Agnico Expects Share Declines, Bankruptcy for Mineral Explorers

Oct. 17 (Bloomberg) -- Agnico-Eagle Mines Ltd., the Canadian gold producer planning to increase output fivefold, said smaller mining and exploration companies may go bankrupt as their cash dwindles and the credit freeze makes borrowing more difficult.

There is another ``leg down'' for shares of so-called junior miners, which rely on external financing to develop their first projects or to fund the search for new metal deposits, Agnico Chief Financial Officer David Garofalo said yesterday in a telephone interview. Agnico will wait for those stocks to drop before making any acquisitions, he said.

``We haven't seen the bankruptcies in the junior market, but those are inevitable,'' Garofalo said from the company's headquarters in Toronto. ``There's no need to rush after opportunities, because the valuations will come down again.''

Mineral-exploration and development stocks have dropped this year as credit markets seized up and metal prices cratered on expectations that a global recession would hurt demand. The shares also have been hurt by the forced sale of investments by hedge and mutual funds required to return clients' cash amid a wave of redemptions.

Agnico fell C$5.24, or 11 percent, to C$41.92 yesterday in Toronto Stock Exchange trading, taking its decline this year to 23 percent and paring its market value to C$6.03 billion ($5.1 billion).

Others have fared worse. Osisko Mining Corp., planning to develop its first gold mine in Canada, declined 63 percent, Detour Gold Corp. is 59 percent lower and Orezone Resources Inc. has plunged 85 percent.

`Roadkill' Companies

Tom Winmill, president of New York-based Midas Management, which invests in gold and natural-resource stocks, said in an interview last week that mining companies with no cash flow are ``roadkill.''

The current conditions for obtaining credit are worse than Garofalo has seen in more than two decades in the mining industry, and there is no indication of when things will ease, he said. Credit has become ``virtually impossible'' for miners and companies in other industries to access, he said.

Agnico doubled its credit line to $600 million last month before the credit squeeze intensified and had $110 million in cash at the end of last month, he said. The company will continue developing new mines in Canada, Mexico and Finland, he said. The projects together will cost about $1.4 billion and will increase output to 1.2 million ounces by 2010.

Additional projects to expand production beyond what already was planned at the Pinos Altos, Kitilla and Meadowbank mines will have to be studied closely before capital is committed, Garofalo said.