(By Mani) Shares of Agnico-Eagle Mines Ltd. (NYSE: AEM) (TSE:AEM) are attractively valued and could outperform most of its Tier I and II peers.
Agnico-Eagle is a Canadian-based Tier II gold producer with a portfolio of mining assets in relatively low-risk jurisdictions in Canada, Finland, and Mexico. Organic growth at its existing operations, along with development of its La India gold project in Mexico and Meliadine gold project in Nunavut, could increase the company's annual gold production from 985k ounces (oz) in 2011 to 1.5 million oz by 2016.
Agnico-Eagle recently announced significant resource growth in Meliadine's Wesmeg and Normeg Zone. It also announced positive results at depth in Rimpi Zone at Kittila and progress at La India and Tarachi.
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While Agnico-Eagle expects to release detailed 2013 guidance for all of the mines in February 2013, gold production is expected to be flat year-over-year into 2013.
"Following nine months of solid operations in 2012, we believe the company has re-established the confidence of investors and AEM continues to meet or exceed the market's expectations," RBC Capital Markets analyst Stephen Walker wrote in a note to clients.
Agnico-Eagle is expected to generate positive free cash flow over the period 2012-2015, even as it ramps up spending for development of its Meliadine project.
Agnico has been rebuilding investor confidence, after the closure of the Goldex mine, by focusing on execution as well as under promising and over delivering on production and operating estimates.
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"We believe this has helped restore confidence in the company's operational ability and that there is potential for the company's shares to re-rate higher," the analyst noted.
While current guidance is for 2013 production growth to be flat to 2012 at 1.0 million ounces, there could be some upside. However, the market will likely begin to price in an estimated about 20 percent production growth in 2014.
"Although current guidance is for 2013 production growth to be flat to 2012, we believe the company may be continuing its recent trend of under promising and over delivering," Walker noted.
Capex guidance for 2012 is estimated at $457 million, and annual capex of between $413 million and $681 million for the next 3 years. The relatively large free cash flows provide the company flexibility to invest further in the business or return capital to shareholders through dividends
The company has demonstrated strong operating results having surpassed production estimates throughout 2012 and raising annual guidance twice, which has helped rebuild investor confidence.
"We believe the market has begun paying up for Agnico-Eagle shares as the company has exceeded expectations in the first nine months of 2012 and has re-established its short and long term growth profiles, in our view," Walker added.