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Agnico-Eagle Mines Limited (AEM - Analyst Report) reported net income of $76.2 million or 45 cents per share in the fourth quarter of 2011 compared with $88.0 million or 53 cents per share. Reported net income per share missed the Zacks Consensus Estimate of 50 cents per share.

Considering one-time expenses, the company incurred net loss of $601.4 million or $3.53 per share in the quarter compared with net income of $88.0 million or 51 cents per share in the year-ago quarter. For the full year, net loss was $568.9 million or $3.36 per share compared with net income of $332.1 million or $2.00 per share.

Revenue

Total revenue in the reported quarter increased to $455.5 million from $439.0 million in the year-ago quarter. Payable gold production in the fourth quarter of 2011 was 227,792 ounces compared with 256,471 ounces in the year-ago quarter. Cash costs in the quarter increased significantly by 45.2% to $671 per ounce, mainly due to higher costs at LaRonde, Meadowbank and Lapa. The suspension of the Goldex mine in the quarter also adversely impacted costs.

For the full year, revenues increased 25.1% to $1.8 billion. Payable gold production amounted to 985,460 ounces in the year, down from 987,609 ounces in 2010. Gold production in the year was impacted by the closure of Goldex mine and lower-than-expected grades at Meadowbank and LaRonde. Total cash costs in the year amounted to $580 per ounce compared with $451 in 2010.

Mines’ Writeoffs

During the quarter, Agnico was forced to write-off its investment in its Goldex mine in Quebec, following the closure of the mine as water inflow and ground stability concerns disrupted operations.

As per the company, Meadowbank previously had a property, plant and mine development book value of about $1.7 billion. Owing to persistently high operating costs, the latest optimized mine plan for Meadowbank resulted in shorter mine life and the company had to reduce the carrying value of the operation.

Financial Position

Cash provided by operating activities stood at a record $663.5 million in 2011 versus $483.5 million in 2010, primarily attributable to significant increases in realized prices for gold and silver for the year; offset somewhat by lower realized prices for zinc and copper. Cash and cash equivalents increased to $221.5 million at the end of December 31, 2011, from $104.6 million at the end of December 31, 2010. Capital expenditures in the fourth quarter were $107.6 million; including $25.1 million at LaRonde, $21.8 million at Meadowbank, $21.8 million at Kittila, $7.6 million at Pinos Altos and $4.6 million at Lapa.

Dividend

During the quarter, Agnico-Eagle increased its dividend by 25% to 20 cents per share, payable on March 15, 2012 to shareholders of record as of March 1, 2012. 

Outlook

The company provided production and cost guidance for the next three years (2012 to 2014). For 2012, payable gold production is expected to be in the range of 875,000 ounces to 950,000 ounces. Total cash costs per ounce is expected to be in the range of $690 to $750 in 2012. For 2012, the company expects amortization to amount to $280 to $300 per reserve ounce. Agnico expects to generate free cash flow of approximately $382 million in 2012 (the amount is taken after accounting for the capital expenditure). Capital expenditures for the year are expected to amount to about $257 million at the mines and $80 million on new projects.

For 2013 and 2014, Agnico-Eagle expects to produce payable gold of approximately 990,000 ounces and 1,055,000 ounces, respectively.  Total cash costs per ounce are expected to remain flat compared with 2012.

Though the company faced a tough 2011, yet the company generated good exploration upside on several world-class deposits. Agnico-Eagle remains focused on an aggressive exploration program, moving assets forward. The company has several in either the ramp-up or development stage. Despite our positive outlook, we remain concerned that any delay associated with the development projects may jeopardize the company’s future production and also hamper the stock’s performance.

Agnico-Eagle retains a Zacks #5 Rank, which translates into a short-term (1 to 3 months) “Strong Sell” rating and we have a “Neutral” recommendation over the long-term (more than 6 months). Agnico-Eagle faces stiff competition from Barrick Gold Corporation (ABX - Analyst Report), Kinross Gold Corporation (KGC - Analyst Report) and Newmont Mining Corp. (NEM - Analyst Report).

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