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What to Watch for in 4Q16: Agnico Eagle’s Exploration Update

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Upside to guidance

Agnico Eagle Mines’ (AEM) production in 3Q16 was 416,000 ounces—6% lower year-over-year (or YoY). The decrease in gold production was mainly due to lower gold grades and fewer tons of ore processed by some of its miners. The production performance is, however, in line with management expectations. As a result, the company now expects to exceed the upper end of its 2016 production guidance of 1.6 million ounces. It has exceeded its guidance for a few years in a row.

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Exploration update

While Agnico Eagle Mines already had a strong pipeline—probably one of the best —it recently provided an exploration update along with an updated resource estimate for its Amaruq project. Given the strong exploration results at Amaruq to date, there could be more upside to the deposit. AEM expects to provide a full update of resource estimates with its year-end results, which should be of great interest to investors.

Project pipeline

Agnico is constantly trying to develop its internal project pipeline, which is quite strong—it leads to an upside in its production almost every year. Along with Goldcorp (GG), Agnico has one of the strongest project pipelines in the senior gold mining space. Newmont Mining (NEM) and Barrick Gold (ABX) also have strong project pipelines.

Kinross Gold (KGC) and Yamana Gold (AUY), on the other hand, could face long-term production issues due to thinning pipelines. The companies could resort to acquisitions to replenish these pipelines. Investors looking to invest in gold could also look at leveraged ETFs such as the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT). In the next part of this series, we’ll look at 4Q16 expectations for Yamana Gold.

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