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May 18, 2010 Dear Friend,
We maintained our $75 per
share price target owing to the benefits of the 5 mm oz high
grade Meliadine deposit to be acquired announced on May 3rd,
high gold prices and Meadowbank commercial output one month
early. Disappointments were 769,000 oz of reserves and Lapa, Goldex
and Pinos Altos at year-end 2009, low gold recoveries at
Kittila in Finland, higher operating costs, higher interest
expenses, higher exploration costs, etc. We estimate about
26.5 mm oz of reserves at year-end 2010 pro forma
Meliadine's 90% conversion to reserves and assuming 3 mm oz
larger reserve definitions than AEM's guidance mostly in
Finland, Mexico and Nunavut.
On April 14th we
visited Pinos Altos in Chihuahua along with other mines of
Goldcorp, Gammon Gold and Paramount Gold. We had to be flown
from point to point owing to security, particularly among
marijuana fields in Chihuahua. This report contains our
detailed comments on Security, Metallurgy, Exploration and
Operations at Pinos Altos. Roughly three dozen
public companies operate in Mexico's Sierra Madre, and this
is a prime region for Agnico-Eagle to expand via acquisition
if and only if senior management becomes comfortable with
security issues.
Examples of plausible acquisitions
include AuEx Ventures that AEM already owns 8% of, other
AEM investees, a Colombian “California-Vetas” district
company from which AEM hired a geologist, Val d’Or regional
explorers, Quebec regional explorers like Virginia Mines and
Mexico Sierra Madre emerging miners A, B, C, D , E, F, etc.
Approximately 30 guests were at Goldcorp’s Penasquito mine in southerly and safe Zacatecas state on April 12-13th. Six continued to AEM Pinos Altos on April 14th, three of us went to Gammon Gold on April 14th-15th, and the other two continued to Minefinders on April 15th. We went alone on April 15th to Paramount Gold’s San Miguel next to Coeur d’Alene Mines’ Palmerejo because Paramount offered us a plane from Gammon to Paramount to the Chihuahua airport while the other two analysts did not share their airplane. The tour group dwindled as security conditions toughened.
Safety and security conditions require air travel from mine to mine in the mountains of Chihuahua and road travel is ill-advised. We spotted marijuana fields from the air near and between Gammon’s Ocampo, Coeur’s Palmerejo and Paramount’s San Miguel properties. Gammon’s mine manager literally phones the drug cartels to request a convenient time slot to avoid surprising any gunmen to send out a drill crew, make a geophysical survey or do other work on the periphery of his property. My charter pilot did not permit me to take a taxi from the Chihuahua metropolitan airport to the Wingate Hotel on April 15th, and insisted on driving me himself even in the provincial major city.
There is no place like
home.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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