September 22, 2011

Dear Friend,

We evaluated Agnico-Eagle Mines potential dividend payouts in the context of Newmont Mining's "accelerated formula" dividend revised September 19th, Sean Boyd's sympathetic Sept. 19th public comments appearing to agree in principle with Newmont Mining's actions and the practical situation that AEM operates a suite of "young mines" with little depletion where large capital outlays have been completed in 2010, freeing up much cash flow.

We estimate that Newmont Mining would pay out about $2.00 per share at $1,800 gold at 2011 output levels near 5.2 mm oz, which equates to $193 per oz of current gold output. Because of Agnico-Eagle's superior suite of recently completed younger mines, we believe AEM could pay out twice as much as NEM or $384 per oz of output or $2.80 to $4.20 per AEM share from 2012 to 2018 as output expands. Such an aggressive dividend payout would cause our estimate of AEM's year-end 2018 cash balances to be near $3.0 billion with the $384 per oz dividend payout or $6.7 billion if it maintained the current $0.64 per share payout. We want to stress that $0.64 per share is nearly $100 per oz of current 2011 output, which is among the larger dividends paid in the gold mining industry, even before any increases or enhancements.

Grayd Resources includes a 1.2 mm oz inferred gold resource able to support a 100,000 oz future heap leach and a separate larger target, Tarachi, both 70 km from Pinos Altos in Mexico. Surface alteration, geochem (soil samples) and limited drilling suggest a 5 km by 1 km by 0.5 km deep target at Tarachi, or a roughly one billion metric tonne “mineral envelope” where typical indications are near 0.5 g/t. Our inference of 250,000 oz from Tarachi in 2017 assumes AEM defines 3+ mm oz by 2015 from 20% of the 1 billion tonne “mineral envelope.” There is no assurance our hunches are accurate, but we spoke at length on September 19^th with Troy Fiero of Grayd whom we knew previously as COO of Fronteer Gold, whom we had hosted at our conferences. We have not visited Grayd's properties.

Price target increased to $86 from $76, where $10 per share equals the cumulative increase to our 2011 to 2014 earnings estimates from higher estimated gold prices without any deduction for cap ex. Overweight rating reaffirmed. Earnings estimates for 2011 through 2013 increased from $3.19, $2.62, and $2.48 to $3.22, $7.49, and $6.25, respectively. The increase in earnings is mainly due to the higher gold price forecast, while 2011 did not rise very much owing to lower production and higher costs than expected

 

John C. Tumazos, CFA