Agnico Eagle Stock: Q4 2021 Earnings Results Analysis (NYSE: AEM)

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Closeup of big gold nugget

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Agnico Eagle (NYSE: AEM) is one of my favorite long-term gold miners that I have been regularly following on Seeking Alpha for many years. The company reported its fourth-quarter and full-year 2021 results on February 24, 2022.

1 – 4Q21 and full-year 2021 results snapshot

Agnico Eagle reported a net income of $ 101,106 million or $ 0.41 per diluted share in the fourth quarter of 2021, compared to $ 205.22 million or $ 0.84 per diluted share reported last year.

The adjusted earnings per share came in at $ 0.46, slightly missing analysts’ expectations. The company generated revenues of $ 949,101 million, up 2.2% year over year.

In the fourth quarter of 2021, the Company’s payable gold production was 501,227 ounces (excluding 705 ounces of payable gold production at Hope Bay and including 1,608 ounces of pre-commercial gold production Amaruq underground project).

Production in the fourth quarter of 2021 was negatively affected by a reduction in operating activities in Nunavut, primarily due to a COVID-19 outbreak in mid-December 2021. Finally, the company raised the quarterly dividend to $ 0.40 per share in 4Q21.

Agnico Eagle’s Board of Directors has declared a quarterly cash dividend of $ 0.40 per common share, payable on March 15, 2022 to shareholders of record as of March 7, 2022. The quarterly dividend has increased 14% from the previous quarterly dividend of $ 0.35. Agnico Eagle has declared a cash dividend every year since 1983.

Ammar Al-Joundi, the new CEO, said in the conference call:

we see opportunities that are greater than the expectations that we identified when we announced the merger and we’ll talk about that. And then finally, and importantly, building on our long history of capital returns, announcing a 14% increase in the quarterly dividend to $ 0.40 per share. And our intention to launch a normal course issuer – issuer bid to replace – to repurchase up to $ 500 million of our shares.

Note: This article will focus on Agnico Eagle before the merger with Kirkland Lake Gold. I will analyze the new AEM in the first quarter of 2022.

2 – Stock performance

Agnico Eagle, Newmont (NYSE: EASY)Barrick Gold (NYSE: GOLD) are my core long gold miners. AEM is down 8% on a one-year basis and still underperforms most of its peers significantly. After an excellent rebound from April to June, the group turned bearish until about a week ago due to a combination of high inflation and Russia invading Ukraine.

Note: On February 8, 2022, Agnico Eagle and Kirkland Lake Gold announced the completion of the previously announced merger of equals transaction. Thus, the fourth quarter will be the last quarter, excluding Kirkland Lake Gold’s assets.

1-year comparison chart: AEM, NEM, GOLD, GDX
Data by YCharts

A quick look at Agnico Eagle’s production in 4Q21 shows a weak quarter. Agnico Eagle presently produces gold from 10 mines (including Hope Bay) with details below:

AEM: Chart comparison production per mine Q3 Q4

AEM: Chart comparison production per mine Q3 Q4 (Fun Trading)

3 – Investment thesis

The investment thesis continues to be the same, quarter after quarter. Agnico Eagle presents a solid financial profile that fits the requirements of a savvy investor’s balanced portfolio.

The company is generating significant free cash flow and pays a safe dividend. However, the stock performance has been lagging behind its peers for quite a while now, and the merger with Kirkland Lake Gold completed in early February has not changed much so far.

Thus, as I have said in my previous articles, I recommend accumulating this gold miner on any weakness for the long term, but not expecting a stellar increase unless gold turns extremely bullish and can cross $ 2,000 per ounce again.

However, to profit, it’s crucial to trade short-term LIFO a minimum of 30% -40% of your AEM position to benefit from the current gold volatility, which will probably increase even more starting in the second week of March when the Fed will decide on how to respond to the rampant inflation.

I believe that the gold price is not likely to remain bullish and will probably retrace from the $ 1,900s to probably below $ 1,800 per ounce.

Agnico Eagle – Financials and Production in 4Q21 – The Raw Numbers

Agnico Eagle 4Q20 1Q21 2Q21 3Q21 4Q21
Total Revenues in $ Million 928.5 934.4 966.3 974.1 949.1
Net Income in $ Million 205.2 136.1 189.6 114.8 101.1
EBITDA $ Million 489.9 432.9 480.8 415.6 388.5 *
EPS diluted in $ / share 0.84 0.56 0.77 0.47 0.41
Cash from operations in $ Million 403.5 356.4 406.9 291.0 261.7
Capital Expenditure in $ Million 224.7 181.9 204.3 244.6 236.9
Free Cash Flow in $ Million 178.8 174.5 202.6 46.4 24.8
Total Cash $ Billion (including equity securities) 0.41 0.13 0.28 0.24 0.19 / 0.97 **
Total debt in $ Billion 1.57 1.57 1.57 1.57 1.57
Dividends per quarter in $ / share 0.20 0.35 0.35 0.35 0.40
Shares outstanding diluted in million 244.1 244.2 244.8 244.9 245.3 / 454.8 ***

Source: Company filing and Fun trading.

