Agnico-Eagle Mines Limited
Agnico-Eagle Mines Limited
Sales: $126.8 million (2003)
Stock Exchanges: New York Toronto
Ticker Symbol: AEM
NAIC: 212221 Gold Ore Mining
Agnico-Eagle Mines Limited is a Toronto-based Canadian gold producer, with its shares trading on the Toronto Stock Exchange and the New York Stock Exchange. The company no longer mines its founding properties, the silver-producing Agnico mine and Eagle Gold mine, instead limiting its mining activities to the LaRonde Mine in northwestern Quebec, which possesses proven and probable gold reserves of 5.3 million ounces and produces silver, copper, and zinc as a byproduct of the gold mining process. Agnico-Eagle's other properties, not currently in production, contain gold reserves of another 2.6 million ounces. The company also is conducting exploration on 56 properties located in eastern Canada and the western United States. It is pursuing opportunities in northern Mexico as well and owns a stake in the Surrikuusikko gold field in Finland. For many years Agnico-Eagle has been one of the lowest cost producers in North America, a company that has steadfastly refused to engage in hedging (selling future gold production at a set price as a precautionary measure), instead selling all of its production at the spot price of gold.
Merger of Agnico and Eagle: 1972
Agnico-Eagle was created in 1972 by Canadian businessman Paul Penna when he merged Agnico Mines Limited and Eagle Gold Mines Limited. The origins of the Agnico property can be traced to 1903, at a time when northern Ontario remained wilderness. A pair of timber scouts, James McKinley and Ernest Darragh, were boating along the shore of what was then known as Long Lake when they noticed the sun reflecting off the rocks in a curious manner. They investigated, and took samples of the rocks they found, which were then assayed in Montreal. The report showed that the men had found silver, an astounding 4,000 ounces to the ton. The boom town of Cobalt sprang up, as more than a dozen silver mines opened in the area over the next few years. Silver was so prevalent in Cobalt that in the early years mining was done at the surface, and only later were the first shafts dug. Production peaked in 1911, a year in which Cobalt shipped 31 million ounces of silver, or roughly one-eighth of the world's silver production. In the 1930s the area appeared to be played out, as repeatedly the silver veins refused to yield beyond 300 feet below the surface. Some of the original claims continued to be picked over for a number of years, and during the 1950s the area was revitalized by the mining of cobalt, used in the United States in cutting tools, heat-resistant alloys, and cancer radiation therapy. But this market dried up as well when new sources of cobalt became available in the United States.
A handful of Cobalt-area silver mining companies remained operational into the 1950s, but the cost of production was higher than the price of silver. In 1953 they banded together to form Cobalt Consolidated Mining Co. Four years later the company took a new name, Agnico Mines Ltd., its name combining the symbols of silver (Ag), nickel (Ni), and cobalt (Co). By employing new diamond drills and other modern mining techniques, the company was able to recover high-grade silver and began to buy up other mining properties in the area. In 1960 Agnico discovered a major silver deposit, but poor management squandered the company's opportunities and unwisely opted to lease out two of its best properties. It was at this time that Paul Penna, a new Agnico shareholder, began building a stake in the company and took steps to seek control through a proxy fight.
Penna was born Paul Phineas Osheroff in 1922, one of seven children in a family of Russian Jewish immigrants raised in a tough section of Toronto. Growing up poor, he tried to make money any way he could. When just eight, he attempted to become a caddy at the exclusive St. Georges's Golf & Country Club, but was turned away because he was too small. When he grew bigger he returned to the country club to become a caddy, and in the process developed a passion for golf. At the age of 14 he quit school to become a full-time caddy at the Weston Golf & Country Club. He rose early each morning to play the course and hone his game, then for the rest of the day carried the bags of the rich and influential men who were club members. It was during his days as a caddy that Penna assumed a less Jewish-sounding name. Long called Penny because of his middle name Phineas, he modified it to Penna, thus becoming Paul Penna.
Paul Penna Becoming Involved in Mining
in the 1930s
Naturally athletic, Penna was a superb golfer, but lacked the necessary killer instinct to become a professional. Penna began running a pro shop, but because it was a seasonal business he was in need of work during the winter months. He found it as a messenger with one of the men whose bag he carried at the Weston golf club, Eddie de Palma. According to Mike Macbeth in his Silver Threads Among the Gold, de Palma was a loud-talking, big-spending mining promoter and a Detroit resident who left the United States after the Securities and Exchange Commission tightened its regulations in the 1930s. De Palma set up a bucket shop in Toronto and began promoting penny stocks, selling shares of Canadian mines to the unsuspecting. Penna, always an eager learner—outside of the classroom, at any rate—paid close attention to the salesmen making their telephone pitches, so that when de Palma gave him a chance to try his hand at it, Penna became an instant success. While the older men concentrated on the U.S. calls, Penna handled the Canadian prospects, taking advantage of his natural enthusiasm and charm, and soon becoming de Palma's top salesman. One of the secrets to his success, however, may have been that he naively believed what he was pitching. He invested a large percentage of his commissions in the same dubious properties he was selling on the phone.
