AGNICO EAGLE – Is this top gold miner a BUY or SELL?

AGNICO EAGLE – Is this top gold miner a BUY or SELL?

anniko Eagle mines is widely regarded as the very best gold producer on the planet this is one of the biggest gold producing companies they have a very good reputation and today we’re going to do a deep dive to see whether it’s a buy or not keep in mind these are just my opinions based on my own research and you should always do lots of your own research before investing any money at all ago Eagle trades on the New York Stock Exchange under the ticker a the company currently has 11 producing mines most of which are in Canada but they also have some exposure to Finland Mexico and Australia but overall they have a very safe jurisdictional risk profile and of these 11 producing mines only two of them are tier one mines and tier one is going to be defined as can produce at least 500,000 ounces a year for 10 years at the lower end of the cost curve and right now they’re producing at a rate of about 3.5 million ounces of gold per year and they’re almost exclusively gold they produce a tiny amount of zinc copper and silver but compared to their gold production it’s basically irrelevant and the company has 54 million ounces of gold in reserves and another 44 million ounces of gold in resources which combining those two at this production rate with their current recovery rate that equals about 26 additional years of production with the gold that they’ve already found and now I’d like to take a look at ago eagle and see how it Stacks up against its on various metrics so here we have the cash flow per share over the last 10 years ago Eagle in blue Barry gold is in black and then Northern Star is in green and you might be thinking Northern Star who’s that well they’re an Australian company who’s pretty similar to agnico Eagle in that they only operate in safe jurisdictions and they’re a pretty big gold producer producing about 1.7 million ounces a year so of these three companies eagle has performed the best in the last 10 years they’ve about doubled their cash flow per share whereas baric gold and Northern Star can’t say the same thing but when looking at a company’s per share growth over the years that doesn’t tell you how much risk they took on to make that growth happen so now let’s take a look at the net debt to eida ratio of a few different companies over the past seven years so here we have anniko Eagle bar gold and numont so we look on the very right hand column over here that’s the most recent year we have ago Eagle at 05 which is significantly better than numont at 1.85 however not nearly as good as baric gold at just .22 and now I want to show you how much motivation the CEO of these various companies have to see the stock perform well and to find that out we’re going to take how much stock they own relative to their annual s salary including bonuses and stock compensation I personally like to see the CEO own at least five times his or her annual salary in stock but with numont the CEO owns 1.2 times his annual salary Ule CEO owns 1.7 times and Barracks owns 8.5 times so baric blows every other major out of the water in this category and as a matter of fact it’s a policy that management must own at least five times their annual salary in stock now I believe that’s annual salary excluding bonuses so five times their base salary but that means that Barrack’s management is much more aligned with shareholders than the management of anniko eagle or of Newmont and now I’d like to take a look at recent Insider transactions because nobody knows more about a company than the topic Executives who are there seeing it every single day and this is all they do so Insider buying or selling can tell us a lot about what top management thinks when it comes to the future success of their own company comparing numont and Niko eagle and baric numont is the worst in this category because there’s no buying at all and just selling agnico Eagle there’s more selling than there is buying and Shan Boyd who’s the current chairman and the former CEO of agnico Eagle is selling a lot of shares and then baric there’s heavy Insider buying and there’s virtually no Insider selling so in this category baric wins by a mile by the way stick around until the end because I’m going to give you my Target price for ago Eagle as well as whether it’s a buy hold or a sell and now let’s take a look at the company’s potential for growth so Northern Star today is producing about 1.65 million ounces a year by 2026 they should be at 2 million ounces a year so a reasonable growth profile there ago ego is producing about 3.45 million ounces a year and they have no growth in sight in their 2023 annual report they go over their future production profile for 2024 2025 and 2026 and there is no growth there whatsoever and they really have no substantial growth projects in their pipeline they have some minimal growth projects but I think that’s just more or less going to replace their mines that are dying off or their mines that are getting into lower grades and then you have baric currently producing about 4.9 million ounces of gold equivalent some of this is copper most of it is gold and it looks like they’re going to grow that number to about 7 million oun of gold equivalent by 2030 baric has an enormous Pipeline and those are just the growth projects that are already planned and already in progress and are happening however in addition to that they have other enormous growth projects as well for example their donland project in Alaska they own 50% of it and that mine is going to be producing about a million ounces a year and then you have their Pasqual Lama mine which In fairness has had some major problems along the way but if that ever gets into production that could be another million ounces a year and they have their Rico dick project in Pakistan which in terms of gold equivalent is going to produce like 2 million ounces per year but they only own 50% of that so that’s a million ounces of gold equivalent attributable to baric so baric has by far and way the best growth profile of any major the biggest factors for their share price is number one that there’s no major problems at any of their mines that gets the mine shut down temporarily or permanently some kind of disaster whether that’s seismic activity or a tailing damn failure or something like that now the company is pretty safe in terms of jurisdiction but this is Mining and a lot of