DBRS Limited (DBRS Morningstar) upgraded the Issuer Rating and Senior Unsecured Notes ratings of Agnico Eagle Mines Limited (Agnico or the Company) to BBB from BBB (low) and changed the trends to Stable from Positive. The upgrades are based on the Company bringing two new mines into commercial production in 2019 in Nunavut—Meliadine and Amaruq—which underpin Agnico’s robust production growth profile over the next three years. The Stable trends reflect DBRS Morningstar’s expectation that the Company’s financial risk profile will continue to improve, driven by both the higher production as well as higher expected gold prices (Bloomberg consensus as of February 18, 2020) that are expected to average $1,512 per ounce (oz), $1,515 per oz, and $1,596 per oz in 2020, 2021, and 2022, respectively, compared to $1,406 per oz and $1,266 per oz, respectively, in 2019 and 2018.
Between 2011 and 2019, Agnico produced approximately 13.0 million oz of payable gold (oz Au) from reserves while keeping its proven and probable reserves relatively flat at 21.6 million oz Au at the end of 2019 compared to 21.3 million at the end of 2010. The track record of replacing production with new reserves has been accomplished by upgrading resources to reserves and acquisitions, most notably acquiring its 50% ownership in the Canadian Malartic mine in 2014. The Company has a robust growth pipeline that includes the Meliadine Phase 2 expansion, Amaruq underground, Kittila expansion, Odyssey, East Gouldie, and East Malartic brownfield expansions as well as greenfield opportunities such as Santa Gertrudis in Mexico. As a result, management is forecasting production to increase steadily to 2.05 million oz and 2.1 million oz in 2021 and 2022, respectively, and is expected to be sustainable compared with the average payable gold production of 1.6 million oz Au per year since the Canadian Malartic acquisition.
During 2019, Agnico benefitted from stronger gold prices with the U.S. dollar-denominated London Metal Exchange spot gold price increasing by approximately 18%, resulting in record operating cash flows in support of funding the two large capital projects, partially offset by the stronger Canadian dollar that appreciated approximately 5% during the year. For 2020, production is set to grow to management’s revised target of approximately 1.9 million oz, which, while below previous guidance of 2.0 million oz, is still viewed by DBRS Morningstar as meaningful growth compared with 2019 production of 1.8 million oz, at a time when gold prices are expected to remain above the annual averages since 2012. Additionally, management has indicated that options are being examined to refinance a portion of the $360 million in debt maturing in April 2020 and the expected moderately lower debt levels are viewed by DBRS Morningstar as commensurate with the BBB ratings.
DBRS Morningstar does not anticipate further positive ratings actions as likely in the near term; however, if the Company’s business risk assessment meaningfully improves due to a material merger or acquisition, then a positive rating action could potentially occur, assuming the ramp-up of the new Meliadine and Amaruq operations are successfully completed. Conversely, if the ramp-up to full production at the Nunavut projects is delayed or results in lower production or higher costs than current guidance, this could set the stage for a potential negative rating action.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is Rating Companies in the Mining Industry (August 2019), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), which can be found on dbrs.com under Methodologies & Criteria.
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
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