April 5, 2010 / 3:42 PM / 9 years ago

UPDATE 3-Agnico eyes 2 mln oz/year output after acquisition

* New project would be 2nd Nunavut mine for Agnico

* Meadowbank reached commercial production in March

* Agnico sees expansion beyond 5 mln oz resource (Adds comments on future output, updates shares)

By Cameron French

TORONTO, April 5 (Reuters) - Agnico-Eagle Mines (AEM.TO) is laying the groundwork for the next phase of its growth with the purchase of the Meliadine gold project in northern Canada, an acquisition that could help drive its annual output to the 2 million ounce level, company officials said on Monday.

The Toronto-based miner recently completed an aggressive expansion plan by opening its fifth mine in the past two years, and expects production to rise to 1.4 million ounces per year in 2014 from last year’s output of about 500,000 ounces.

Meliadine kicks off the company’s next round of mine building, with a deposit that boasts 5 million ounces of gold and plenty of exploration upside, the company’s CEO said.

“(The Meliadine deal) positions Agnico for the continuation of our steady growth in production beyond 2014,” Chief Executive Sean Boyd said on a conference call.

The deposit in the northern Canadian territory of Nunavut holds a resource of about 5 million ounces of gold, but Boyd sees potential beyond what has been uncovered so far.

“Regionally, we’ve identified 24 exploration targets that we think should be drilled and we will ... include that in our plans over the next two years,” he said.

Agnico hopes to run a larger mine than previously envisioned by Comaplex Minerals CMF.TO, from which Agnico is buying Meliadine in an all-stock deal unveiled on Thursday.

Comaplex had expected the project to process 3,000 tonnes of ore a day — or about 750 ounces of gold a day based on average grades of about 7 grams a tonne — but Agnico said it might consider more than doubling that rate.

David Smith, Agnico’s vice-president of investor relations, said the mine could produce between 300,000 and 400,000 ounces of gold a year, although he cautioned this was a preliminary estimate.

Combined with the current production outlook, and with expansions being studied at the company’s Meadowbank, Kittila, and Pinos Altos mines, the Agnico’s annual production could top the 2 million ounce level this decade.

“I could certainly agree that we will be in the neighborhood of 2 million,” he said.

ARCTIC PRESENCE

Meliadine sits in eastern Nunavut, just north of the town of Rankin Inlet on Hudson Bay. That is just 300 km (185 miles) from Agnico’s Meadowbank mine, which reached commercial production in March, Boyd said.

Once a one-mine operation, Agnico now runs six, located in Canada, Finland, and Mexico.

The deal comes amid an uptick in mining M&A activity, as robust gold prices, rebounding base metal prices and generally stronger economic activity have allowed executives to switch their thinking from survival to expansion.

Recently announced deals include gold junior Osisko Mining’s (OSK.TO) C$372 million offer for Brett Resources BBR.V and copper and gold miner Quadra Resources’ QUA.TO agreed C$1.6 billion takeover of rival FNX Mining FNX.TO.

The Meliadine deal fits with Agnico’s preferred method of acquiring undeveloped projects that it can build and expand on its own, trying to squeeze out the maximum value at each step.

Agnico will pay about C$570 million for the project through an acquisition of the 88 percent of Comaplex that it does not already own, It plans to spin off Comaplex’s remaining assets into a new company.

Analysts said the takeover was not particularly surprising, given Agnico’s existing 12 percent stake in Comaplex, and said it was difficult to evaluate the purchase price given the potential for exploration and expected cost synergies with the nearby Meadowbank operation.

“(The purchase) cannot be viewed as cheap considering there are no feasibility-level economics yet, but the grade appears quite robust, and Agnico believes there is still significant exploration upside remaining,” Don Blyth of Paradigm Capital said in a report.

Comaplex’s shares rose 23.8 percent to C$9.90 on the Toronto Stock Exchange on Monday, trading just below the implied deal value of C$10.23, which includes a projected C$1 value for each share of the new company.

Agnico stock rose 51 Canadian cents to C$58.59.

$1=$1.002 Canadian Reporting by Cameron French; editing by Peter Galloway and Rob Wilson

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