While most major miners are in the midst of significant spending cutbacks, Agnico-Eagle Mines Ltd. (TSX: AEM) has been busy putting its cash to work.
Agnico has invested nearly $65 million into five deals since March. Four of the deals were done through equity investments into juniors while a fifth deal included the all-stock acquisition of Urastar Gold.
Most notable is the fact that all five deals have taken place with companies developing assets in the Americas- clearly pointing to managements view on current and future geopolitical risk.
Agnico presently operates five mines throughout the world- three in Canada, one in Mexico and another in Europe. During full year 2012 the company produced a personal best 1.04 million ounces of gold and generated operating cash flows of nearly $700 million. Gold reserves as of Q1 2013 were estimated to be 18.7 million ounces.
And while Agnico is also working to bring two new mines online by 2014 as well as grow gold production to over 1.2 million ounces annually by 2015, the company sees the current state of the junior resource sector as a cyclical opportunity to invest in assets that could provide considerable growth prospects in the future.
With the all-stock acquisition of Urastar Gold, which was valued at $10 million, Agnico bolstered its exploration portfolio in Mexico by adding three new gold prospects for the cost of a few drill programs.
Most advanced is the El Antimonio Project, which spans 12,500 hectares along the Mojave-Sonora shear zone. Drilling in 2012 by Urastar revealed large bulk-tonnage potential for the project. The acquisition fits well for Agnico as the project represents an early-stage opportunity with significant upside potential in a mining-friendly jurisdiction.
The first announced equity investment by Agnico was announced in March when the company subscribed to 9.6 million units of ATAC Resources Ltd. (TSX.V: ATC) at a purchase price of $1.35 per unit for total proceeds of $12.96 million.
The investment also includes 4.8 million purchase warrants exercisable at a price of $2.10 per share over the next 18 months. Agnico now holds a 12.21% stake in ATAC on a partially diluted basis.
ATAC has been advancing its 100% owned Rackla Gold Project since 2006. Over 37,000 meters of drilling were completed in 2012 and exploration to date has identified Carlin-type mineralization across 100 kilometers of strike length.
With over $27 million in working capital ATAC continues to aggressively drill established and new discoveries as the company works to define a large gold district in the remote Yukon.
Agnico also announced on April 9th that it had completed a private placement into Sulliden Gold Corp. (TSX: SUE) for $24 million at a unit price of $0.89. Each unit included one common share and 0.7 partial warrant exercisable at $1.31 for a period of two years. With the investment Agnico now holds 15.83% of Sulliden shares on a partially diluted basis.
Sulliden is currently in the permitting stage for its Shahuindo Gold Project in northern Peru, which it is working to bring online in late 2014.
The 2012 National Instrument (NI) 43-101 feasibility study for the project outlined a two phase development plan. Initial capital expenditures for phase one were estimated at $132 million and would establish a conventional open pit, heap leach operation producing an average of 90,000 ounces of gold over a decade.
Agnicos $24 million equity investment will be combined with the expected closing of debt financing for $125 million from Barclays and Credit Suisse, providing the capital necessary to complete project construction and commence production.
Just last week Agnico also announced an $11.25 million equity investment into Probe Mines Ltd. (TSX.V: PRB), giving the company exposure to an advanced-stage Canadian gold project.
Probe is advancing the Borden Gold Project near Chapleau, Ontraio where the outlined 4.3 million ounces of gold at an average grade of 1.02 g/t in the indicated category.
Over 80,000 meters of expansion and infill drilling are planned for the project during 2013. Further steps will include additional metallurgical studies, an updated mineral resource estimate and maiden preliminary economic assessment (PEA).
Agnico also took a position in Kootenay Silver Inc. (TSX.V: KTN) in April when the company purchased 6.25 million units at $0.76 per unit that included one-half warrant at an exercise price of $1.08 for two years. Agnico now holds 9.96% of Kootenay stock on a non-diluted basis.
Kootenay announced an updated NI 43-101 resource estimate on May 14th for its Promontorio Project. Pit-constrained resources in the measured and indicated categories now stand at 92 million ounces of silver equivalent (AgEq). Kootenay also holds interest in early-stage gold projects in British Columbia.
Taken into context, Agnicos spending spree over the last two months will give the company future flexibility and leverage when M&A action returns to the junior resource sector.
Take Sulliden Gold for example, which holds the nearest timeline to production a market cap of $200 million. Should Agnico fully exercise its warrants in Sulliden, it would control nearly 20% of the company.
History has shown this to be an optimal starting point for future acquisitions as it gives majors a large enough position to carry weight with management and shareholders while still small enough to keep exposure to project risk manageable.
These strategic investments today are likely to drive growth and value in Agnico tomorrow.
