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« Annihilation of U.S. Dollar Coming-Jim Sinclair | Main | Hyperinflation and Gold’s parabolic rise »
Tuesday
Oct292013

Agnico-Eagle Mines Limited: One For The Future

Background:

Agnico-Eagle Mines Limited (AEM) was one of favorite mining stocks in the early part of the gold bull market as the stock price advanced from the teens to trade at around $80.00 in December 2010. This company is one of those rarities in that it not only survived gold’s 20 year bear market that followed the 1980’s peak, it also managed to pay a dividend each year.

In October 2011 it suffered a set-back when its Goldex Mine had to be written off and the stock dropped 18.55% in a single day as a loss of $260 million or $1.00 per share was announced. Fast forward to today and we can see that the situation has been rectified; mining started at Goldex in September 2013, along with the processing of the ore at the same time. The first official gold pour was achieved in October 2013 with commercial production expected to be in place before the end of 2013.

The company owns five mines which are located in the mining friendly jurisdictions of Canada, (north western Quebec and Nunavut), northern Finland and northern Mexico.

The Chart:

Chart is courtesy of Stockcharts.com

We can see that the price has risen from $24.00 to $31.00 approximately for a gain of 29% which is an incredible move for a company of this size, so we would expect some investors to take some profits at these levels. There is also a gap in this upward move which concerns me as it suggests a retracement in order to back fill the space, doesn’t always happen, but be wary of it. Both the STO and the RSI look to have topped and look to be heading south.

Third Quarter Highlights:

A strong operational performance led to record quarterly gold production - Payable production of 315,828 ounces at total cash costs per ounce of $591.

Record quarterly production and improved costs at Meadowbank - Production of 133,489 ounces of gold at total cash costs per ounce of $623.

Restart of the Goldex mine and commissioning of the La India mine in September 2013 - Goldex expected to achieve commercial production early in the fourth quarter of 2013.

Increased 2013 production guidance at lower total cash costs - 2013 production now expected to be approximately 1,060,000 ounces of gold, at total cash costs per ounce of approximately $690, which slightly higher than the $556 per ounce achieved Q3, 2012.

Monetary Policy:

The future fortunes of Agnico-Eagle are predicated on the price of gold, which for Americans has an inverse relationship with the US dollar and the dollar’s value is largely dependent on Quantitative Easing (QE) as determined by monetary policy. A continuation in QE usually equates to a weakness in the dollar as this currency is being debased. A decrease in QE would tend to increase the strength of the dollar thus put a cap on gold’s progress. It is therefore of paramount importance that we observe the FOMC meetings in order to glean what we can in terms of monetary policy. For what it is worth our opinion is that tapering may be talked about but we don’t expect to see any reductions in QE in this year.

The US Dollar:

The demise of the dollar to ‘Dead Cat’ status is proving to be a little harder than many expected including us. When measured against a basket of other currencies on the US Dollar Index we can see that the dollar has recently fallen from ‘82’ to ‘79’ and is expected to fall further. It should be noted that it has tested this support level five times over the last year or so and then bounced to higher ground. If it does manage to rally from here then it will present a barrier to gold’s progress.

Financials

Agnico-Eagle Mines Limited has a market capitalization of $5.21Bln, a 52 week trading range of $23.77 - $57.35, a P/E ratio of 27.38 with an EPS standing at 1.10 and 173.51mln shares outstanding. This company is quoted on both the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.

Conclusion

Agnico-Eagle Mines Limited is one for the future but as always the timing of such acquisitions is critical to the success of the trade. The recent spike in its stock price suggests that it is overbought at the moment and that some retracement will follow. Allowing the current euphoria to subside and waiting for cheaper entry prices should provide the basis for a profitable trade. Patience is the order of the day in this sector, so go gently and do not fall in love with any stock; they are only speculative vehicles that offer the possibility of increasing our financial wealth.

Take care. 

In September 2011 the Gold Bugs index, the HUI stood at 630 as gold prices peaked, since then both have trended lower with the HUI losing about 65% of its value. The bottom has been called a number of times and after such a dramatic decline its difficult not to think that we are there now. However, as we all know the timing of any investment is crucial to its success and that is exactly what we are trying to do here, trying to pick advantageous entry and exit points. If you would like to know which stocks we are buying and selling please join us atStock Trader our premium investment service.

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