Why this gold producer’s stock dropped to its lowest levels in over two years

Shares of gold producer Agnico Eagle Mines Limited tumbled to their lowest levels in over two years on Friday.

In a press release, the company said it had lower-than-expected sales in its Q4 2022 and full-year 2022 results, leading to a share price drop to C$ 62.06 as of 2:56 p.m. EST on Thursday. Shares of the gold producer are down over 15 per cent year-to-date.

Agnico Eagle (TSX:AEM) also reported weaker production guidance and higher costs than previously expected.

“We did a lot of very good things that controlled costs, but we’re not immune from inflation forever,” Al-Joundi, CEO of Agnico Eagle, said in an earnings call on Friday. “What you’re seeing in the fourth quarter is some of that affecting us.”

Agnico Eagle said in its report that higher costs going into 2023 are mostly related to inflationary pressures on labour, electricity, fuel and consumables. The company said it expects to have some easing on input costs later in the year, coupled with an increase in gold production, which will mean unit costs will be lower in 2024 and 2025.

Record gold production achieved in 2022

Despite lower sales in the year, the gold producer still achieved record annual gold production in 2022.

The company had strong production and cost control, increased mineral reserves and mineral resources, progressed expansion projects and delivered the best safety performance in the company’s 66-year history,” Agnico Eagle said in a release. “The year also saw important strategic acquisitions aimed at furthering Agnico Eagle’s core strategy of consolidating positions in premier mining jurisdictions, with the integration of Kirkland Lake Gold and the announced acquisition of Yamana Gold’s Canadian assets (including the other half of the world-class Canadian Malartic mine).”

In the release, Agnico Eagle said that payable gold production was over 3.1 million ounces at a production cost of $ 843 per ounce, while total cash cost per ounce was $ 793 and AISC per ounce of just over $ 1,100.

Total cash cost per ounce and AISC per ounce in 2023 are estimated to be between $ 840 and $ 890 and $ 1,140 to $ 1,190, respectively.

Meanwhile, Agnico Eagle’s gold production guidance shows a 7 per cent estimated growth through 2024 compared to 2022 gold production. The company anticipates annual payable gold production to grow from 3.28 million in 2022 to 3.4 to 3.6 million ounces in 2025.

“From a safety and operational standpoint, 2022 was another strong year as we had our best safety performance in our 66-year history, we met production forecasts and managed our costs in a highly inflationary environment,” Al-Joundi said in the release. “It was a transformational year for Agnico Eagle. The merger with Kirkland Lake Gold and the pending acquisition of Yamana’s Canadian assets will result in the consolidation of the Abitibi Gold Belt, one of the best gold regions in the world, and positions us well to continue to grow and create value for all our stakeholders for years to come. In 2023, our focus will be on optimizing and growing Detour Lake and Canadian Malartic and on establishing a plan to capitalize on existing infrastructure, including our excess mill capacity, in the Abitibi region of Quebec, with the potential to produce up to 500,000 ounces of gold per year by the end of the decade.”

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Why this gold producer’s stock dropped to its lowest levels in over two years