Penna was a millionaire by the age of 24, but he also was exhausted and suffering from a stomach ulcer, and just as he was coming to understand that he was a seller (and buyer) of worthless stocks, he found himself swept up in a housecleaning effort launched by the Ontario Securities Commission. De Palma was especially targeted, as were de Palma's salesmen—especially his boy wonder. Penna had his license suspended for six months; he was out of work and, soon, broke. His license was reinstated but Penna lost his enthusiasm for stock promotion, drifting from broker to broker over the next few years, before deciding to become a golf teacher.
Although disenchanted with stock promotion, Penna remained fascinated by the mining industry. After getting married and experiencing the death of his father, he was mature enough in 1956 that he decided to go into business with his brother Norman to develop properties into producing mines. While Norman scouted for prospects in the field, Penna, contending with the stigma that was still attached to his name from his days with de Palma, struggled to raise the necessary capital for drilling and exploration. A key success was a silver mine in the Cobalt area, Deer Horn Mines Ltd., which Penna and his brother bought in 1963. Penna also began investing in the nearby Agnico properties and became outraged by the company's inept management. He and his brother formed the Shareholder's Protective Committee and began sending out letters to fellow shareholders severely questioning Agnico's leadership. A proxy war for control of the company ensued and Penna's group won out.
Although Agnico's disheartened employees were wary of Penna, having become well aware of his bucket-shop past during the proxy fight, they were quickly won over by his willingness to supply them with much needed equipment and the assurance that from that day forward Agnico would no longer be leasing its properties to outsiders. He also demonstrated his belief in the company's properties by sticking with an effort, rather than quitting once a vein appeared to end. Instead of assuming that the region's silver was to be found no deeper than 300 feet, he backed his geologist, Brian Thorniley, who had a gut feeling that another layer of silver would be found around the 1,500-foot level. It was a costly gamble, but it paid off when silver was discovered at the deeper level, a deposit that the company would exploit for decades to come. Penna also benefited from rising silver prices, so that by the end of the 1960s Agnico was a profitable concern.
We have set out to build a company that focuses on quality, growth and a strong financial position, while retaining full leverage to gold process.
Also during the 1960s Penna began his involvement with Eagle Gold Mines, which was launched in 1945 as Jack Lake Mines Ltd., a base metals company with a few claims in Quebec. In 1961 the company, now known as New Jack Lake Uranium Mines Ltd., acquired some property in Joutel that it hoped might contain copper and zinc. A year later it assumed yet another name, Equity Explorations Ltd., and as such began a drilling program in 1964. Penna in the meantime was confident about the state of Agnico and now scouting around for new prospects. He kept tabs on Equity, which looked like it had a promising copper mine in its Joutel property. But when gold began to appear as the drills cut deeper, Penna was quick to buy up Equity stock, which was selling around 20 cents a share. In March 1965 assay reports were so promising that Equity's stock jumped to nearly $2 a share and the company was able to take advantage of sudden interest to sell $800,000 of new shares. But the bubble soon burst when assays conducted by the Quebec Securities Commission offered a less optimistic report, leading to a panic and total collapse in the price of Equity stock. While others were unloading their shares, however, Penna was buying. He kept buying even as Equity was accused of salting its sample with additional gold. More tests were done by the Commission and it was shown that despite the salting of the sample, there was still plenty of true gold in the new samples. Moreover, Equity drilled deeper and found even more promising amounts of gold. But Equity's management was now under a cloud of suspicion and it could no longer effectively operate the company. As a result, Penna was able to wrest away control and was elected president in November 1966.
Penna immediately took steps to turn the Joutel site into a producing mine. One of the first things he did was change its name; in February 1967 Equity became Eagle Gold Mines. Over the next three years nearly $9 million was invested to ready the property for mining, but in early 1970 Penna received grim news: The 1967 estimate on how much it would cost to bring the mine into production had been rendered invalid by rising material and construction costs. The $3 million price tag had ballooned to more than $5.5 million, money that the company could not raise. Penna was forced to shut down the operation, but rather than following the normal procedure of flooding the mine to preserve the timbers and excavation, he opted to spend about $3,000 a month to maintain the property, lest his action threaten future attempts to raise new money. Nevertheless, the news destroyed the value of Eagle stock. Penna, who had bought a lot of shares on margin, soon found his broker selling off his holdings, despite promising not to sell.
