Despite lowering its base metal price forecasts to reflect recent weakness and its outlook for a slow recovery, RBC Capital Markets remains bullish on Agnico-Eagle Mines Ltd. (AEM). Analyst Michael Curran hiked his price target on what he called one of the more “growthy” Tier II golds to $41 from $32, saying the company’s funding for growth is secure.
Agnico’s cash balances, recently increased credit facility and estimated operating cash flows from its mines for the 2008-2010 period were adequate for Mr. Curran not to forecast a funding shortfall. However, he told clients that management decided to be more aggressive and pursue an equity financing that raised $290-million to ensure that its capital projects remain on line.
As a result of the company’s role as a growth leader among the Tier II golds, the analyst chose to use a blended valuation using 2009 and 2010 estimates. His target multiples of 2x net asset value and 20x cash flow for Agnico are at the top of the range for its peer group – also a result of its lower political risk profile.
Mr. Curran thinks Agnico could increase its annual gold output five-fold by 2010 from 250,000 ounces currently thanks to its various projects under construction. Nonetheless, he cautioned investor to wait for the projects to advance further before expecting the stock to outperform its peers.
We look for Agnico shares to continue trading at a premium to the peer group over the next few quarters, as the company’s LaRonde mine continues to post solid operating results and the new mines ramp up and/or advance towards production.
He added that the shares are fairly valuing its growth assets right now.
The next catalyst for Agnico shares will probably come in the next fews weeks when the company updates its capital and operating cost forecasts for its slate of new mine projects.