Recently, Canadian gold producer Agnico-Eagle (AEM) announced its gold production and cost guidance. With major capital projects nearing completion, Agnico expects gold production to double in 2010. Agnico-Eagle is nearing the end of a significant construction phase, during which the company has spent more than $2 billion since the beginning of 2007. With most of the mines operating steadily, the remaining capital expenditure is expected to be primarily for expansions.
Last month, Agnico declared commercial production at its Pinos Altos mine in northern Mexico. The company expects gold production of 1.0 million to 1.1 million ounces from the mine in 2010 (up more than 100% from the projected level in 2009) at an estimated average cash cost of $399 per ounce. With the Meadowbank commissioning underway and start-up expected in January 2010, and the Goldex and Creston Mascota expansions scheduled to begin production in 2011, gold production is expected to average nearly 1.4 million ounces annually between 2011 and 2014, with total cash operating costs expected to average approximately $393 per ounce.
Earlier in December 2008, Agnico had projected a total cash cost of $284 per ounce of gold in 2009−2010, $311 per ounce in 2010−2011, $296 per ounce in 2011−2012 and about $330 per ounce in 2012−2013. The cost increases were primarily due to unit cost escalation as well as the appreciation of the Canadian dollar and euro versus the US dollar. Agnico expects the recent escalation in labor, shipping and transportation costs to increase cash expenses. Also, the slower-than-expected ramp-up at Pinos Altos has resulted in a lower expectation for gold production in 2010 at this mine.
Capital expenditure guidance has been increased to $498 million in 2010 (including $50 million of pre-production capital at Meadowbank and $36 million of capitalized exploration) from the prior indication of about $325 million to $350 million. Through 2011, the company expects to be self-funding as significant internal cash flow is expected to be generated from the sale of approximately 2.3 million ounces of gold and associated byproduct metals.
Agnico’s balance sheet is well positioned to fund these initiatives. Cash balance at Sep 30, 2009, was about $240 million. Additionally, the company had about $200 million available under its credit facilities and expects to generate significant cash flow from operations in 2010.
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