Agnico Eagle’s 4Q Sales Disappoint Due To Higher Costs; Shares Drop 6%

Shares of Agnico Eagle Mines plunged 6% on Feb. 12 after the Canadian gold mining company reported higher per ounce production costs during the fourth quarter.

Meanwhile, Agnico Eagle (AEM) posted earnings per share (EPS) of $0.84 during the fourth quarter, which came in ahead of the $0.65 expected by analysts. Revenue of $928.45 million missed analysts’ estimates of $952.87 million.

Fourth-quarter net income declined year-on-year to $205.2 million from $331.7 million primarily due to impairment reversal of $223.4 million related to its Meliadine mine. This impact was partially offset by higher revenue on the back of increased average realized gold and silver prices.

Despite a challenging 2020, the company ended fiscal 2020 with record quarterly gold production and its largest gold reserve base.  Sean Boyd, CEO of Agnico Eagle sees the company’s gold production increasing by ~300,000 ounces in 2021 and a decline in total cash costs per ounce of 6%.

Agnico’s production costs per ounce in 2020 were $838 compared with $735 in the prior year due to higher production costs at its Meadowbank complex and contractor cost pressures at its Kittila mine.

The mining company sees 24% growth in expected production between 2020 to 2024. It forecasts total cash cost per ounce to be between $700 and $750 for 2021. Its midpoint for gold production guidance for 2021 and 2022 is 2.5 tonnes and 2.1 million tonnes respectively. (See Agnico Eagle stock analysis on TipRanks)

On Feb. 10 J. P. Morgan analyst Tyler Langton  initiated coverage on Agnico Eagle stock with a target price of $89.89 (upside potential of about 35%) and a Hold rating based on 1.75x NPV multiple and EV/BITDA of 10x for 2021.

Tyler sees Agnico achieving lower cash costs and solid production growth over the next 5 years.

The rest of the Street has a Moderate Buy consensus rating on the stock. That’s based on 4 Buys and 3 Holds. The average analyst  price target of $88.48 implies about 33% upside potential from current levels.

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