March 1, 2010 / 4:51 PM / in 7 years

UPDATE 1-Agnico-Eagle eyes dividend increase as costs fall

* Capital costs to fall after building five mines

* Intends to redirect free cash flow back to shareholders

(In U.S. dollars, unless noted)

TORONTO, March 1 (Reuters) - Agnico-Eagle Mines (AEM.TO) plans to raise its shareholder dividend as its capital costs decrease after completing five new mines in the past two years, the Canadian gold miner said on Monday.

Speaking at a mining conference in Florida, Agnico Chief Executive Sean Boyd said spending is set to plunge following the recent construction of new mines, including Meadowbank in the Canadian Arctic territory of Nunavut, which poured its first gold this month.

The company expects capital spending of about $478 million this year, but that should fall to $178 million in 2011 and to about $100 million thereafter.

"What that will allow us to do is to generate net free cash flow, and what do we do with that, we will reinvest some of that back in the business at these projects, but we also increase the dividend," he said.

The Toronto-based company last raised its annual payout in 2007 to 18 cents a share.

"That's certainly a foundation of the company and we look to increase the returns to shareholders on that basis," Boyd said.

Meadowbank is the fifth new mine Agnico has opened since 2008, joining the Goldex and Lapa mines in Quebec, the Kittila mine in Finland, and the Pinos Altos mine in Mexico.

Agnico also produces from its flagship La Ronde mine in Quebec.

The company's shares were down 1 Canadian cent at C$60.75 on the Toronto Stock Exchange, rebounding from weakness earlier in the session.

$1=$1.04 Canadian Reporting by Cameron French; Editing by Frank McGurty

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