Mining Their Own Business

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He who wakes up early finds gold. ~ Hungarian Proverb 

Those who work for Agnico-Eagle Mines (NYSE: AEM) must be rising quite early, if the company's recent numbers are any indication. Agnico-Eagle Mines is a gold producer, their objective is to continue increasing yearly gold production through building and exploring their own mines. This focus is paying off for the company. The following are a few key things for investors to consider when performing due diligence on Agnico-Eagle Mines.

Gold production

The company's fourth quarter 2012 results include record full-year gold production of 1,043,811 ounces. This beat their guidance of 1,025,000 ounces. Significant to investors is that Agnico-Eagle's total cash costs associated with this production were $640 per ounce for the year, compared to guidance of $660 per ounce.

However, total cash costs for the fourth quarter of 2012 were $769 per ounce compared to $671 per ounce for fourth quarter 2011. Investors should consider a company's challenges as applies to mining. For example, at Agnico-Eagle's LaRonde operations in Quebec, Canada, the company reported that, "the ramp-up of tonnage from the higher grade, deeper levels continues to be challenging due to heat and congestion in the mine." This was one contributor to their fourth quarter increase in total cash costs.

How did other mining companies fare concerning gold production for the full year 2012? One example is Coeur d'Alene Mines (NYSE: CDE). The company reported in February that production totaled a record 226,486 gold ounces. The company expects to generate strong operating cash flow from anticipated 2013 production of a record 250,000 - 265,000 ounces of gold. Coeur d'Alene's gold production was up 3% from 2011. Of note to investors is that the company expects to invest $40 million in exploration. Their corporate objective is increasing estimated mineral reserves and resources at year-end 2013.

Capital allocation

Agnico-Eagle's estimated capital expenditures for 2013 include approximately $201 million of sustaining capital at their mines as well as $357 million on new projects.  Moreover, they expect to spend approximately $38 million on capitalized exploration. The company is expanding their Kittila operation in Northern Finland. They will allocate $25 million to Kittila this year. The expectation is that the total expenditure on the project will be approximately $103 million over a three-year period. Important to investors is that the company expects the 750 tonne per day expansion to increase the throughput capacity at the mine to 3,750 tonnes per day starting in the second half of 2015.

What's the story on capital allocation for other mining companies? One example is Newmont Mining (NYSE: NEM). Their consolidated capital expenditures were $3.2 billion in 2012. This was up from $3 billion in 2011. They spent approximately $1 billion on major projects in 2012. Important for investors to note is that Newmont Mining has a development plan and is allocating capital to many projects this year.  They plan to invest approximately $2.1 billion to $2.3 billion in attributable capital expenditures this year.

Approximately 40% of this is to development capital. This includes allocations for the Akyem project (approximately $250 million), the Ahafo Mill Expansion (approximately $150 million), the Conga project (approximately $150 million), and other expansion projects in Nevada (approximately $260 million) and at La Herradura (approximately $40 million). Investing in development has the potential to provide long-term shareholder returns.

Forecasted production

A mining company's outlook for production is vital for investors. In 2013, Agnico-Eagle expects payable gold production to be within the range of 970,000 ounces to 1,010,000 ounces. In 2014, the company expects payable gold production to be in the range of 1,100,000 ounces to 1,140,000 ounces. In 2015, they expect payable gold production to be greater than 1,200,000 ounces.

Newmont Mining expects 2013 attributable gold production to be approximately 4.8 million to 5.1 million ounces. Newmont reported attributable gold production of 5.0 million ounces in 2012. Investors should consider a company's potential for increasing their gold production, as is the case with Agnico-Eagle.

Cash flow and dividends

Agnico-Eagle had record annual operating cash flows for full year 2012. Cash provided by operating activities was up year-over-year, to $696 million ($4.06 per share). In 2001, they had cash provided by operating activities of $667.2 million. It's important because significant cash flows from operating activities means a company can most likely refrain from or limit their need for external funding. In essence, they're financing themselves and can carry on with their operating initiatives.

Investors should consider dividend-paying stocks as a security blanket against stock price volatility and as a component of an investment's total return. Agnico-Eagle has declared a dividend for 31 consecutive years. Their fourth quarter and full year 2012 highlights include their quarterly dividend up 10% to $0.22 per share. Newmont's 2012 financial results included record regular dividends paid to shareholders of $695 million ($1.40 per share). In February, their board of directors declared a quarterly dividend of $0.425 per share of common stock.

It seems like it's early to bed and early to rise for Agnico-Eagle Mines. This is a stock to consider as you roll out of bed and ponder the day's investing opportunities. They're mining their own business, and more gold production down the line is certainly a wake up call investors may want to answer.


MichaelONTARIO has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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