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

Agnico Eagle Mines Ltd Case Solution

Case Solution

The senior portfolio chief at National Securities Inc. (National) is worried about the late decrease in shares of Agnico-Eagle Mines Ltd (AEM), a Canadian gold maker with quite a long while of valuable metals mining background that was viewed as one of the portfolio's most grounded entertainers. The senior portfolio supervisor and his group as of late invested energy at one of AEM's mines and had faith in the operational capability of the organization. National's examination division had arranged free income conjectures for AEM, which the senior portfolio chief inspected and changed, after their visit with the organization. He realized that in spite of his group's faith later on prospects of AEM; the stock may have gotten to be exaggerated from a basic perspective point. The senior portfolio administrator requested that his group perform a key valuation of the value of AEM. As ordinarily, this implied the group would utilize the reduced income (DCF) strategy, with money related suspicions that had been precisely inspected. On the other hand, he realized that DCF valuation would likely underestimate asset organizations, for example, AEM, as the DCF valuation had a tendency to neglect the adaptability gave at choice hubs amid the life of the organization with respect to removing things from the beginning. Thus, the senior portfolio director reminded the group that the DCF system, when connected to a mining organization, must be extended to unequivocally incorporate the estimation of the un-mined metals. The underground un-mined gold would should be esteemed as a genuine alternative, utilizing a balanced 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.