We are downgrading our recommendation on Agnico-Eagle Mines, Ltd. (AEM) to Underperform, factoring in the challenges the company faced in 2011. Fourth-quarter 2011 adjusted earnings missed the Zacks Consensus Estimate. On a reported basis, the company slipped to a loss in the quarter on account of a partial writedown of the value of its Meadowbank mine.

Agnico also missed its production and cost targets in 2011. The company’s production was disrupted by a fire at its Meadowbank mine while geotechnical issues forced it to suspend operations at its Goldex mine. Total payable gold production declined to 985,460 ounces in 2011 from 987,609 ounces in 2010 due to the suspension of operations at Goldex and lower than expected ore grades milled at the LaRonde and Meadowbank mines.

Our long-term Underperform recommendation on the stock indicates that it will perform below the market. Our target price of $31 is based on 17.4x our 2012 EPS estimate.

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