Agnico to Invest $1.2 Billion in Gold Projects in Canada’s North

  • Miner moving ahead with Meliadine and expansion of Meadowbank
  • Projects would boost Agnico annual output to 2 million ounces

Agnico Eagle Mines Ltd. plans to invest more than $1.2 billion in Canada’s subarctic in the next three years as it builds one new mine and expands another.

North America’s fourth-largest gold miner by market value is moving ahead with plans to develop its Meliadine project and a deposit near its Meadowbank mine in Nunavut, the company said Wednesday in its fourth-quarter earnings statement. The decision will boost Agnico’s gold production to 2 million ounces a year by 2020, about 20 percent more than last year’s output of 1.66 million ounces.

“This is very much low-risk, high-quality growth because it’s an extension of what we’ve been doing for the last many, many years,” Chief Executive Officer Sean Boyd said in an interview at the company’s Toronto offices.

Agnico will spend $900 million through 2019 to build a new mine at its Meliadine deposit, located on the western shore of Hudson Bay, about 290 kilometers (180 miles) southeast of its Meadowbank mine, Boyd said. Over the same period it will spend another $330 million to develop Amaruq, a satellite deposit northwest of Meadowbank that will extend that mine’s life by at least six years.

The expenditures will be funded with existing cash, free cash flow and, if needed, funds drawn from an untapped $1.2 billion revolving credit facility, Boyd said.

Execution Risk

Previously, the company had said that it had the potential to grow production to 2 million ounces a year by developing assets it already owns. The biggest risk for Agnico in moving forward on any new projects is the cost, Josh Wolfson, an analyst with Dundee Capital Partners, said last week in a phone interview from Toronto. “In addition to that there is execution risk. The more projects you take on, the more risk you take on in terms of execution.”

The company has previously stumbled over its ambitions. Between 2008 and 2010, Agnico struggled to bring five mines on stream, missing production and cost guidance. Mining at its Goldex mine in Quebec was suspended in 2011 because of flooding and rock instability.

“We overestimated our ability to manage logistics and planning and support and that set us back,” Boyd acknowledged. However, the company’s growth strategy during that period included building new mines in new parts of the world and can’t be compared to the Nunavut expansion, he said. “This is totally different than where we were.”

In recent years, the company has had more operational success. Throughout the downturn, in which gold prices plunged from their 2011 peak, Agnico’s margins remained largely unscathed, thanks to expansions and weaker currencies in the countries where it operates: Canada, Finland and Mexico.

Agnico is not the only miner seeking to boost production as gold prices have emerged from a prolonged downturn. Goldcorp Inc. said in January it expects to increase production by 20 percent in the next five years. Like Agnico, it continued to expand through the downturn while other companies, including Barrick Gold Corp., were shedding assets.

On Wednesday, Agnico reported fourth-quarter production of 426,433 ounces of gold, compared with the average of 10 analysts’ estimates for 400,745 ounces. Per-share earnings before one-time items were 2 cents, compared with the 8-cent average estimate.

Meliadine and Amaruq are both expected to begin production in the third quarter of 2019, Boyd said. His expectation is that the company’s Nunavut operations will be producing 700,000 to 800,000 ounces of gold annually by 2022, including 400,000 ounces from Meliadine by 2021. Amaruq is expected to hit full production of 430,000 ounces a year by 2022. Meliadine is expected to have a 14-year mine life.

Deal Talk

The company’s success in regions of low geopolitical risk has led to speculation it could be a takeover target, or candidate for a merger. Boyd has previously predicted more consolidation in the industry, but says in his 32 years with company it only received one “inbound” call and that was in 1996, shortly after the death of founder Paul Penna.

“We have not been approached,” Boyd said in the interview last week. “Look what we’ve done and look what we’ve got ahead. We don’t need anybody.”

Partnering with other miners on specific projects is a different matter, he added. In an interview last month, Goldcorp CEO David Garofalo said he has met recently with major miners, including Agnico, about the possibility of joining forces to develop greenfield projects. Boyd confirmed that he met with Garofalo in late 2016 but says no specific project was discussed. The company’s preference is to develop projects on its own, “but you can never say never,” he said.

And while Agnico only rarely buys producing assets -- as it did when it partnered with Yamana Gold Inc. to acquire the Canadian Malartic mine from Osisko Mining Corp. in 2014 -- he doesn’t rule that out either.

He believes the company’s internal pipeline will allow it to grow beyond 2 million ounces of production a year. Whether it chooses to grow further through acquisitions depends on the assets available, he said.

“Could we have 12 mines five years from now?” Boyd said. “It depends where they are and what they are.”

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