things can go wrong in mining but the next thing that’s really important for their share price is keeping cost low and making sure that the increas in costs are less than the increases in the gold price so the gold price is probably the single biggest thing that’s going to be affecting the share price of agnico Eagle but if the cost increases exceed the gold price increases well then we could see the share price come down and then I think one that’s often overlooked but is a huge deal for the profitability of anniko Eagle is the strength of the Canadian dollar relative to the US dollar so if the Canadian dollar goes down relative to the US dollar all else equal the stock price is going to go up and agnico Eagle over the last last couple of years has benefited from this a lot because the Canadian dollar has been weak relative to the US dollar so if that reverses well that could negatively affect the stock price by quite a bit so if you’re an owner of anniko Eagle stock keep a close eye on what the Canadian dollar is doing and if you’re wondering why that is it’s because the company sells their product in US dollars but a significant amount of their expenses are in Canadian so when the Canadian dollar increases well then their cost increase and the opposite happens when the Canadian dollar decreases in order to put some kind of valuation on this company to figure out what the stock price should be trading at today we need to look at the pros and cons of the company to determine what kind of cash flow multiplier it’s going to get because the cash flow multiplier is key in determining the company value and therefore the stock price first up let’s go over the pros of the company number one is that they operate in mostly safe jurisdictions and secondly they’re one of the lowest cost producers they have low leverage meaning how much debt they have relative to how much money they’re making is pretty reasonable and I think one thing that has really really helped the company is that they’re laser focused on Canada so they’re really really great operators in Canada they know the suppliers they have a great Workforce and also they’ve become really Adept at working in that type of climate so the fact that they’re so focused on Canada and have been for many years I think has helped them maintain reasonable costs and also achieve a history of per share growth so their per share growth has been impressive over their long history and because of that they’re able to pay a nice dividend and they’ve been paying that dividend for many many years and they have huge reserves and resources at the current mining rate we’re at a whopping 26 years which is very very impressive for a gold producer who doesn’t also have significant copper exposure this kind of reserve and resource life is much more common when a gold producer is also producing copper because those are often coming from gold copper pores which tend to be massive mines so the fact that they’re doing this without those massive golden copper pories is pretty impressive and now for the cons of the company first off they have no growth profile I’m typically not a fan of investing in a gold producer that doesn’t have a way to grow because in order for me to make money on the stock I’m dependent on the gold price going up faster than the mining costs go up but when a company has a nice growth profile let’s say they can double production over the next 5 years well in that case even if the gold price goes down or even if the mining costs go up quite a lot well then I could still make money on the stock if they can deliver on that growth so the fact that there’s no growth I don’t like that at all and then you have Insider selling exceeding Insider buying and also something I think that’s going to hurt them in the market is that they’re moving away from gold they say in their annual report that they’re exploring other Commodities as well and recently they went into a joint venture with tech in Mexico where they’re committing to spending almost $300 million on a project that has nothing to do with gold so I think that expansion outside of gold is actually going to be bad for the share price and of their 11 producing mines only two of those are tier one mines and the other nine are either tier 2 or tier three mines so compare that to baric for example baric is almost exclusively tier one mines and as Rick rule likes to say all mines have surprises but with big Minds you generally get good surprises and with smaller mins you generally get bad surprises so in terms of that I would like to see them have more tier one Minds than they do and next is it’s taking them a lot of capital investment to maintain production and keep costs reasonably low now I’m not saying they shouldn’t make these Investments because I I think they should but considering how much money it’s costing them to to just maintain production not even increasing production is a little frightening in 2024 their capex is scheduled to be nearly $2 billion $1.76 billion on capex just to maintain production and do some projects to help keep cost down compared to how much money the company’s making that is a significant amount of spend and then the final con I have here is their troubling Reserve reconciliation at fosterville so their fosterville mine in Australia is by far their lowest cost mine because this mine is so high grade and in 2023 this mine produced nearly 300,000 ounces I think it was about 280,000 ounces at a very very low cost however as they got underground they figured out there’s not as many ounces here as we thought and they had to reduce the amount of reserves there and because of that negative Reserve reconciliation in 2024 they’re going to produce a lot fewer ounces at their most profitable mine than they did the year prior and with all of that considering all the pros and all the cons I’m going to give ago Eagle a 10 times cash flow multiplier so with this number let’s go figure out a valuation and a potential share price if you like my work and would like to know what I’m buying or selling with my own money check out my newsletter for just $9.95 a month you get access to my very best research and my personal trades before I make them so if you’re interested in that go to Mining stock monkey.com slprs slvp and I’ll put a link down in the description and in the comments below it’s just $9.95 a month no commitment and comes with a 30-day money back guarantee so go check it out our next step to