Shares of Canadian gold producer Agnico-Eagle Mines Ltd. (AEM) plunged 2.6% or $1.56 and closed at $57.65 on Friday, soon after the company announced its intention of raising $600 million through the private placement of guaranteed senior unsecured notes. The notes are due 2017, 2020 and 2022, with weighted average maturity of 9.84 years. The notes include an interest component of 6.59%. The transaction is expected to close in April this year.
The company plans to use the proceeds to pay off its existing debt. Agnico-Eagle’s balance sheet reflected $715 million in long-term debt as of December 31, 2009. The company has maintained its debt-equity ratio at a little over 0.25 times over the last two quarters.
Agnico-Eagle has five projects in either the ramp-up or the development stage. The company is incurring heavy exploration and development costs. It has recently announced an exploration budget of $76 million, and has increased its capital budget to $422 million for 2010, which includes an additional $15 million to be spent at Pinos Altos mine in Mexico. Although we believe that such huge investments will improve long-term operating performance, it might strain the company’s liquidity.
Agnico-Eagle expects its capital spending to plummet following the recent construction of new mines, including the Meadowbank mine in Canada, which commenced production this month. Meadowbank is the fifth new mine Agnico has opened since 2008, joining the Goldex and Lapa mines in Quebec, the Kittila mine in Finland, and the Pinos Altos mine in Mexico. For 2011, Agnico expects capital spending to reduce to $178 million and to about $100 million thereafter. We remain Neutral on Agnico-Eagle.
Author's Disclosure: no positions