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« High River Gold (HRG) Financing Covers Debts, Has Downstream Implications! | Main | Gold, the DOW and the USD »

Agnico-Eagle Mines Limited: BUY, SELL or HOLD?

AEM Chart 01 November 09.JPG

Last week closed with one of our favourite gold producers, Agnico-Eagle Mines Limited (AEM) taking a hammering as this sector took a breather and Agnico released poorer news than the market anticipated. As we see it the initial sell off has been followed by stop loss programme selling taking the stock down to $53.53.

First of all we will take a quick look at the results and try and assess if the sell off is justified or not, starting with the opening paragraph:

TORONTO, Oct. 28 /CNW/ - Agnico-Eagle Mines Limited ("Agnico-Eagle" or the "Company") today reported a quarterly net loss $17.0 million, or $0.11 per share, for the third quarter of 2009. This result includes a non-cash foreign currency translation loss of $22.9 million, or $0.15 per share, as well as stock option expense of $5.1 million, or $0.03 per share. Additionally, the result included a gain on the sale of marketable securities of $5.9 million, or $0.04 per share. In the third quarter of 2008, the Company reported net income of $14.0 million, or $0.10 per share.

We draw your attention to the net loss of $0.11 per share for the third quarter which is enough to scare any analyst into issuing a down grade notice.

Digging a little deeper we have this snippet:

Full year production is now expected to be approximately 500,000 ounces of gold. The decrease from previous guidance is due to the slower than expected ramp up of the Kittila mill, the mining of lower grade blocks at Goldex and the higher than expected ore dilution at the start-up of Lapa. The early stages of commissioning the plant, specifically the filter presses in the mill, at Pinos Altos is also taking longer than expected. However, as detailed below, each of these operations made significant progress late in the third quarter of 2009. As these operational improvements continue into the fourth quarter, record quarterly gold production of approximately 170,000 ounces is expected.

So the above tells us that they have failed to meet their guidance notes and therefore deserve the negative market reaction. However it also says that the fourth quarter production is expected to be at record levels, which is very positive and should have added some balance to any review.

To read the news release in full please click here.

The management have moved quickly with a damage limitation exercise such as this appearance on BNN by Sean Boyd, CEO, Agnico-Eagle Mines Ltd., who appeared on BNN to discuss the company's third quarter earnings results.

Sean Boyd, CEO, Agnico-Eagle Mines Ltd.JPG
Sean Boyd pictured on BNN

In a nutshell Sean explains that they have had start up problems, mechanical difficulties, tailings problems and various technical difficulties. These appear to be have been largely resolved. La Rhonde mine is still going well and he mentions costs going down from $450 to $350 in 2010. To see this 5 minute interview just click here.

Next we will take a quick look at the chart and as you can see it is something of a disaster with around twenty dollars being wiped off the stock price on very heavy turnover. Also not the the technical indicators are on the floor and the RSI is at its lowest for some time, standing at 22.53. This is deep into oversold territory which we interpret as a buy signal.

We don't know how next week will pan out, it could be more of the same as investors despairingly throw the towel in and further stop loss limits are triggered. The management team needs to go into overdrive and hit the road with a very good explanatory message. And, of course there is the on-going battle between gold and the dollar which will also influence our fortunes. Finally there are the broader markets which appear to have peaked and a sell off there could also impact on precious metal producing companies. This is the way we see it and yes we have not mentioned politics or the price of oil and a myriad of other factors, but we are aware of them.

In conclusion we think that the punishment does not fit the crime and that the selling has been overdone. So we see it as a buying opportunity. This week we will seriously consider making another purchase of the Agnico's stock and may also buy a few of the longer dated Call Options.

Hope this note helps.

Have a good one and stay calm.

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Reader Comments (5)

Of course it's a sell. Check the volume, it is huge. It will pull up to test the broken uptrend and then bye-bye AEM . to 20s again, and even lower.

November 2, 2009 | Unregistered CommenterDi

Your assessment is spot on. Have added to my position. Don't forget that Agnico is a prime target for one of the large acquisitors. Once they have added Comaplex to their slate of new mines coming into production, they will be a very attractive target for any prowling predators looking for assets in secure domains.

November 2, 2009 | Unregistered Commentermike

Mike, Yes we agree that there is always the possibilty of a takeover, which we should have mentioned.

Di, Have you placed a stink bid at $20.00 for AEM?

November 2, 2009 | Unregistered CommenterGold Prices


We did not buy today but are happy with the way AEM held ground, we will take another look tomorrow.

November 2, 2009 | Unregistered CommenterGold Prices

Investors may face risks associated with deep mining activities at LaRonde. This is a negative arguement for this question.

November 3, 2009 | Unregistered CommenterStock Market Finance

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