Agnico-Eagle writes off Goldex mine – Euan Rocha, Reuters (Globe and Mail – October 20, 2011)

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Toronto— Reuters – Agnico-Eagle Mines Ltd.  is suspending operations at its Goldex mine at Val d’Or, Que., indefinitely because of water inflow and ground instability, the Canadian gold miner said Wednesday, sending its shares sharply lower.

Toronto-based Agnico will write off its investment in Goldex, resulting in a pretax third-quarter charge of about $260-million (U.S.). On an after-tax basis, the charge will be about $170-million, or $1 a share, the company said.

The writeoff prompted analysts at Credit Suisse and Macquarie to downgrade the stock, while analysts at a number of other brokerage firms lowered their price targets on Agnico-Eagle shares. Dahlman Rose analyst Adam Graf, in a note to clients, said Goldex accounts for roughly 13 per cent of Agnico’s net asset value and about 14 per cent of next year’s gold production.

“This would appear to be a major blow to Agnico-Eagle,” Mr. Graf said. “While Goldex is only a minority of annual production and value, it is nonetheless quite significant.”

Agnico chief executive officer Sean Boyd, on a conference call, stressed that the move to halt operations was the right decision in light of the safety hazard the ground instability posed to its employees.

“Although we will be assessing the potential to extract a portion of the 13 million tonnes of broken ore that remains underground, there is really no guarantee that we will be able to do this,” he said.

With proven and probable reserves of 1.6 million ounces, Goldex was one of Agnico’s lower-cost operations. The company had expected the mine to account for 184,000 ounces, or roughly 17 per cent, of its gold output in 2011.

“Goldex was an important mine and a good solid cash flow generator,” Mr. Boyd said. “Taking that out of the equation still doesn’t change the fact that we can fund all of our growth.”

However, Mr. Boyd said Agnico will now have to be very focused in deciding which projects it will allocate capital to.

The company said it would try to restart mining operations next year on the western side of the deposit, where the ore zone is still considered relatively stable, but there is no guarantee that this will occur.

Agnico said it expected its mill would continue to process ore that has been stockpiled on the surface until the end of October.

Agnico, which owns mines across Canada, Mexico and Finland, said a rock failure above its ore body had caused ground water to flow into the mine.

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