January 26, 2018

Agnico Eagle Mines Limited (AEM on TSX and NYSE), Jan 26/18: C$60.72, 52-week range: 68.76-52.36, market cap: C$14.1 billion, div: C$0.54, Yield: 0.89%
Agnico Eagle is a senior Canadian gold mining company that has produced metals since 1957.  Its eight mines are located in Canada, Finland and Mexico.  It has declared cash dividends every year since 1983. 

 Agnico Eagle has its origins in the Abitibi region of northwestern Quebec where it continues to produce from 4 mines.  Its flagship mine is the underground La Ronde which has produced over 5 million ounces of gold since it opened in 1988 and with over 3 million oz Au in reserves should continue to operate for another 10 years at the present rate of 300,000 oz a year.  Agnico Eagle has a 50% interest in the large open-pit mine of Canadian Malartic which provides it with over 300,000 ounces of annual gold production, that mine having another 12 years of reserves.  The Lapa mine situated nearby to La Ronde had been producing 80,000 ounces of gold a year since May 2009 will be winding down this year.  The underground Goldex mine located 60 km east of La Ronde has been producing gold at a rate of 120,000 oz/year since October 2013 has reserves for a further 9 years.  In 2020 it may start producing gold from the Akasabe satellite deposit located 30 km to the north.  

From its partner in Canadian Malartic, Yamana Gold Inc., Agnico Gold is in the process of buying for US$162.5 million that company’s 50% ownership in properties located near Kirkland Lake, northeastern Ontario and the Hammond Reef project in northwestern Ontario, consequently giving it 100% control of these.  At Kirkland Lake, AEM is acquiring proven and probable reserves of 700,000 oz.au. from the underground project of Upper Beaver along with 494,000 oz of measured and indicated underground resources in the vicinity.  Along the 27,291 hectare property at Hammond Reef the company is acquiring an open-pit project accounting for a measured and indicated resource of 2.2 million oz.au. With this acquisition, Agnico Eagle will be expanding into two new regions.  In the well-established Kirkland Lake mining area, not far from its already Abitibi producing gold mines, AEM will now have in Upper Beaver an underground deposit of 1.4 million oz.au. proven and probable reserves grading 5.43 g/t along with 1.0 million oz.au. of measured and indicated resources. All told, the company will have interests in 34 properties, most of which are contiguous, that cover 240 sq.km. located 80 km west of Rouyn-Noranda, Abitibi.  Historically, the Kirkland Lake camp ranks second in Canada, after Timmins, with respect to total ounces of gold produced.  In northwestern Ontario, Agnico Eagle with Hammond Reef will end up with a large open-pit gold project having a measured and indicated resource of 4.5 million oz.au. grading 0.67 g/t and this close to infrastructures, being located 23 km northeast of the town of Atikokan.  Previous owner, Osisko, performed more than 330 thousand metres of drilling.  

Of great importance is Agnico Eagle’s move into the Canadian territory of Nunavut.  This began with the entrance into production of the Meadowbank open-pit gold mine in March 2010.  Since then it has produced 2.7 million oz.au.  The company has a large and expanding land position in Nunavut covering over 500,000 hectares and consisting of 3 major geological belts.  The Meadowbank mill, located 110 km north by road from Baker Lake and 300 km west of Hudson Bay, has been operating at a rate of 11,000 tpd processing ore from 3 open pits within 7 km and producing on an annual basis 300,000 oz.au and 280,000 ounces of silver (oz.ag.).  Mining from these 3 open pits will be coming to an end in 2018 but there are other targets on the 77,411-hectare property that can be addressed.  Meanwhile, the company made the Amaruk discovery to the north in 2013 and has since built an all-weather road to this project.  While first considered as a potential satellite operation to Meadowbank the Amaruk property now covers 116,717 hectares and contains the Whale Tail deposit with an indicated mineral resource of over 2 million ounces of gold in an open pit operation as well as 1.4 million oz.au. as an underground resource. Nearby, 4 other related prospective zones have been identified as well as several other targets.  Once final permits are received the plan is to haul the ore to the Meadowbank mill in 2019.  Meanwhile, 290 km to the southeast of the Meadowbank mine and 25 km to the north of Rankin Inlet near to the western shore of Hudson Bay Agnico Eagle is developing the Meliadine gold project.  At a $900 million capital cost the mine should start production in the 3rd Q of 2019.  Initially an underground operation will treat ore at a rate of 3,750 tpd from the Tiriganiaq deposit increasing to a rate of 6,000 tpd in year 5 when ore from the nearby open-pit deposit of Wesmrg-Normeg is processed.  Currently, proven and probable reserves at these two deposits are estimated at 3.4 million oz.au. grading 7.3 g/t au along with an indicated resource of 3.3 million oz at a grade of 4.98 g/t and an inferred resource of 3.6 million ounces at 7.51 oz/t.  The mine complex is expected to produce 400,000 ounces of gold annually over a period of 14 years.  There are four other deposits outlined to date in the Meliadine region along the 80 km belt that covers 111,358 hectares.  While the Meadowbank mine may be coming to its end in 2018 the Amaruk and Meliadine mines should be entering production in 2019 paving the way for Agnico Eagle to continue producing gold for many more years in Nunavut. 

