Jun 11, 2009


Agnico, along with Yamana Gold are the premier Precious Metal Miners, both sporting substancial production growth for the next 3-5 years. At first glance, it appears it trades for extreme premium. But just as some equities look cheap but are really expensive, this is exactly the same except it looks expensive yet is a bargain. Don't believe me? Well here's a brief overview.

Production Per Share: In 2008, Agnico sported a miniscule 1.9oz per share. Don't be Sad! This will increase over 350% by 2010 to 7.15oz/share! Now we’re talking..Oh wait I forgot declining cash costs hit bottom in 2010, under $300/oz! This even makes Yamana look bad with a measly 2/oz share(mostly due to the shares outstanding Yamana has and the fact 2011-2012 will be the high growth years) , but nonetheless, sometime between 2011-2013, Agnico will sport the highest Production per share as it reaches 2m/oz + per annum.

Capital Expenditures- will gradually decrease over the next several years, thus increasing free cash flow (the real profit). (900 million was spent in 2008 and will decline year over year as follows: 2009- 550 million , 160 million, 90 million, 75 million) barring any acquisitions

Did I mention it is one of the lowest cash cost producers?

Geopolitical Risk - Among the best in the industry - (Laronde, Lapa, Goldex, & Meadowbank located in mining friendly Canada), Kittila (Finland) , Pinos Altos (Mexico). Growth Profile- in GEO (55:1 G:S) - 2008 = 290k , 2009 = 540-575k , 2010 = 1.25-1.35m/oz, 2011 = 1.57 - 1.66m/oz, 2012 = 1.91- 1.98m/oz.

WHERE IS THE GROWTH COMING FROM? The Lapa mine is producing and increasing production by an additional 25% in the first half of 2010. Kittila Mine - Commercial Production expected later this fall Meadowbank - Production set for Q1 2010, producing 350k of gold per annum for 9 years. Pinos Altos- like Kittila is expected to commence production later this fall, producing 175k of gold and over 2.5oz of silver for 12-14 years. But the Flagship(in my opinion) is LaRonde in Quebec located in the gold belt. This mine will have very high quality ore and far more reserves than has been declared thus far. It will produce 325k per annum, but wait it gets better. the LaRonde extension extends the life of the mine to 2024-2025 which has an even higher grade ore. This is expected to commence in 2011.

This story is so amazing due to the fact the produced a meager 280k ounces of gold in 2008 and is aiming for 2m 4 to 5 years later!

Agnico Valuation: http://spreadsheets.google.com/ccc?key=rob7DJ_CziVGF623h_na5ZQ

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