* Estimated by Fun Trading

** Cash on Hand after the merger is estimated at $ 973 million, according to the press release.

*** Shares outstanding is 454.8 million as of February 23, 2022.

[the company] intends to launch a normal course issuer bid to repurchase for cancellation up to 9 million of its common shares, for up to an aggregate amount of $ 500 million, representing approximately 2% of its 454.8 million common shares issued and outstanding as at February 23, 2022 .

Part I – Gold Production Details

1 – Gold production

Agnico Eagle had a weaker-than-expected gold production this quarter. Production was 502,932 Au Oz from 541,663 Au ounces the preceding quarter. The company sold 501,227 Oz, not including 705 Oz from Hope Bay.

AEM: Chart Gold production history

AEM: Chart Gold production history (Fun Trading)

LaRonde, Meliadine, Meadowbank, Canadian Malartic, and Kittilä are the five primary producing mines. Hope Bay mine is a new mine for the company.

The new AEM will have three new producing mines (Detour, Fosterville, and Macassa).

ChartAEM: Chart production per mine in 4Q21

AEM: Chart production per mine in 4Q21 (Fun Trading)

All-in sustainable costs, or AISC, are now down sequentially, with an average of $ 1,126 per ounce in 4Q21. AISC is up sequentially from $ 1,059 per ounce the preceding quarter. The company was experiencing some inflation pressure this quarter and sold production was low.

AEM: Chart AISC history

AEM: Chart AISC history (Fun Trading)

The AISC is likely to go down in the first quarter of 2022 with Kirkland’s assets which have a very low AISC.

2 – Guidance for 2022

The company expects payable gold production for 2022 to be in the range of 3.2-3.4 Moz.

It also projects total cash costs per ounce of $ 725- $ 775 and AISC of $ 1,000- $ 1,050 per ounce for 2022.

The forecast for 2022 capital expenditures is set at roughly $ 1.4 billion.

Part II – Balance Sheet Analysis

1 – Revenues of $ 949,101 million in 4Q21

Revenues were $ 949.101 million, up 2.2% compared to the same quarter a year ago and down 2.6% quarter over quarter.

The company posted a $ 101,106 million net income, or $ 0.41 per diluted share, in the fourth quarter of 2021.

AEM: Chart revenues history

AEM: Chart revenues history (Fun Trading)

The gold price realized was $ 1,795 per ounce during the fourth quarter of 2021. The total cash from operating activities was $ 261.72 million in the quarter, down 35.1% year over year (please see table).

AEM: Chart gold price history

AEM: Chart gold price history (Fun Trading)

The silver price, a component for Agnico Eagle, has been dropping sequentially. The silver price realized for 4Q was $ 23.08 per ounce. The zinc price was $ 1.48 per pound, and the copper price was $ 4.59 per pound in 4Q21.

2 – Free cash flow was $24.83 million in 4Q21

Trailing twelve-month free cash flow was $ 448,315 million (“TTM”), and the free cash flow for 4Q21 was $ 24.83 million. The quarterly FCF was quite disappointing and, due to low cash from operations, down 46.5% sequentially.

AEM: Chart free cash flow history

AEM: Chart free cash flow history (Fun Trading)

Free cash flow generation is expected to be strong in the next few quarters, and the company decided to increase the quarterly dividend to $ 0.40 per share, or about a 3% yield.

3 – Net debt was $ 1.32 billion in 4Q21

Agnico Eagle has solid financials with a low net debt of $ 1.32 billion, up sequentially from $ 1.16 billion.

Agnico Eagle’s debt profile is what we want to see for a long-term investment.

AEM: Chart Cash versus Debt

AEM: Chart Cash versus Debt (Fun Trading)

Agnico Eagle had total cash of $ 191.074 million in 4Q21 compared to $ 406.46 million as of December 31, 2020. Long-term debt was around $ 1,565.22 million, compared to $ 1,565.24 million in 4Q20.

The company now has over $ 2.2 billion in liquidity, including $ 973 million in cash.

4 – 2021 Reserves (Proven and Probable) – Total AEM and KL are 44,733 Moz.

AEM Mineral reserves table

AEM Mineral reserves AEM (Agnico Eagle)

AEM Mineral reserves table

AEM: Mineral reserves KL (Agnico Eagle)

Technical Analysis and commentary

AEM technical analysis chart

AEM: TA Chart (Fun Trading)

Note: The chart has been adjusted for dividends.

AEM forms a descending channel pattern with resistance at $ 56.5 and support at $ 47, with a mid-pattern support / resistance at $ 51.20.

The trading strategy I recommend is to sell about 30% between $ 56 and $ 57 and buy accumulate between $ 51.2 and $ 47.

AEM has not been an excellent proxy for gold lately. However, AEM is trending up now, with the gold price reaching $ 1,940 per ounce today on fear related to the invasion of Ukraine by Russia and a rampant multi-year high inflation.

This period of uncertainty about how the Fed will react against rampant inflation that seems more permanent than previously thought has been highly volatile for the gold miners and notably for AEM.

I expect the group to experience frequent wild swings for the next several months. Thus, it is crucial to allocate a sizeable portion of your investment in AEM to trade short-term LIFO and take advantage of the volatility.

Warning: The TA chart must be updated frequently to be relevant. It’s what I’m doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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