Agnico Eagle Mines Ltd (AEM)

Agnico-Eagle Mines Limited is an established Canadian-based international gold producer with mining operations in northwestern Quebec, northern Mexico, northern Finland and Nunavut and exploration activities in Canada, Europe, Latin America and the United States. The Company's operating history includes over three decades of continuous gold production primarily from underground operations. Since its formation on June 1, 1972, the Company has produced approximately 8.5 million ounces of gold. The Company's strategy is to focus on the continued exploration, development and expansion of its properties, all of which are located in politically stable jurisdictions. The Company has spent approximately $3.1 billion on mine development over the last five years.

The Company believes that it has a number of key operating strengths that provide distinct competitive advantages, including a proven track record of increasing production capacity through a combination of acquisitions, operational improvements, expansions and development, operations in politically stable, mining friendly regions, a strong operating base with five operating, 100% owned mines, and a highly experienced management team with an average of over 22 years of experience in the mining industry. The Company's corporate strategy is to grow production and reserves in mining-friendly regions by optimizing and further expanding operations, leveraging mining experience, expanding gold reserves, and pursuing growth through primary exploration and acquisitions.

The Company generates revenue from the sale of precious metals (gold and silver), zinc, copper and lead. Revenues are derived from mining operations at its 100% owned mines: LaRonde, Lapa, Meadowbank, Kittila, and Pinos Altos. The Company operates through four segments: Canada, Europe, Latin America and Exploration. The Company's policy and practice is not to sell forward its future gold production; however, under the Company's price risk management policy, approved by the Board, the Company may review this practice on a project by project basis. The Company occasionally uses derivative instruments to mitigate the effects of fluctuating byproduct metal prices.

In 2012, the Company produced 1,043,811 ounces of gold at total cash costs per ounce of $640 net of revenues from byproduct metals. The LaRonde mine, in the Abitibi region of Quebec, has been the Company's flagship operation since 1988, producing approximately 4.5 million ounces of gold as well as valuable byproducts. The Lapa mine, one of the Company's highest grade metals mines, is 11 kilometres east of the LaRonde mine. The Kittila mine in Finland, which achieved commercial production in May 2009, has a long reserve life and significant production expansion potential. The Pinos Altos mine, in Mexico, achieved commercial production in November 2009 and also has significant production expansion potential. The Meadowbank mine, in Nunavut, achieved commercial production in March 2010 and is expected to produce the most gold (approximately 360,000 ounces) in 2013. The Goldex mine project, where mine construction on the M and E zones was approved in July 2012, is 60 kilometres east of the LaRonde mine. The La India mine project and the Goldex mine project are both expected to achieve commercial production in the second quarter of 2014.

In 2012, the Company's capital expenditures were $445.6 million. The 2012 capital expenditures included $75.2 million at the LaRonde mine, $18.5 million at the Lapa mine, $26.8 million at the Goldex mine project, $60.0 million at the Kittila mine, $30.0 million at the Pinos Altos mine (which included approximately $5.8 million related to the Creston Mascota deposit), $39.2 million at the La India mine project, $105.1 million at the Meadowbank mine, $83.3 million at the Meliadine project and $7.5 million at other minor projects. In addition, the Company spent $5.0 million on mine site exploration and $104.5 million on exploration activities at the Company's grassroots exploration properties. On July 24, 2012, the Company closed a private placement consisting of $200.0 million aggregate principal amount of guaranteed senior unsecured notes due in 2022 and 2024 with a weighted average maturity of 11.0 years and weighted average yield of 4.95%. On November 29, 2012, the Company purchased the 5% net smelter returns royalty on the Probe block of the Goldex property from Probe for cash consideration of C$14.0 million. On December 12, 2012, the Company declared a cash dividend payable on March 15, 2013, marking the 31st consecutive year that the Company has paid a cash dividend. During 2012, the Company paid dividends of $118.1 million.

In 2012, revenue from mining operations increased by 5% to $1,917.7 million from $1,821.8 million in 2011. Net income was $310.9 million in 2012 compared to a net loss of $569.0 million in 2011. Basic net income per share was $1.82 in 2012 compared to a basic net loss per share of $3.36 in 2011. Cash provided by operating activities increased by $28.8 million to $696.0 million in 2012 compared with 2011. Total cash costs per ounce of gold produced increased to $640 in 2012 from $580 in 2011. The Company produced 1,043,811 ounces of gold in 2012, exceeding estimates.

