,525 ounces of gold. The increase in total cash costs was mainly due to lower byproduct revenues (for example, the realized zinc price was down approximately 16% and zinc production was down 35%, period over period) and higher unit costs as previously mentioned. This was only partly offset by the higher ounce production (which was largely due to the 50% higher gold grades in the 2012 quarter).
In the first six months of 2012, LaRonde produced 83,487 ounces of gold at total cash costs per ounce of $489. This is in contrast with the first half of 2011 when the mine produced 64,418 ounces of gold at total cash costs of $92 per ounce.
Post-2012, LaRonde is expected to ramp up production over the next several years to an average life of mine production of more than 300,000 ounces of gold per year, reflecting the higher gold grades expected at depth. As a result of the higher grades, the value of the ore expected to be processed over LaRonde’s remaining 15-year life is forecast to be approximately 50% higher than the value of the ore mined in 2011 (assuming the same metals prices).
Kittila Mine – Increased Production at Lower Costs
The 100%-owned Kittila mine in northern Finland achieved commercial production in May 2009. Current mine life is estimated to be through 2044.
The Kittila mill processed an average of 2,758 tpd in the second quarter of 2012. In the second quarter of 2011, the Kittila mill processed 2,561 tpd. The mill operated below its design rate of 3,000 tpd in the 2012 period due to a planned maintenance shutdown which lasted for 18 days (maintenance shutdowns totaled 15 days in the second quarter of 2011).
Minesite costs per tonne at Kittila were approximately €75 in the second quarter of 2012, compared to €79 in the second quarter of 2011. The decrease in minesite costs was largely the result of successful cost control measures and the higher throughput, as mentioned above.
For the first six months of 2012, the Kittila mill processed an average of 2,969 tpd. Minesite costs per tonne were approximately €71, tracking the €71 per tonne estimated for the full year.
Second quarter 2012 gold production at Kittila was 35,228 ounces with a total cash cost per ounce of $681. In the second quarter of 2011 the mine produced 30,811 ounces at total cash costs per ounce of $850. The higher production and lower costs were largely the result of improved throughput, higher mill recovery in the second quarter of 2012.
In the first six months of 2012, Kittila produced 81,986 ounces of gold at total cash costs per ounce of $615. This is in contrast to the first half of 2011 when the mine produced 71,128 ounces of gold at total cash costs of $758 per ounce.
In the second half of 2012, two 10-day maintenance shutdowns are scheduled for the mill. This follows the 18-day shutdown that occurred in the second quarter of 2012. Annually, approximately 44 days are budgeted for maintenance of the autoclave and other parts of the mill.
A study is underway examining the possibility of increasing the production rate at Kittila by approximately 25%. Capital expenditures are expected to be less than $100 million. This project is expected to be reviewed and presented to the Board of Directors in late 2012.
Additionally, considering the drilling success at Kittila on the Rimpi zone, a larger expansion may be possible in the future. A program is now underway to accelerate the ramp development and exploration drilling towards the northern end of the Kittila orebody. Incorporating this new drilling, a study on a future phased expansion is ongoing.
Lapa – Steady Operating Results
The 100%-owned Lapa mine in northwestern Quebec achieved commercial production in May 2009. Current mine life is estimated to be through 2015.
The Lapa circuit, located at the LaRonde mill, processed an average of 1,741 tpd in the second quarter of 2012. This compares with an average of 1,763 tpd in the second quarter of 2011 as the Lapa circuit now consistently exceeds its design rate of 1,500 tpd.
Minesite costs per tonne were C$113 in the second quarter of 2012, compared to C$102 in the second quarter of 2011. The higher minesite cost is largely due to higher expenditures for consumables and general cost pressure in the industry.
For the first six months of 2012 the Lapa mill processed an average of 1,740 tpd. Minesite costs per tonne were approximately C$116, tracking below the C$124 per tonne estimated for the full year.
Payable production in the second quarter of 2012 was 28,157 ounces of gold at total cash costs per ounce of $634. This compares with the second quarter of 2011, when production was 28,552 ounces of gold at total cash cost per ounce of $599. The increase in cash costs is largely due to the same factors that impacted the minesite cost per tonne.
In the first six months of 2012, Lapa produced 56,656 ounces of gold at total cash costs per ounce of $650. This compares to the first half of 2011 when the mine produced 55,466 ounces of gold at total cash costs of $614 per ounce.
Exploration continues to focus east of the orebody. New expenditures of $5.2 million (largely lateral development and mobile equipment) were approved with the goal being the extension of the mine’s life past 2015.
