TSX Commentary

Sector Perform, Average Risk, Price Target: $60.00 (prev. $71.00)
Yesterday, Agnico-Eagle held a technical session, providing guidance on production, cash costs, and capex through 2014. 2010 is poised to be a transformational year for Agnico, as gold production more than doubles from 2009 levels, to over 1.0 million ounces. Beyond 2010, annual growth is forecast to continue, albeit at a reduced rate, rising to 1.4MMoz/yr by 2014. Annual production estimates were very close to RBC CM’ current model assumptions, and therefore neutral to its NAV for Agnico. Management outlined fairly consistent cash cost guidance of just under $400/oz for the next five years, which represented moderately higher levels than RBC CM had modeled in some of the years (often closer to $370/oz). As expected, the capital spending profile is forecast to decline from $463MM in 2010, to $178MM in 2011, before settling to a sustaining capital spending rate of $100MM/yr. RBC CM maintains its view that current difficulties experienced with the ramp-up of Agnico’s new mines are temporary and likely to be resolved over the next few quarters. However, cost revisions to the 5-year operating plan are negative to RBC CM’ overall NAV, leading to a reduction in its target price for AEM shares. With the continued short-term execution risk over the next few quarters, combined with the limited return potential suggested by its new target price, RBC CM maintains its Sector Perform rating on Agnico-Eagle shares.