Case ID: 907N11
Solution ID: 2806
Words: 2285
Price $ 75

Agnico Eagle Mines Ltd Case Solution

Case Solution

The senior portfolio manager at National Investments Corporation. (National) is worried concerning the recent decline in shares of Agnico-Eagle Mines Ltd (AEM), a Canadian gold producer with many years of gold and silver mining experience which was one among the portfolio's most powerful entertainers. The senior portfolio manager and the team lately stayed at certainly one of AEM's mines and supported the operational potential of the organization. National's research department had prepared free income predictions for AEM, that the senior portfolio manager examined and modified, following their visit with the organization. He understood that despite his team's belief later on prospects of AEM, the stock might have become overvalued from the fundamental view point. The senior portfolio manager requested his team to carry out a fundamental valuation from the equity of AEM. As normally, this meant they would make use of the reduced income (DCF) methodology, with financial presumptions that were carefully examined. However, he understood that DCF valuation may likely undervalue resource companies, for example AEM, because the DCF valuation tended to miss the versatility provided at decision nodes throughout the existence of the organization in relation to removing goods in the ground. Consequently, the senior portfolio manager reminded they the DCF method, when put on a mining company, needed to be broadened to clearly include the need for the unmined metals. The subterranean unmined gold will have to be valued like a real option, utilizing an modified Black-Scholes model.

Excel Calculations

·         Black Scholes

·         Exercise Price

·         Valuation of AEM Stock

·         AGNICO-EAGLE PROJECTED FREE CASH FLOW

·         Tax Adjusted Figures

·         Total Free Cash Flow

·         NOPLATPA

·         Growth rate

·         WACC

·         Terminal Value

·         Remaining Tax Shield

·         Free Cash Flows to the Firm

·         Present Value of Cash Flow

·         NPV

·         Tax Losses Carried Forward Expiration Schedule

·         Exploration and Development Expenses Adjustable                                       

·         Value of Tax Shield Available

·         Tax Shield adjusted in Projected Period

·         Remaining Tax Shield

·         Basic Valuation

·         AGNICO-EAGLE PROJECTED CONSOLIDATED BALANCE SHEETS

·         ANGICO-EAGLE PROJECTED STATEMENTS OF INCOME (LOSS)

·         PROJECTED CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT) AND

·         AGNICO-EAGLE PROJECTED FREE CASH FLOW

·         Market Value of Debt(1)

·         After-Tax Pension Fund Deficit

·         A-G FINANCIAL CONSULTING

·         AEM WACC CALCULATION

·         Year 1 - WACC(1)

·         LTD Convertible

·         Short-term debt

·         Common Equity

·         Stock options

·         Total

·         Year 2 - WACC(1)

·         Year 3 - WACC(1)

·         Year 4 - WACC(1)

 

Questions Covered

1.       Estimate the value of AEM and its equity from operations using the DCF method.

2.       Discuss the estimation of the value of the tax loss–related items, as well as the impact of the other valuation items shown in case Exhibit 11.

3.       Estimate the value of AEM’s real option to mine the un-mined gold by applying the Black and Scholes model to the valuation of a real option.