Agnico-Eagle Down over 18%, Forced to Close Mine

Oct 19, 2011
J. Webster
Comments Off on Agnico-Eagle Down over 18%, Forced to Close Mine

If you woke up today and were wondering why in the world gold miner Agnico-Eagle, a once Cramer loved gold stock, was down over 18%, well it’s because they were forced to just down a mine and write off $260 million. Yes, as many say, that’s the risk with owning gold mining stocks rather than the physical or actual gold.

TORONTO, Oct. 19, 2011 /CNW/ – Agnico-Eagle Mines Limited (“Agnico-Eagle” or the “Company”) announced today that it is suspending mining operations and gold production at its Goldex mine in Val d’Or, Quebec effective immediately. This decision follows the receipt of an opinion from a second rock mechanics consulting firm which recommended that underground mining operations be halted until the situation is investigated further.

While the Company continues to assess the situation, it appears that a weak volcanic rock unit in the hangingwall of the Goldex deposit has failed. This rock failure is thought to extend between the top of the deposit and surface. As a result, this structure has allowed ground water to flow into the mine. This water flow has likely contributed to further weakening and movement of the rock mass.

“Considering the safety of the Company’s employees, and the integrity of the mine’s infrastructure and that of the surrounding area, the decision was made to stop production indefinitely” said Sean Boyd, Vice-Chairman and CEO.

It is estimated that the mill will continue to process feed from the remaining surface stockpile until the end of October.

The Company will assess the potential for restarting the mining operations next year on the western side of the deposit where the ore zone is narrower and still considered to be relatively stable, however, there is no guarantee that this will occur. As a result, Agnico-Eagle will write off its investment in Goldex. It is expected that this will total approximately $260 million (or approximately $170 million after tax, or $1.00 per share) and will occur in the third quarter 2011 financial results, scheduled for release on October 26. Additionally, the Company expects to make an accounting provision for a portion of the anticipated costs of remediation in the third quarter of 2011. All of the remaining 1.6 million ounces of proven and probable gold reserves1 at Goldex (approximately 10 years of mine life), other than the ore stockpiled on surface, will be reclassified as mineral resources.

To me, the sell off seems way over done, when you consider how much market capitalization has been taken out in just a few days. Just last week the stock (AEM) was hovering at around $60 a share, now it’s down to $47. That’s roughly a $2.8 billion drop in market cap. Perhaps it’s not just the write off but the longer term outlook for the stock with this mine in shut down mode.

Full press release from Agnico-Eagle is here.

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