RBC Analyst: Despite Week-Long Sell-Off, Wait on Agnico-Eagle Mines

Despite one of the more impressive pipelines for growth among mid-tier gold producers and a week-long sell off, RBC Capital Markets analyst Michael Curran thinks investors in Agnico-Eagle Mines Ltd. (AEM) should wait a little while yet before moving this investment to the head of the class.

In a note to clients Mr. Curran said:

While the potential makes Agnico-Eagle one of the more "growthy" Tier II golds, we still consider the timing of investors paying up for these growth assets as a bit early, and we await further advancement of the projects (and/or greater upside in the shares) before recommending that Agnico shares can outperform the peer group.

The company has a number of projects under construction, including Goldex in Quebec and Kittala in Finland, slated to start production later this year. In all, Mr. Curran said Agnico has the potential to increase annual gold output five-fold from its current level to 250,000 ounces of annual output by 2010.

The analyst said Agnico stock, which currently trades at a healthy premium to the Tier II gold producer average, is fairly valued at present and already prices in the company's growth assets. Shares was trading down 4% or C$3.03 to C$62.22 at 12:30 p.m. Thursday, continuing a week long decline that started one week ago today when shares hit C$76.75 at close.

Mr. Curran also noted that new mines are forecasted to have little impact on production and cash flow until ramping up considerably in 2009 and 2010. He maintained his "sector perform" rating and C$82 price target, adding to clients that he expects Agnico's first quarter earnings and cash flow to dip from his previous estimates of C$0.38 and C$0.47, respectively to C$0.28 and C$0.38.

The analyst wrote:

We now look for only a small improvement in the revenue line for Q1/08 with gold output forecast to have been flattish and spot gold averaging C$924 per ounce in the quarter.

Agnico reports its financial results on May 8.