Mining Their Own Business: Agnico-Eagle Mines Limited (USA) (AEM)

He who wakes up early finds gold.

~ Hungarian Proverb

Those who work for Agnico-Eagle Mines Limited (USA) (NYSE:AEM) must be rising quite early, if the company’s recent numbers are any indication. Agnico-Eagle Mines is a gold producer, their objective is to continue increasing yearly gold production through building and exploring their own mines. This focus is paying off for the company. The following are a few key things for investors to consider when performing due diligence on Agnico-Eagle Mines.

Gold production

The Company’s fourth quarter 2012 results include record full-year gold production of 1,043,811 ounces. This beat their guidance of 1,025,000 ounces. Significant to investors is that Agnico-Eagle Mines Limited (USA) (NYSE:AEM)’s total cash costs associated with this production were $640 per ounce for the year, compared to guidance of $660 per ounce.

However, total cash costs for the fourth quarter of 2012 were $769 per ounce compared to $671 per ounce for fourth quarter 2011. Investors should consider a company’s challenges as applies to mining. For example, at Agnico-Eagle’s LaRonde operations in Quebec, Canada, the company reported that, “the ramp-up of tonnage from the higher grade, deeper levels continues to be challenging due to heat and congestion in the mine.” This was one contributor to their fourth quarter increase in total cash costs.

How did other mining companies fare concerning gold production for the full year 2012? One example is Coeur d (NYSE:CDE)’Alene Mines Corporation. The company reported in February that production totaled a record 226,486 gold ounces. The company expects to generate strong operating cash flow from anticipated 2013 production of a record 250,000 – 265,000 ounces of gold. Coeur d’Alene’s gold production was up 3% from 2011. Of note to investors is that the company expects to invest $40 million in exploration. Their corporate objective is increasing estimated mineral reserves and resources at year-end 2013.

Capital allocation

Agnico-Eagle Mines Limited (USA) (NYSE:AEM)’s estimated capital expenditures for 2013 include approximately $201 million of sustaining capital at their mines as well as $357 million on new projects.  Moreover, they expect to spend approximately $38 million on capitalized exploration. The Company is expanding their Kittila operation in Northern Finland. They will allocate $25 million to Kittila this year. The expectation is that the total expenditure on the project will be approximately $103 million over a three-year period. Important to investors is that the company expects the 750 tonne per day expansion to increase the throughput capacity at the mine to 3,750 tonnes per day starting in the second half of 2015.

What’s the story on capital allocation for other mining companies? One example is Newmont Mining Corp (NYSE:NEM). Their consolidated capital expenditures were $3.2 billion in 2012. This was up from $3 billion in 2011. They spent approximately $1 billion on major projects in 2012. Important for investors to note is that Newmont Mining has a development plan and is allocating capital to many projects this year.  They plan to invest approximately $2.1 to $2.3 billion in attributable capital expenditures this year.

Approximately 40% of this is to development capital. This includes allocations for the Akyem project (approximately $250 million), the Ahafo Mill Expansion (approximately $150 million), the Conga project (approximately $150 million), and other expansion projects in Nevada (approximately $260 million) and at La Herradura (approximately $40 million). Investing in development has the potential to provide long-term shareholder returns.