CANADIAN PERSPECTIVE: What Agnico might do with $1 billion

This week Agnico-Eagle Mines of Toronto announced it has increased its credit lines to over US$900 million. A new non-amortizing US$600 million revolving credit facility maturing in 2012 replaced an older US$300 million deal that would have matured in September 2010. Add to that the company's other US$300 million non-amortizing credit line that matures in January 2013, and Agnico has access to over C$1 billion.

The company's bankers obviously have a lot of trust in the gold producer's management. Either that or they like the high ratio of reserves to shares outstanding.

"The new facility provides Agnico-Eagle with additional liquidity for internal expansion opportunities, as well as financial flexibility to deal with potential investment opportunities and other corporate priorities," said Sean Boyd, vice-chair and CEO.

That is executive-speak for "We could use the money to bring more mines on stream or make a bid for some other company."

First, let's look at Agnico's mines and project pipeline.

Agnico operates the LaRonde, Goldex and Lapa mines in Quebec as well as the Kittila mine in Finland. Three of those mines have come on stream in the last 18 months. The company is forecasting a 2009 gold output of 550,000 to 575,000 oz at a total cash cost of US$340 per ounce.

Under development are the Pinos Altos mine in Mexico and the Meadowbank mine in Nunavut. They are expected to pour their first gold in Q3 2009 and Q1 2010, respectively. By the end of 2010, Agnico's gold production will double, topping 1.0 million oz per year.

Agnico also has plans to spend US$54 million on exploration for the calendar year 2009. Most of the activity will be aimed at its mines and developments to further increase reserves.

If there is any of the US$900 million left over at the end of the year, what might Agnico-Eagle do with the rest?

There must be dozens of small gold explorers with promising properties. If the potential is there and Agnico takes an interest, the chances of creating a new producer are greatly increased. It is Agnico's practice to own 100% of the deposits it develops. For example, the Meadowbank deposit is 100% owned through a takeover of Cumberland Resources in 2007. Agnico currently holds a 15.6% interest in Comaplex Minerals, which has interests in the Meliadine gold project in the same region as the Meadowbank project.

Chances are good that the Meliadine project will become Nunavut's second gold producer.