Agnico Eagle opened the Kittila gold mine in the Lapland region of Finland in 2009 producing over 200,000 ounces of gold a year.  It is the largest primary gold producer in Europe and with gold reserves of 4.5 million oz (the most of AEM’s mines) Kittila continues to have a mine life of 20 years.  It began as an open-pit operation but evolved into an underground one in 2012.  The company is considering increasing the 4500 tpd mill processing rate by 25% to mine from two additional zones located along the 25 km Suurikuusikko Trend.

Agnico Eagle has two gold mining operations in northern Mexico, Pinos Altos, in a mountainous area 220 km west of Chihuahua and La India in Sonora 200 km east of Hermosilla and 70 km northwest of Pinos Altos.  Pinos Altos began operations in 2009 and has a mine life that could extend beyond 2023.  It is currently producing 175, 000 oz.au and 2.7 million ounces of silver annually from both underground as well as open-pit operations.  The satellite Creston Mascota deposit, a heap-leach open-pit operation that produces 40,000 oz.au and 280,000 oz.ag annually will likely run out of ore in 2019.  The company has a developing project, Madrono near Creston Mascota, as well as three exploration deposits all of which could add mine life to Pinos Altos.  La India began operations in 2014 and its three open-pits provide ore for a heap leach pad, producing on an annual basis 110,000 ounces of gold at a cash cost of $400/oz.  La India has proven and probable reserves of 1 million oz.au and 3.7 million oz.ag.  The company expects to increase exploration at the Terachi deposit as well as on 4 other identified zones within its 632 sq.km. property.

Agnico Eagle will be releasing results for 2017 on February 14.  The company certainly has expanded its operations over the years and has been able to do so by keeping the number of shares outstanding to the reasonable amount of 233 million.  This contrasts with some of it peers that have close to a billion shares issued.  This implies that there is an enhanced element of leverage to share price appreciation if the company’s growth rate persists.  For purposes of having a gold presence Agnico Eagle should be seriously considered as a core holding in an investment portfolio. 

BONTERRA Energy Corp (BNE on TSX), Jan26/18: C$14.87, 52-week range: 26.60-13.44, market cap: C$495 million, div: C$1.20, yield: 8.07%
Bonterra is a Calgary, Alberta-based oil and gas company with operations in Alberta, Saskatchewan and British Columbia but with a particular emphasis in the large reserves of Pembina Cardium where it conducts horizontal drilling programs.  The company has been paying monthly dividends since its inception in 2002.  Bonterra expects to increase production by 2% to 4% to 13,000 boe/d-13,500 boe/d in 2018 from 12,900 in 2017.  It recently sold a 2% gross overriding royalty (GORR) on 121 thousand net acres of its Pembina holding to Freehold Royalties Ltd. In exchange for C$52 million, some land and some oil and gas production.  The cash infusion comes at a good time for Bonterra so that it can apply this amount to reduce its outstanding debt, thus removing the potential for cutting its dividend.  The possibility of a dividend cut along with the lower commodity prices over the last few years had caused the company’s stock to trade at lower prices.  The feeling now is that Bonterra stock could return to its previous levels.  An improving price for its light oil will help as well.
Sleep Country Canada Holdings Inc. (ZZZ on TSX), Jan 26/18: C$33.43, 52-week range: 42.36-28.00, market cap: C$1.2 billion, div: C$0.66, yield: 1.97%
Sleep Country is Canada’s leading mattress retailer with 247 stores and 16 distribution centres across the country.  The stores are corporate-owned so that the company maintains a consistent customer service that includes a home delivery customer experience.  Sales have been increasing by about 14%/year to C$570 million, same store sales by about 9%.  EBITDA margins have been increasing over the last five years from about 11.5% to 16.4%. The company targets opening 8 to 12 stores a year. Sleep Country has long term debt of net $74 million but a cash flow that provides a dividend at a 57% payout.  While at first glance, the industry could be easily judged as one being of easy entrance, perhaps Sleep Country, with a combination of strong merchandising skills and tight controls, is proving to be a growth-oriented company.

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