A Member of Pat McKeough’s Inner Circle recently asked for his advice on a major gold mining company with operations in four countries.
Pat likes the firm’s track record of growing production, revenues and earnings and that its mines and projects are located in countries with relatively low political risk. However, he notes that the firm’s new projects are located in difficult operational conditions in the Far North.
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AGNICO EAGLE MINES LTD. (Symbol AEM on Toronto; www.agnico-eagle.com) owns producing gold mines in Canada, Australia, Finland and Mexico.
In Canada, it owns the La Ronde, Canadian Malarctic, Goldex, Maccassa, Detour Lake, Meliadine, Meadowbank and Hope Bay mines. Agnico also owns the Fosterville mine in Australia, the Kittala mine in Finland, the Pino Altos mine in the U.S. and La India in Mexico.
Agnico has made some key acquisitions for growth over the last few years.
In February 2021, the company completed the acquisition of Toronto-listed TMAC Resources Inc. for $226.0 million (Cdn.). TMAC owned and operated the Hope Bay mine in Hope Bay, Nunavut. The mine went into production in 2017. TMAC also held exploration properties in the Kitikmeot region of Nunavut.
Subsequently, Agnico made an even bigger acquisition. In February 2022, the company completed the purchase of Kirkland Lake Gold Ltd. (symbol KL on Toronto) in an all-stock transaction valued at $13.5 billion (Cdn.). The acquisition added three gold mines (Maccassa, Detour Lake and Fosterville) to Agnico’s portfolio and roughly doubled Agnico’s reserve base to 48 million ounces of gold.
Kirkland Lake Gold’s Tony Makuch became CEO of the combined company. However, he resigned shortly after the acquisition was completed, reportedly because his aggressive and expansionary business philosophy was a poor fit with Agnico’s more conservative and cautious approach.
Makuch was replaced as CEO by Agnico’s long-time president Ammar Al-Joundi, who was considered a top candidate for the job before the merger. Former CEO Sean Boyd was named executive chairman.
Most recently, on September 16, 2022, Agnico announced it had acquired 50% interest in the Minas de San Nicolas copper-zinc project in Zacatecas, Mexico. As a result, Agnico is now a 50/50 joint venture partner with Teck Resources Limited (symbols TECK.A and TECK.B on Toronto and a recommendation of our Successful Investor newsletter).
Agnico is paying $580 million U.S. for its 50% stake. That payment includes $290 million U.S. for the 50% interest, itself, and another $290 million U.S. for Agnico’s share of the initial project costs.
Located in Zacarecas, a major Mexican mining state, a proposed mine at San Nicolas is forecast to be able to produce about 63,000 tonnes of copper and 147,000 tonnes of zinc annually for the first five years. The project will have a mine life of 15 years and is expected to start producing in 2026.
Inner Circle: Canada’s Far North offers great growth at low political risk
Agnico’s revenue rose steadily over the last five years, up 70.5% from $2.24 billion in 2017 to $3.82 billion in 2021. (All figures except share price and market cap in U.S. dollars.) Earnings rose 125.5%, from $240.8 million, or $1.05 a share in 2017, to $543.0 million, or $2.23 a share, in 2021.
In the key quarter ended June 30, 2022, Agnico’s overall gold production jumped 63.1%, to 858,170 ounces from 526,006 a year earlier. The acquisition of Kirkland Lake Gold drove that increase.
Revenue rose 60.6% in the quarter, to $1.58 billion from $984.7 million. (All figures except share price in U.S. dollars.) Excluding one-time items, Agnico made $0.76 a share, up 5.6% from $0.72.
The company’s three Nunavut projects—the Meadowbank mine, the Hope Bay mine and the Meliadine mine—are riskier than its other operations because of the difficulty of operating in Canada’s Far North. Still, Agnico has substantial growth prospects and low political risk—and now, its partnership with Teck adds diversification into copper.
Meanwhile, like most gold stocks, the company’s shares are heavily influenced by gold prices. However, Agnico’s positive earnings and steadily rising production give it speculative appeal. The shares yield 3.0%.
Recommendation in Pat’s Inner Circle: Agnico Eagle Mines Ltd. is a buy.
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