Pinos Altos – Record Gold Production at Low Cost Generates Record Quarterly Mine Profit
The 100%-owned Pinos Altos mine in northern Mexico achieved commercial production in November 2009. Current mine life is estimated to be through 2029.
The Pinos Altos mill processed an average of 5,036 tpd in the second quarter of 2012, a quarterly record. This compares favourably with 4,711 tonnes per day in the second quarter of 2011.
Approximately 753,000 tonnes of ore were stacked on the Pinos Altos and Creston Mascota leach pads during the second quarter of 2012. In the second quarter of 2011, approximately 686,000 tonnes were stacked on the leach pads. The increase in tonnes stacked was mainly a result of a full quarter of operation at Creston Mascota, which achieved commercial production in March 2011.
Minesite costs per tonne were $30 in the second quarter of 2012, compared to $28 in the second quarter of 2011. The higher costs in 2012 are largely a result of higher than planned processing costs partly related to the higher overall milled tonnage.
For the first six months of 2012 the Pinos Altos mill processed an average of 5,002 tpd. Minesite costs per tonne were approximately $28, tracking slightly above the $27 per tonne estimated for the full year.
Payable production in the second quarter of 2012 was a record 63,356 ounces of gold at total cash costs per ounce of $358, including the satellite Creston Mascota operation. This compares with production of 51,066 ounces at a total cash cost of $299 in the second quarter of 2011. The increase in production was largely due to the ramp up from Creston Mascota and the increase in the total cash costs per ounce was due to lower byproduct credits from silver combined with a reduction in deferred stripping.
In the first six months of 2012, Pinos Altos produced 120,372 ounces of gold at total cash costs per ounce of $320. This is in contrast to the first half of 2011 when the mine produced 99,067 ounces of gold at total cash costs of $306 per ounce.
The Pinos Altos mine has been awarded the prestigious Silver Hard Hat (Casco de la Plata) award by the Chamber of Mines in Mexico for its mine safety record in the past year which includes more than one year of operations without a lost time accident.
La India – The Next New Mine
Infill drilling, permitting, and engineering activities continued at the La India project in Sonora, Mexico which is expected to be developed as an open pit heap leach operation. La India is approximately 60 kilometres by air from Pinos Altos.
More detailed project information is expected to be provided in 2012.
Meadowbank – Record Mill Throughput and Gold Production
The 100%-owned Meadowbank mine is located in Nunavut, northern Canada. Current mine life is estimated to be through 2017.
The Meadowbank mill processed an average of 9,901 tpd in the second quarter of 2012, a quarterly record. This compares with 7,332 tpd in the second quarter of 2011. The higher throughput, period over period, is largely due to the July 2011 commissioning of the permanent secondary crushing unit.
Minesite costs per tonne were C$90 in the second quarter of 2012. Minesite costs per tonne were C$81 in the second quarter of 2011. The higher costs in the 2012 period were in spite of the higher throughput which was more than offset by stockpile drawdowns (the stockpile is higher cost) and reduced levels of deferred stripping. Before these accounting adjustments, the total production expense per tonne was actually lower in the 2012 period.
For the first six months of 2012, the Meadowbank mill processed an average of 9,825 tpd. Minesite costs per tonne were approximately C$91, tracking below the C$97 per tonne estimated for the full year.
Payable production in the second quarter of 2012 was a quarterly record at 98,403 ounces of gold at total cash costs per ounce of $804. This compares with payable production in the second quarter of 2011 of 59,376 ounces of gold at total cash costs per ounce of $910. The large increase in gold production (grade up 21%, period over period, on top of the higher throughput) was only partly offset by increased minesite costs in 2012 resulting in lower cash costs.
In the first six months of 2012, Meadowbank produced 177,804 ounces of gold at total cash costs per ounce of $901. This is in contrast to the first half of 2011 when the mine produced 121,113 ounces of gold at total cash costs of $927 per ounce.
Goldex Mine – GEZ Remains Suspended. Based on Preliminary Economic Assessment, M and E Zones Under Development
Upon startup in 2008 at the 100%-owned Goldex mine in northwestern Quebec, mining was focused on the Goldex Extension Zone (“GEZ”). However, ore production was suspended in October 2011 due to geotechnical concerns with the rock above the mining horizon. All gold reserves were transferred to the resource category and the property was written down to salvage value. The operations in the GEZ remain suspended indefinitely.