The next two years were a difficult period for Penna, who traveled around the world looking for money to shore up Eagle. All the while, Agnico was flourishing. A friend put Penna in contact with Jake Moore, the head of Brascan Ltd., who suggested that Penna should use Agnico's money to bail out Eagle. Since Agnico was an Eagle investor, it made sense to Penna that Agnico had a vested interest in helping out Eagle. With cash to spare, Agnico was in a position to do so. Using Agnico's money, Eagle was able to pay off its debt, and with rising gold prices in the world, the Eagle mine was able to attract investment from the Toronto-Dominion Bank to complete the mine. Then, in 1972 the two mining companies merged, becoming Agnico-Eagle Mines Limited. Two years later, in February 1974, the Eagle mine became operational, just in time to take advantage of record gold prices. In addition, more gold reserves were discovered at a deeper level. Eagle was now earning money, and the symbiotic relationship between Agnico and Eagle became apparent: Within ten years Eagle would come to the rescue of Agnico. With the price of silver down, the company could now afford to stockpile silver until prices rebounded, depending on the revenues of the gold mine.
Always on the lookout for new opportunities, Penna accumulated other mining properties along the way. In 1971 he bought the Telbel property adjoining Eagle, which he had targeted years earlier. He bought it for the rock-bottom price of $76,000. After Telbel went into production in 1985 it would prove to contain 500,000 ounces of gold. Another mining property with which Penna became involved in the 1970s was the LaRonde Mine, which grew out of Dumagami Mines, incorporated in 1961. While the property showed some promise, no one other than Penna became overly excited by the periodic drilling results. Another company he controlled, Mentor Exploration and Development, began buying shares in Dumagami in the mid-1970s. Then starting in 1978 he began stockpiling shares for both Mentor and Agnico-Eagle, so that by 1982 Penna controlled 36.3 percent of the venture. He and the other major shareholder, Noranda Mines, began developing the property, and eventually Penna bought out Noranda's interest. By the mid-1980s the mine was put into production. A man instrumental in the project, and who had brought Eagle into production, was Don la Ronde. Troubled with a bad heart, he died at the age of 55 in 1986. To honor him, Penna renamed the mine at Dumagami the LaRonde Mine. It was folded into the Agnico-Eagle operations in 1989.
Agnico-Eagle prospered during the 1980s until gold and silver prices plunged at the end of the decade. The company closed its silver mines in late 1988 and a few months later sold off its real estate investments (a diversification effort launched in 1986). The company also wrote off some older, played-out mines, leading to significant losses on the balance sheet. A disgruntled shareholder attempted to mount a proxy fight but the effort petered out in 1990. A few weeks later, a major gold discovery was located in the LaRonde property, an event that bolstered Agnico-Eagle's stock price, and led to the company focusing its attention on this property. In the next three years Agnico-Eagle raised $179 million in stock and bond offerings to bring the LaRonde Mine into production.
Penna's Death in 1996
Penna died in August 1996 at the age of 73, setting off rumors that Agnico-Eagle might be the subject of takeover bids. Over the years Penna, who had owned a majority stake in the company, had been able to thwart any attempts by larger mining companies to take over the company. Although Agnico-Eagle remained independent, it began to turn over its aging management team and board of directors. Upon Penna's death, 73-year-old Wencel A. Hubacheck was named the new CEO. But within two years, a younger man, Sean Boyd, the company's chief financial officer, was tabbed to lead the company into the future.
- Cobalt Consolidated Mining Co. is formed.
- Cobalt Consolidated is renamed Agnico Mines Ltd.
- Paul Penna gains control of Agnico.
- Penna gains control of Equity Exploration Ltd. and renames it Eagle Gold Mines.
- Penna merges Agnico and Eagle, creating Agnico-Eagle Mines Limited.
- Agnico-Eagle acquires the LaRonde Mine.
- Paul Penna dies.
- Agnico-Eagle gains a stake in the Surrikuusikko gold deposit in Finland through acquisition of an interest in Riddarhyttan Resources AB; the company acquires Contact Diamond Corporation.
Partially because of weak gold prices, Agnico-Eagle failed to produce a profit from 1996 until 2002. The company continued to focus on the LaRonde Mine and the area surrounding it, where other promising deposits were uncovered. The company also sought opportunities elsewhere in the world. In 2004 it acquired an interest in a Finnish company, Riddarhyttan Resources AB, gaining a stake in the Surrikuusikko gold deposit located some 500 miles north of Helsinki. Later in 2004 Agnico-Eagle acquired Contact Diamond Corporation, picking up 56 properties in Canada and the United States to explore. Contact Diamond's Reno, Nevada-based office also evaluated exploration opportunities in northern Mexico. Early in 2005, Agnico-Eagle entered into an option agreement to acquire a project in northern Mexico's Sierre Madre gold belt.
Sudbury Contact Mines Limited; Mentor Exploration and Development Co., Limited.
Barrick Gold Corporation; Newmont Mining Corporation; Placer Dome Inc.
Hasselback, Drew, "Agnico-Eagle Foresees Gold Bull Market," National Post, June 22, 2002, p. FP6.
Macbeth, Mike, "You Can Take a Flier on This One," Canadian Business, April 1983, p. 46.
——, Silver Threads Among the Gold, Toronto: Trans-Canada Press, 1987.
Rudnitsky, Howard, "Gold Digger," Forbes, September 11, 1995, p. 82.