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Agnico Eagle:
Gold Mining’s Mega-Cap Market Darling

Quarterly gold production and cost performance remain solid for Agnico Eagle, notes Philip MacKellar, portfolio manager at Contra the Heard investment newsletter. MacKellar, a contrarian investor, had the following observations on Agnico Eagle’s solid quarter.

“Agnico Eagle (NYSE/TSX: AEM) is a gold mining mega-cap. Since Ag¬nico and Pan American announced their intention to carve up and acquire Yamana, I have been di¬gesting a lot of reports on both companies. Many of the commentaries describe Agnico, its deposit base, and its outlook in glowing terms. Sometimes the analyst descriptions are a bit gushy. All the fawning and flattering has not translated into out¬rageous price targets, though.

Indeed, while the analyst community rated the stock as a buy or strong buy at the end of the third quarter, the price targets ranged between $71.99 and $97.79.

That is a huge spread, which suggests there are sharp dif¬ferences in opinion out there.

In a September interview, CEO Ammar Al-Joundi stated, “We want to be the best miner in the regions we operate.” By this he means he wants Agnico to have best-in-class mining experience, and the best possible understanding of the regions they work in. He wants to expand the corporation’s footprint globally, but more importantly, he wants to consolidate and control the Abitibi Gold Belt in the same way Barrick Gold and Newmont have done in Nevada. The acquisition of Yamana’s Ma¬lartic and Wasamac exemplify Al-Joundi’s vision and should benefit AEM shareholders.

Agnico’s latest results were solid. Gold pro¬duction reached a record high and cost control came in better than expected. This said, the AISC was elevated from the prior-year quarter. Sales rose from $2.0 billion a year ago to $2.3 billion, and EPS clocked in at $0.88, versus $0.82. Operating and free cash flows were higher as well. During the quarter, the business repaid $900 million on its unsecured revolving bank credit facility and Moody’s upgraded its credit rating outlook from stable to positive but affirmed the credit rating at Baa2. The full-year outlook calls for production within the 3.2 million to 3.4 million range at an AISC of $1,140 to $1,190.

Though Agnico’s numbers were good and I am optimistic about its outlook, I will forgo the rosy commentary I so often read on the name. For our part here at Contra, AEM remains a Hold and the sell range is unchanged. The Target Price is $80.00 to $85.00.”

Editor’s Note: Published since 1995, Contra the Heard investment newsletter focus is on undervalued securities that are able to generate better than 50% returns via capital gains, dividends, spin-offs, etc. Contra the Heard portfolio managers are contrarian/value investors, the portfolios typically hold between 20 and 30 stocks. For more information, Contra the Heard, 1 year, 4 issues, $680 (plus applicable tax), Email Updates, 2500 Forbes St., Victoria, BC V8R 4B8,

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