What Could Widen Agnico Eagle Mines’ Margins



Factors impacting Agnico’s estimates

Agnico Eagle Mines’ (AEM) operating performance in 2017 was quite strong. Rising 10.0%, its stock almost matched the benchmark gold miners’ index’s (GDX) performance. In 2018, however, it has been weaker. By March 19, 2018, it had lost 13.8% of its value YTD (year-to-date), while the VanEck Vectors Gold Miners ETF (GDX) had fallen 7.4%. Among senior and intermediate miners (GDX) (GDXJ), only Newmont Mining (NEM), AngloGold Ashanti (AU), and Goldcorp (GG) have performed better than AEM.

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Analysts’ revenue estimates

Analysts expect Agnico’s revenue to fall 3.3% YoY (year-over-year) in 2018 to $2.2 billion, mainly due to the company’s production being expected to decline. Agnico’s growth projects should kick in after 2018, which should drive production growth in 2019 and beyond. Analysts expect AEM to see revenue of $2.4 billion in 2019, implying YoY growth of 9.3%, and revenue of $2.8 billion in 2020, implying YoY growth of 18.5%. Investors should also note that Agnico Eagle Mines’ project pipeline is one of the strongest in the gold sector.

Earnings estimates

Agnico’s EBITDA (earnings before interest, tax, depreciation, and amortization) are also expected to decline, by 3.9% to $902 million in 2018. As with its revenue, the company’s profitability should climb in 2019 and onwards. Analysts expect Agnico to see EBITDA of $1.0 billion in 2019 and $1.3 billion in 2020, implying YoY growth of 13.7% and 23.6%, respectively. The increasing margin expectations are due to declining costs as revenue expands. AEM’s upcoming projects should have lower costs than its current average costs, which could help its margins going forward.


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