Agnico-Eagle Mines Ltd. (AEM) reported second quarter EPS of $0.09, well below our estimate of $0.20 and down 67.9% year-over-year, primarily due to lower realized price for zinc and decline in zinc sales.
However, gold prices remain high and being an unhedged gold producer, Agnico-Eagle is exposed to high year-over-year gold prices, which impacts it favorably. We expect gold prices to remain at elevated levels amid strong demand conditions. In addition, the company also has a healthy pipeline of long-term projects to boost gold production.
For 2008, total cash costs per ounce are expected to be approximately $80, with the year-over-year difference in part attributable to higher production costs associated with gold sourced from new mines at the Goldex mine project and the Kittila mine project, which do not contain any by-product metals.
Meanwhile, Agnico-Eagle is moving ahead with its regional growth strategy at Lapa, the LaRonde mine extension, Goldex, and the Kittila mine. The Goldex mine (commenced operation in April 2008 and full production rate expected to be achieved by fourth quarter 2008) is expected to provide annual gold production of 175,000 ounces over a nine-year mine life.
Nonetheless, AEM is incurring heavy exploration costs due to these gold development projects, which will negatively impact the cash position this year. We reiterate our Hold rating on shares of AEM.
Read the full analyst report on AEM
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