Agnico-Eagle Mines Limited reported quarterly net income of $8.3 million, or $0.06 per share for the second quarter of 2008. This result includes a non-cash foreign currency translation loss of $1.2 million, or $0.01 per share.
Additionally, the non-cash stock option expense totaled $2.6 million, or $0.02 per share in the second quarter. In the second quarter of 2007, the Company reported net income of $37.8 million, or $0.28 per share. The reduction in net income was almost entirely due to the 56% decrease in the realized price of zinc, combined with a 7% decrease in zinc sales due to lower production, compared to the second quarter of 2007. The decline in zinc production during the quarter is due to the focus of mining on the lower mine at LaRonde where the ore is more gold/copper rich and has lower zinc grades.
Second quarter 2008 cash provided by operating activities increased to $92.8 million from $79.8 million in the second quarter of 2007, largely due to changes in working capital.
Second quarter 2008 highlights include:
- Strong Operating Results - good metal output and cost control contributed to solid operating earnings and strong cash flow at LaRonde from 59,452 ounces of gold
- Low Costs - Low total cash costs per ounce(1) at LaRonde of $113. Excellent cost control at LaRonde with C$68 minesite costs per tonne(2)
- Progress On Gold Production Growth - new Goldex mine is now operating and approaching commercial production. Kittila gold mine project preparing to open in the fourth quarter 2008
- Expanding Gold Deposits - preliminary exploration results demonstrate the potential to continue to grow the gold deposits at Kittila, Pinos Altos and Meadowbank. Scoping studies are underway on potential expansions at these sites and also on the recently opened Goldex mine
- Health and Safety Excellence - the LaRonde team won the Quebec mine rescue competition for an unprecedented 4th year in a row
Payable gold production(3) in the second quarter of 2008 was 59,452 ounces (67,757 ounces including 8,305 ounces poured at Goldex during its commissioning) at total cash costs per ounce of $113. This compares with payable gold production of 56,392 ounces, at total cash costs per ounce of minus $699, in the second quarter of 2007. The increase in production was largely due to higher gold grades mined at LaRonde. However, the total cash costs were significantly higher in the 2008 period as a result of much lower prices realized for zinc, combined with lower zinc grades mined at LaRonde.
For the full year, gold production from LaRonde, Goldex and Kittila is now forecast to total 300,000 ounces to 320,000 ounces. While LaRonde is operating slightly ahead of plan, the production ramp-up at Goldex has been slower than expected due to the slower than expected commissioning of the production hoist. Also, delays in exotic piping delivery and some mechanical and electrical installations in the Kittila mill are expected to push start-up to the fourth quarter rather than September, as previously projected.
"Strong operational results were achieved once again this quarter from our LaRonde operation where gold output is ahead of forecast and operating costs are on budget. With the new Goldex mine expected to reach commercial production in the third quarter and our new Kittila mine expected to open in the fourth quarter, we anticipate seeing improving financial results over the next several quarters," said Sean Boyd, Vice-Chairman and Chief Executive Officer. "However, the Company is not immune to the cost pressures being experienced throughout the mining industry. The continued strength of the Canadian dollar and the Euro, combined with cost pressures for contract services, fuel, steel, cement and reagents are leading to higher estimates for capital and operating costs at our mines. A normal course review is underway with revised estimates to be provided before year end," added Mr. Boyd.
The Company is undertaking its annual life of mine planning exercise based on its most recently published mineral reserves (February 2008). The results are expected to be released in the fourth quarter of 2008. At current currency exchange rates and considering industry-wide cost escalation, capital expenditures over the 2008 to 2010 period could be approximately 40% over the estimates provided in Agnico-Eagle's press release of December 10, 2007. Of this potential increase, approximately 40% would be attributable to the difference in currently prevailing exchange rates, versus the three year trailing average rates that were used in the 2007 forecast. The other 60% would be due to increases in fuel, steel, cement, chemical reagents, engineering and contractor costs, as experienced industry wide.
The Company is also studying several internal growth opportunities that could add further value to the asset base through increases to the gold production profile. These include scoping studies on the large underground gold resource below Meadowbank's Goose Island pit, the potential for expansion of the Pinos Altos reserves at depth and to the west of the Santo Nino pit, the 0.4 million ounce gold inferred resource at the Creston Mascota deposit (near Pinos Altos), and the deep underground mineralization at Kittila, which is currently being delineated. Each of these deposits remains open for further expansion. Additionally, the Company is already examining options to increase the production rate at its new Goldex mine.
"With several of our key gold deposits increasing in size, additional production growth is possible beginning in 2010. The internal growth opportunities, combined with a conservative and measured approach to acquisitions will allow us to steadily build per share value while maintaining a low political risk profile," said Mr. Boyd.
For the first six months of 2008, net income was $37.3 million, or $0.26 per share versus $62.7 million, or $0.49 per share, in the first six months of 2007. The decrease was largely due to 35% lower zinc prices between the comparative periods.
For the first six months of 2008, cash provided by operating activities was $146.6 million, up from $135.9 million in the first half of 2007. The increase was largely due to changes in working capital. -- www.cnxmarketlink.com
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