valuing this company is to look at the company’s cash from operations going forward in various gold price Environ ments so over here on the left hand side we have what the gold price could possibly be we have 2,000 On The Low End 2500 per ounce on the highend and then today’s gold price of 2325 in the middle in 2024 the company predicts they’re all in sustaining cost what it cost them to produce an ounce of gold after taking into account byproduct credits so they take their cost to produce an ounce of gold minus what they get from their little bit of copper a littleit bit of silver and a little bit of zinc and then we get $1,125 per ounce at their midpoint of guidance and their guidance for production this year is 3.45 million ounces of gold so what we do here to figure out this cash from operations number is we take the gold price $2,000 an ounce minus the all and sustaining cost and that gives us $875 an ounce that should be our cash from operations per ounce in 2024 we multiply 875 time 3.45 million oun to get us cash from operations of about $3 billion if we jump up to today’s gold price we’re looking at 4.14 billion and at $2,500 gold we’re looking at $ 4.74 billion so using these numbers let’s figure out a company valuation and an appropriate share price this right here is going to be our formula to determine our enter price value and our share price so we’re going to take the cash from operations this number right here minus other operating expenses and minus net interest expense we’re not subtracting General and administrative expenses here because that was already taken into account to figure out our cost from operations because that’s already included in their all and sustaining costs so we’re going to take that number and then we’re going to multiply that times our cash flow multiplier which is 10 and then from that number we’re going to subtract our net debt so that’s going to be plus cash minus debt and that equals our Enterprise Value what the company is worth and then to figure out the share price we divide it by the number of shares outstanding and then that’s going to be our number for the share price so let’s take this formula and do it together at a $22,000 gold price so our cash from operations is 3.02 billion our other operating expenses is 83 million you can find that in the 2023 annual report they give you their estimation for 2024 operating expenses and then we’re subtracting the net interest expense of 133 million you can find this in their financials what I did is I took the most recent number of their net interest expense from their quarterly financials of quarter 1 2024 and then I multiply that time 4 we then take this number and multiply it time 10 our cash flow multiplier to get 28.4 billion and then we take that number and we subtract the net debt so that brings our Enterprise Value to 26.5 billion and remember this is at a $2,000 per ounce gold price and then to find our share price we divide our Enterprise Value by the number of shares outstanding which is 55.1 million shares again you can get this information from the annual report and then our share price is $52.64 so that is lower than today’s share price but that makes sense because that’s assuming we have $2,000 per ounce gold and in a moment I’m going to repeat this calcul using a gold price of 2325 as well as $2500 per ounce so at today’s closing price of $68.50 I’m going to put the risk level for this investment at a six now this is 1 through 10 one being the safest 10 being the most dangerous and six might seem pretty risky and it is because five is the lowest number I will give to a gold producer because gold mining is a very risky business in general and since we don’t have a big margin of safety here I’m raising the risk level a little bit to a six and our verdict here is going to be a hold because I don’t think we’re getting a big enough discount to justify the risk you take buying a gold miner because there’s a million things that can go wrong in the Bing business even if you’re in safe jurisdictions like igno Eagle is and as you can see here I did the math using that same formula to come up with an Enterprise Value at these various gold prices and a fair value per share at these various gold prices so our Target price here based on today’s gold price is $748 Which is higher than today’s gold price but that’s only an 88.5% margin of safety and I’d like to see a margin of safety much higher than 88.5% in order to buy a stock in the gold mining sector so with that overall this wouldn’t be my first choice if I was looking for a major to buy today it would be baric because management is much more aligned with shareholders there’s heavy Insider buying and very little Insider selling and they have an excellent growth profile in the coming years yes you do take more political risk with baric but you’re also getting it at a cheaper valuation than you are with agnico eagle so think it’s a much better buy today than anniko Eagle is but I can’t argue with the people who say that this is a very high quality company because it is I just think it’s fully valued today and if I had a big position in anniko Eagle today I might even consider selling some of my shares as I don’t see a lot of upside remaining here whereas with many other gold producers I see a ton of upside if you like my work here consider subscribing to my newsletter by clicking this link right here and next watch the video where I do a deep dive into Alamos gold and a deep dive into B2 gold and I’ll see you over there

Agnico Eagle Mines (AEM) is widely considered to be the best gold producer on the planet. In this video we do a deep dive to find out if it’s a good buy.
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Agnico Eagle is a very well run company that has a long history of intelligent capital deployment. They operate in safe jurisdictions, are a low-cost miner, and the second largest gold miner by market cap.

In this video, we look at the pros and cons of the company as well as diving into how much money the company will likely be making in the future. Based on that, we are able to figure out a company valuation and fair stock price to find out if it’s a good buy today.

Never make any investment decisions based on my videos. This sector is very risky and this should not be considered investment advice. Always do a lot of your own research before investing your hard earned money.

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