For 2013, the Company expects to produce between 970,000 and 1,010,000 ounces of gold at a total cash cost per ounce of gold produced of between $700 and $750 net of byproduct revenue. The Company expects its all-in sustaining costs for 2013 to be approximately $1,075 per ounce of gold. In 2013, payable gold production at the LaRonde mine is expected to be approximately 177,000 ounces at total cash costs per ounce of approximately $650. At the Lapa mine, payable gold production in 2013 is expected to be approximately 97,000 ounces at estimated total cash costs per ounce of gold produced of approximately $840. At the Kittila mine, payable gold production is expected to be approximately 165,000 ounces at total cash costs per ounce of approximately $660. At the Pinos Altos mine, payable gold production is expected to be approximately 191,000 ounces at total cash costs per ounce of approximately $300. At the Meadowbank mine, payable gold production is expected to be approximately 360,000 ounces at estimated total cash costs per ounce of gold produced of approximately $985. The Goldex mine is expected to commence production from the M and E Zones in the second quarter of 2014, with payable gold production expected to be approximately 49,000 ounces in 2014. The La India mine project is expected to commence operations in the second quarter of 2014, with payable gold production expected to be approximately 40,000 ounces in 2014.

Annual payable gold production is expected to increase to approximately 1,207,000 ounces in 2015, representing a 16% increase compared with 2012. The Company expects that the main contributors to targeted increases in payable gold production, gold reserves and gold resources will include continued conversion of Agnico-Eagle's current gold resources to reserves, increased production from the higher grade orebody in the LaRonde mine extension, the commencement of operations at the Goldex mine project's M and E Zones and the La India mine project in 2014, and the commencement of operations from the Creston Mascota deposit phase two leach pad in 2013. The Board has approved a capital expansion at the Kittila mine that is expected to result in a 750 tonne per day throughput capacity increase commencing in the second half of 2015. The Company expects mill throughput of approximately 11,000 tonnes per day at Meadowbank to be sustainable and has extended the expected Meadowbank mine life to 2018.

In 2013, total cash costs per ounce at the LaRonde mine are expected to be $650 compared with $569 in 2012. Total cash costs per ounce of gold produced at the Lapa, Kittila, Pinos Altos (including the Creston Mascota deposit) and Meadowbank mines are expected to be $840, $660, $300 and $985, respectively. The Company expects its all-in sustaining costs for 2013 to be approximately $1,075 per ounce of gold. Cash general and administrative expenses are not expected to increase significantly in 2013. Provincial capital tax expense is expected to be nil in 2013 due to the elimination of the Ontario provincial capital tax on July 1, 2010 and the elimination of the Quebec capital tax at the end of 2010.

Amortization of property, plant and mine development is expected to increase to approximately $293.1 million in 2013 compared with $271.9 million in 2012. Interest expense is expected to decrease to approximately $55.1 million in 2013 compared with $57.9 million in 2012. The Company's effective tax rate is expected to be approximately 34.6% in 2013 compared with an effective rate of 28.5% in 2012.

Capital expenditures, including construction and development costs, sustaining capital and capitalized exploration costs, are expected to total approximately $596.0 million in 2013. Significant components include $357.0 million in capitalized development expenditures relating primarily to the La India mine project ($92.0 million), Goldex mine project ($63.0 million), Meliadine project ($59.0 million), Meadowbank mine ($39.0 million), Kittila mine ($34.0 million) and Pinos Altos mine ($33.0 million); $201.0 million in sustaining capital expenditures relating to the LaRonde mine ($61.0 million), Meadowbank mine ($40.0 million), Kittila mine ($39.0 million), Pinos Altos mine ($29.0 million), Lapa mine ($19.0 million) and Creston Mascota deposit at Pinos Altos ($13.0 million); and $38.0 million in capitalized drilling expenditures. In 2013, Agnico-Eagle expects to incur expenditures of $92.0 million on minesite and advanced project exploration, greenfield exploration and corporate development. Approximately $21.0 million is expected to be spent on greenfield exploration outside of the Company's currently contemplated mining areas. The Company expects to capitalize $38.0 million on drilling and development related to further delineating ore bodies and converting resources into reserves.

The Company expects to continue to generate strong cash flow in 2013 with payable gold production between 970,000 and 1,010,000 ounces. The Company believes that it has sufficient capital resources to satisfy its 2013 mandatory expenditure commitments and discretionary expenditure commitments. Budgeted 2013 cash provided by operating activities is $729.4 million. As at December 31, 2012, the Company had cash, cash equivalents and short term investments of $306.6 million, working capital excluding cash of $320.0 million, and $1,168.9 million available under the Credit Facility.

In 2013, the Company expects to continue to generate strong cash flow with payable gold production between 970,000 and 1,010,000 ounces, down from 1,043,811 ounces in 2012 due primarily to mine sequencing and the temporary suspension of heap leach operations at the Creston Mascota deposit at Pinos Altos effective October 1, 2012. The Company expects production to commence from the Creston Mascota deposit phase two leach pad in the second quarter of 2013. Payable gold production forecasts reflect a buildup of inventory on the phase two leach pad and a related ramp up in production in 2013, with steady state operations commencing in 2014.

