Analysts Raise Agnico-Eagle's Price Target Despite Currency Assumptions

Agnico-Eagle's (AEM) revised currency assumptions probably don't go far enough, according to Dundee analyst P. Mark Smith, but that didn't stop the analyst from raising his price target on the miner.

Mr. Smith noted to clients that Agnico's new guidance figures released back on Dec. 10. 2007, assumes a US$1 to Euro exchange of $1.29, and Canadian dollar exchanges as high as C$1.15 to US$1. That compares to a current US$1 to Euro exchange rate of roughly $1.45 as of Dec. 14, 2007, and a Canadian dollar exchange of C$1.02 to US$1.

Agnico said its revised currency assumptions are expected to increase capital spending by about C$200 million above initial estimates, but noted higher operating costs were offset by higher by-product price assumptions.

In a note to clients, Mr. Smith said:

While the new assumptions are a step in the right direction, they are still 11% to 13% off current exchange rates.

If one assumes 90% of costs are impacted by currency shifts, and adopts current exchange rates, then operating costs could be expected to rise 11% further. Fortunately, as significant capital is already sunk, capital may be only expected to be 5% higher.

Adopting his metal and exchange rate assumptions, Mr. Smith said Agnico's cost guidance remains in line with his estimates but the company's production outlook is slightly weaker than the company's based on his assumptions.

As a result, Mr. Smith said his 12-month target would have been reduced to C$56 from C$58.50, however, he is adjusting his model to the 2009 fiscal year from 2008, which is beyond much of Agnico's capital spend period. Therefore, his price target actually increases to C$60.40, while his "market perform" rating remains unchanged.