Since the suspension, work on site has focused on monitoring, assessment and remediation. Additionally, exploration continued on several other nearby mineralized zones on the property. A team of independent consultants and Agnico-Eagle staff performed a thorough review, including a preliminary economic assessment based only on the indicated resources, to determine whether future mining operations in these zones, including the M and E Zones, would be viable. After their review of the assessment, the Board of Directors has approved these two zones for development and first gold production (via longhole open stoping with paste backfill) is expected in early 2014. All necessary operating permits have been received.
Goldex Long Section
Goldex X section
The operations will use the existing infrastructure including the shaft and mill. Expected approximate life of mine operating metrics, based on the preliminary economic assessment of the M and E Zones, are set out in the table below.
| Daily Throughput | 5,100 tpd |
| Gold Grade | 1.5 g/t |
| Mill Recovery | 92% |
| Total Gold Production Through 2017 | 300,000 ounces |
| Minesite Cost | C$41 per tonne |
| Total Cash Costs | $900 per ounce |
| Life of Mine | 4 years |
| Exchange Rate | C$1.03 per USD |
| Net Free Cash Flow | $70 million |
Capital expenditures to commercial production are expected to total approximately $95 million. The expected after-tax internal rate of return resulting from the preliminary economic assessment, assuming a gold price of $1500 per ounce, exceeds Agnico-Eagle’s investment target rate of 15%.
Additionally, the cash flows from this project will help fund exploration and possible development of additional mineralized zones including the D Zone. The D Zone is approximately 150 metres below the GEZ. Drilling to date has outlined a large and growing mineral resource as set out in the table below.
Goldex Mineral Resources as of December 31, 2011
| Category | Gold (g/t) | Tonnes (x000) |
|---|---|---|
| Measured Resources (Underground) GEZ | 1.86 | 12,360 |
| Total Measured Resources | 1.86 | 12,360 |
| Indicated Resources (Underground) GEZ | 1.60 | 7,807 |
| E zone | 1.61 | 4,269 |
| M zone | 1.84 | 4,355 |
| D zone | 1.81 | 3,722 |
| Other zones* | 1.86 | 4,295 |
| Total Indicated Resources | 1.72 | 24,448 |
| Measured and Indicated Resources | 1.77 | 36,808 |
| Inferred Resources (Underground) GEZ | 1.80 | 2,529 |
| E zone | 1.28 | 2,480 |
| M zone | 1.29 | 1,354 |
| D zone | 1.57 | 21,804 |
| Other zones* | 1.96 | 2,914 |
| Total Inferred Resources | 1.59 | 31,081 |
- "Other zones" includes P, E2, M2, S and South zones
The exploration program on the D Zone is expected to comprise underground drilling from the ramp with approximately $5 million remaining to be spent in 2012.
Meliadine – Exploration Success Continues. Permitting and Permanent Road Construction Underway
In July 2010, Agnico-Eagle completed the acquisition of the Meliadine project near Rankin Inlet, Nunavut.
Approximately $91 million is expected to be spent on Meliadine exploration and infrastructure in 2012. The main focus of the exploration program is conversion drilling in the main deposit which will be incorporated in an updated feasibility study. Additionally, construction is underway on a permanent all-season road linking the project with the community of Rankin Inlet which is approximately 24 kilometres away.
The initially planned drill program is expected to be completed by the end of July. This program focused both on conversion of resources to reserves, but also on exploration drilling outside of the current resource envelope.
The conversion program has been focusing mainly on Tiriganiaq, F Zone and Wesmeg deposits, while the exploration drill program has been focusing on the expansion of Wesmeg, Pump, F zone and Discovery deposits.
The Company recently approved a $9.8-million supplementary budget to extend the drill program by two months. The supplementary drilling is designed to add new resources in lateral and deep extensions of the known deposits. The focus will be the newly discovered Normeg zone as well as extending the Pump, F Zone and Wesmeg deposits. The locations of selected drill collars and the areas of drilling for the rest of the season are shown on the geology map below.
[Meliadine local geology map]
Wesmeg Zone Extended
Resource conversion drilling has continued to outline good grades and thicknesses between surface and 175 metres depth in the central portion of the Wesmeg zone. Drilling has also extended the Wesmeg zone westward by more than 300 metres. The Wesmeg zone now extends approximately 3.6 kilometres east-west. Recent intercepts at Wesmeg are set out in the table below, and on the Wesmeg/Normeg longitudinal section.
Significant recent Wesmeg drill results Program From To Depth Estimated Gold Gold Drill Hole (metres) (metres) below true width grade grade