The Company's operations at the Meadowbank mine in Nunavut accounted for approximately 35% of the Company's gold production in 2012 and are expected to account for approximately 36% of the Company's gold production in 2013. The Pinos Altos mine in northern Mexico accounted for approximately 23% of the Company's gold production in 2012 and is expected to account for approximately 19% of the Company's gold production in 2013. The Company also anticipates using revenue generated by its operations at the Meadowbank and Pinos Altos mines to finance a substantial portion of its capital expenditures in 2013. The Company's operations at the Meadowbank mine are subject to risks relating to operating in a remote location, including that the port of Baker Lake is only accessible approximately 2.5 months per year. The Company's Meliadine project is also located in a remote area of Nunavut, and most materials required for operations must be transported through the port of Rankin Inlet during its six-week shipping season.

Management's message emphasizes the Company's transformation from a regionally focused, single mine producer to a multi-mine international gold producer with five operating, 100% owned mines, two mine development projects and one advanced exploration project. The Company's strategy is to focus on the continued exploration, development and expansion of its properties, all of which are located in politically stable jurisdictions. Key strategic priorities include optimizing and further expanding operations, leveraging mining experience, expanding gold reserves, and pursuing growth through primary exploration and acquisitions. For 2013, the Company expects to produce between 970,000 and 1,010,000 ounces of gold at a total cash cost per ounce of gold produced of between $700 and $750 net of byproduct revenue, and expects its all-in sustaining costs for 2013 to be approximately $1,075 per ounce of gold. The Company expects annual payable gold production to increase to approximately 1,207,000 ounces in 2015, representing a 16% increase compared with 2012.

For the fiscal year ended December 31, 2012, revenues from mining operations were $1,917.7 million ⁶, compared to $1,821.8 million ⁷ in 2011. Net income attributed to common shareholders was $310.9 million ⁸ in 2012, compared to a net loss of $568.9 million ⁹ in 2011. Diluted net income per share was $1.81 ¹⁰ in 2012, compared to a diluted net loss per share of $3.36 ¹¹ in 2011. Operating margin was $1,020.0 million ¹² in 2012, compared to $945.7 million ¹³ in 2011. Cash provided by operating activities was $696.0 million ¹⁴ in 2012, compared to $667.2 million ¹⁵ in 2011. Total cash costs per ounce of gold produced were $640 ¹⁶ in 2012, compared to $580 ¹⁷ in 2011. The Company had long-term debt of $830.0 million ¹⁸ at December 31, 2012, compared to $920.1 million ¹⁹ at December 31, 2011. Cash and cash equivalents, short-term investments and restricted cash totalled $332.0 million ²⁰ at December 31, 2012, compared to $221.5 million ²¹ at December 31, 2011. The effective tax rate was 28.5% ²² in 2012, compared to 26.9% ²³ in 2011. The 2011 results included a pre-tax asset impairment charge of $907.7 million ²⁴ on the Meadowbank mine and a loss on the Goldex mine of $302.9 million ²⁵. In 2012, the Company recorded a foreign currency translation loss of $16.3 million ²⁶ compared with a foreign currency translation gain of $1.1 million ²⁷ in 2011. The Company paid dividends of $118.1 million ²⁸ in 2012 compared with $98.4 million ²⁹ in 2011. Capital expenditures were $445.6 million ³⁰ in 2012 compared with $482.8 million ³¹ in 2011.

The Company's earnings are directly related to commodity prices, as revenues are derived from the sale of precious metals (gold and silver), zinc, copper and lead. Gold prices, which have the greatest impact on the Company's financial performance, fluctuate widely and are affected by numerous factors beyond the Company's control. Based on 2013 production estimates, the approximate sensitivity of the Company's after-tax income to a 10% change in gold prices is $0.69 per share ¹. The Company is largely dependent upon its mining and milling operations at its Meadowbank mine in Nunavut and Pinos Altos mine in Mexico; the Meadowbank mine accounted for approximately 35% of the Company's gold production in 2012 and the Pinos Altos mine accounted for approximately 23% of the Company's gold production in 2012. In 2011, the Company performed a full review of the Meadowbank mine's operation and incurred a pre-tax asset impairment charge of $907.7 million ². The Company's operations at the Meadowbank mine are subject to risks relating to its remote location, including that the port of Baker Lake is only accessible approximately 2.5 months per year ³. The Company's recently opened mines, mine construction projects and expansion projects are subject to risks associated with new mine development, which may result in delays and unanticipated costs. The Company's total cash costs per ounce of gold production depend on external factors including exchange rates; based on the Company's anticipated 2013 after-tax operating results, a 10% change in the U.S. dollar/Canadian dollar exchange rate from the 2012 market average exchange rate would affect net income by approximately $0.37 per share ⁴. The Company estimates that capital expenditures will be approximately $596 million in 2013 ⁵.