First Gold Price Leverage: Buy Agnico Eagle (NYSE: AEM)


If you are looking for low risk gold exposure in your portfolio, please consider Agnico Eagle Mines (NYSE: AEM). It is one of the lowest gold mining companies in the world, with assets located in Canada’s safest political jurisdictions (74% of 2021 production and 85% of reserves), Finland, Australia and Mexico. The company has quietly increased its reserves in a 30-year operating plan and sports a conservative balance sheet. Valuations hit an all-time low in the summer of 2022, and the dividend yield proposition is approaching best-in-class.

Agnico Eagle – Presentation September 2022

Agnico Eagle – Presentation September 2022

The company has digested the merger with the Canadian miner Kirkland Gold (closed in February), and has had incredible success increasing its reserves over the past year. To get a clearer picture of the drilling results and the increase in economically recoverable reserves, I hope you can read Seeking Alpha contributor Taylor Dart’s last missive on Agnico posted a few weeks ago here. One of the points in the article summed up his bullish view,

With the title having industry-leading margins, a flawless balance sheet, significant organic growth on deck, and being a top 10 exploration story, I see it as a must-have producer, especially as it pays maintaining a 4% dividend yield.

And, last week, the company announced a $580 million spend to become a 50/50 partner with Teak Resources (TECK) developing a copper-zinc asset in Mexico through the San Nicolas project. The unexpected move is an effort to deliver the nascent and potentially exponential electric vehicle [EV] demand for critical metals for batteries and electric motors. A mine life of 15 years, with production beginning in 2026, and future capital costs of $500 million are pro-rated for Agnico’s development share. Total operating costs are expected to be less than $0.50 per pound of copper, net of credits from other mined metals.

What I love most about Agnico Eagle is its disciplined approach to spending to grow the business. Virtually no debt exists, net of cash. This low-leverage profile is the old-fashioned, conservative way of running a business, which few capital-intensive mining companies have been able to pull off.

Agnico Eagle – Presentation September 2022

Low historical valuation

The quality of its assets, including long-lived reserves in safer jurisdictions, combined with limited debt means Wall Street values ​​the company at the high end of other precious and base metal mining companies . You can check out this premium rating against a group of leading global miners below. Looking at forward price to earnings and enterprise value to EBITDA, Agnico doesn’t look like a good deal at first glance.

YCharts - Gold and Base Metals Mining Leaders, Price vs. Projected Earnings, 12 Months

YCharts – Gold and Base Metals Mining Leaders, Price vs. Projected Earnings, 12 Months

YCharts - Gold and Base Metal Mining Leaders, EV to Convey Projected EBITDA, 12 Months

YCharts – Gold and Base Metal Mining Leaders, EV to Convey Projected EBITDA, 12 Months

However, a simple analysis of the basic fundamental ratios on the company’s operations since 1995 highlights a record valuation today. Despite its most diverse setup, massive resource base, positive growth future and strong financials, you can buy Agnico today at its lowest price relative to sales, cash flow and value multiples. accountant NEVER (in combination).

YCharts - Agnico Eagle Price to Sales, Cash Flow, Book Value, 1995-Present

YCharts – Agnico Eagle Price to Sales, Cash Flow, Book Value, 1995-Present

Another smart reason to buy and hold AEM today is in its highest dividend yield EVER. It is also the best “relative” performance metric against the broader US stock market in its history. I know that many investors flock to mining royalty companies that pay out 1% or 2% dividend distributions. Why not double and triple the returns on up-front royalty setups, with significantly better leverage on higher gold prices in the future thanks to this “top-notch” mining security?

YCharts - AEM Dividend Yield vs. S&P 500 ETF, 1990-Present

YCharts – AEM Dividend Yield vs. S&P 500 ETF, 1990-Present

Bullish outlook for gold

This company represents another excellent choice in the gold/silver/platinum/palladium mining sectors of the investment market. I have become increasingly bullish on gold and related mining investments over the year, and the near unanimous sentiment among analysts/investors that gold cannot rise as the Federal Reserve and other central banks are tightening aggressively has pushed long-term valuations to a ridiculous level. oversold and undervalued territory. - Futures Closest to Gold, 18 Months of Daily Changes – Futures Closest to Gold, 18 Months of Daily Changes

As gold hit a 2-year low in US dollars last week, while silver, platinum and palladium hold above their 2022 lows, the odds of a higher reversal of all precious metals increase. Technically, this is the type of divergent action you see at important inflection points. Equally important, the price of gold adjusted for movements in the US dollar index of paper exchange rates is still trading ABOVE its July low.

YCharts - Precious Metals Prices, Last 2 Months

YCharts – Precious Metals Prices, Last 2 Months

Measured against money printing by the increase in money supply M2 or future money printing needs in total outstanding Treasury debt, $1671 per ounce of gold (the ultimate store of value and monetary metal) is just as cheap as 1100 USD of gold in 2018! So predicting and preparing for $2,500 to $3,000 in gold in a few years is just common sense in a world of record debt. Who said a deep global recession in 2023 wouldn’t cause another record round of money printing by central banks, even eclipsing the response to the COVID-19 pandemic shutdown?

YCharts - M2 Money Stock vs Gold Price, 1990-Present

YCharts – M2 Money Stock vs Gold Price, 1990-Present

YCharts - US Treasury Debt vs Gold Price, 1990–Present

YCharts – US Treasury Debt vs Gold Price, 1990–Present

Final Thoughts

The logic of owning Agnico Eagle revolves around (1) capturing a record valuation of one of the best gold miners in your portfolio, (2) a formidable above-par dividend yield that can increase significantly with gold prices, and (3) the potential to double or triple the stock market quote if gold prices head towards $2500+ per ounce in 2023-24. As a bonus, gold assets have a history of leading the stock market higher after bear markets and covering runaway money printing. What’s not to like?

I am a shareholder and I plan to increase my stake in the coming weeks. I value stocks a strong purchase about $41 per share. The technical momentum picture, which held up well during the 2021-22 selloff, is already beginning to reverse to the upside. The Negative volume index and On balance volume the readings drawn below, both bottomed in July, and could soon push prices higher. - AEM, 18 months of daily changes – AEM, 18 months of daily changes

What is the downside risk? A fair question. The direction of stock prices is now almost entirely a function of profitability, the spread between the cost of mining and the selling price of gold. Over the past year, costs have increased significantly due to inflation in the global economy, while the price of gold has languished for various reasons. As a result, AEM’s stock quote has fallen in 2022. If you think gold can’t go up in 2023, I understand if you choose to avoid stocks in your portfolio.

But, I’ll tell you, based on my 35 years of trading precious metals investments, the current situation of fearful investors in the sector and a Federal Reserve confused about whether to fight inflation or preventing recession is ripe for a huge move in gold soon. I predict that the Fed will soon give up on containing inflation, in favor of preventing unemployment from exploding higher in 2023. If this decision becomes crystal clear to experienced traders and investors, we could see a serious crisis of confidence. of the dollar and a flood of panic buying. in gold assets.

The “powers that be” are stuck with a long-term dollar devaluation theme to prevent a depression and a hard default on record US debt in my view. I discussed this Catch-22 economic background last month here. If the Fed continues to tighten after September, I think a severe recession with over 10% unemployment and a debt crisis are all but assured through 2023. This would be incredibly bullish news for gold, as flight-to-safety purchases would explode. Why not just buy top-notch gold leverage through Agnico Eagle now, and sleep better at night, no matter what happens economically?

Thanks for reading. Please consider this article as a first step in your due diligence process. It is recommended to consult a registered and experienced investment adviser before carrying out any transaction.