Agnico Eagle Mines: Stock of the Week

The world’s third-largest gold miner boasts also leads on dividends thanks to superior stability.

Andrew Willis 13 November, 2023 | 4:39AM
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Editor's Note: All images are courtesy unsplash.com and AP Images. 

Key Takeaways for Agnico Eagle Mine Stock:

  • Agnico Eagle may be the third-largest miner by production but it boasts superior jurisdictional stability relative to industry peers.
  • With a focus on mining-friendly jurisdictions, Agnico is continuing to expand operations and explore potential new mines in Canada while maintaining lower-than-average production costs.
  • While not as undervalued as peers such as Newmont or Barrick, Agnico stock has been supported by dividends since 1983 and also has a share repurchase program.

 

Andrew Willis: We know that investing in gold doesn’t mean you’re going to get cash flow, but by investing in well-run gold miners you can benefit from both gold prices and a pretty decent dividend.

The third-largest gold miner by production, Agnico Eagle Mines (AEM) is this week’s Stock of the Week because it represents an investment in gold alongside a sound balance sheet and production in stable jurisdictions that help make a 3% dividend possible. It’s not the four-plus percent that Newmont (NEM) is offering, but it beats out the likes of Barrick (ABX) and doesn’t come with the baggage from a geopolitical risk standpoint.

Agnico Has a Canadian Cornerstone

About 80% of Agnico’s 2023 forecasted gold production comes from Canada and Australia, which helps make for lower sovereign risk compared to its larger rivals. Equity analyst Jon Mills notes that four of the five cornerstone mines at Agnico are in Canada, and the company is looking to expand production at existing assets as well as potentially develop two additional mines up North.

Looking ahead the all-in cost to run these mines translates to one-thousand one-hundred U.S. dollars per ounce of gold, which is below the industry average. So the key risk to cash flow at the moment looks to be on the demand side of things, which brings us back from the business to assessing the commodity itself.

From jewellery to electronics and perceived safe-haven attributes, demand for gold continues to fluctuate and investors will continue to speculate. At least, Agnico’s outlook on the question is clear, since as of the end of 2022, the company has stored enough gold in reserve to last 15 years.

For Morningstar, I’m Andrew Willis.

 

bulls Agnico Bulls Say

  • Agnico Eagle has around 15 years of reserves at end December 2022, with various opportunities to incrementally increase gold production in coming years.
  • For investors seeking gold miners with lower geopolitical risk, Agnico Eagle’s mines are in relatively stable and mining-friendly countries of Canada, Mexico, Finland, and Australia.
  • Gold stocks tend not to follow general economic cycles. They can also provide a hedge to inflation risk.

bears Agnico Bears Say

  • The company’s production sits within the second quartile of the gold cost curve, meaning it is more leveraged to changes in the gold price than its lower-cost competitors.
  • We think the company paid a full price for the remaining 50% of the Canadian Malartic mine and other assets acquired from Yamana Gold in 2023.
  • Gold is subject to the whims of investors’ sentiment, who can move as a herd and impact the gold price.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Agnico Eagle Mines Ltd67.71 USD0.58Rating
Barrick Gold Corp23.64 CAD1.59Rating
Newmont Corp41.98 USD1.82Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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