Under the Spotlight: Agnico Eagle Mines (AEM)

Agnico Eagle Mines ($AEM) would have been a keen observer of Northern Star Resources’ ($NST) $5b takeover offer for De Grey Mining ($DEG) last week. 

A Toronto-based miner listed on the NYSE since the 90s, Agnico Eagle has been touted as being interested in De Grey and its Hemi gold project – which would be one of Australia’s top five gold mines when built. Whether it makes a rival bid is yet to be seen, but the company is proof that M&A can pay off handsomely: AEM shares are up 77% since its US$10.7b merger with Kirkland Gold was completed in February 2022. 

Founded in 1957 with a focus on silver, nickel and cobalt, Agnico Eagle has acquired companies and assets, and invested in its own projects, to become the world’s third largest gold producer. From one mine and production of 240,000 ounces in 2005, it now has 11 mines and is targeting 2024 gold production of 3.35m-3.55m ounces. A market cap of US$42.7b places it within striking distance of challenging Newmont ($NEM) as the world’s largest listed gold stock. 

All that glitters

Agnico Eagle shares have tracked the record-breaking run in the price of gold. A combination of central bank purchases, elevated inflation, growing government debts and geopolitical uncertainty lifted the precious metal to a record high of US$2,790.17 per ounce on 31 October. It’s up 30% this year. The Philadelphia Gold and Silver Index, which tracks U.S. gold stocks, is up 25%. Agnico Eagle shares have actually rallied 55% in 2024. 

The miner may enjoy another bumper year of gold prices if the bullishness of some professional forecasters is on the mark. While gold has pulled back to US$2,630 an ounce, Goldman Sachs ($GS) expects gold to finish 2025 around US$3,000 an ounce. JPMorgan ($JPM) also sees US$3,000 an ounce. However, HSBC sees the possibility of a volatile year, with gold possibly lower by the end of 2025 if the U.S. dollar remains strong and high prices hurt purchases of physical gold. 

A major driver of the gold price is central bank buying. Central banks bought 60 tonnes in October, according to the World Gold Council. That’s the highest amount this year. Gold miners like Agnico Eagle would welcome the news that the People’s Bank of China started buying in November after a six-month break. Its gold holdings grew from 72.8m ounces in October to 72.96m ounces in November, now worth US$193b. 

Increasing gold supply is another issue Agnico Eagle needs to navigate. Q3 total gold supply increased 5% year-on-year (YoY) to a record 1,313 tonnes, according to the World Gold Council. Mine production rose 6% to a quarterly record, while year-to-date production surpassed the previous high in 2018. 

Agnico Eagle’s supply stands out as its mines are in safe jurisdictions including Canada, Finland and Australia. Compare them to Mali, where the aggressive pursuit for additional gold revenue has elevated sovereign risk concerns among investors. Resolute Mining ($RSG) shares slumped after Mali’s junta government forced it to pay an additional US$160m, while it has issued an arrest warrant for Barrick Gold ($GOLD) CEO Mark Bristow.

Mine plan

Agnico Eagle has delivered four consecutive quarters of record financial results thanks to strong gold prices, consistent production and cost management. Q3 net income was a record US$567m, up from US$472m in Q2. Free cash flow was a record US$620m compared to US$557m in Q2.  

The record streak reflects good operational management. Agnico Eagle is on track to meet its 2024 production, cost and capex guidance. Gold production over the first nine months of 2024 was 2.63m ounces, up from 2.53m ounces over the same period in 2023. While the all-in sustaining cost (AISC) crept up to US$1,214 an ounce (compared to US$1,162 over the first nine months of 2023), the realised gold price rose from US$1,933 to US$2,297 an ounce. That gives the company an AISC margin of around 50%, which is higher than many of its peers.

Agnico Eagle is using its cash flows to invest in production growth. It announced a US$100m investment in June to assess an underground expansion at its Detour Lake mine – the largest open pit gold mine in Canada. A preliminary economic assessment shows the mine could be expanded to produce an average of one million ounces a year over 14 years, starting in 2030. The company is also investing US$200m in its Upper Beaver project, which could produce an average of 210,000 ounces of gold and 3,600 tonnes of copper a year. Initial production could be as soon as 2030.

Agnico Eagle has balance sheet capacity after paying down over US$1b of net debt in 2024. Cash stood at US$977.2m in Q3 and outstanding debt is US$1.46b. Shareholders have been looked after with dividends and an ongoing buyback. That financial flexibility, combined with a stock trading at premium multiple compared to other miners, does offer room for M&A. 

Safe haven

Agnico Eagle Mines has been a safe choice for investors wanting large cap gold exposure. A scarcity of quality assets in low-risk countries is driving a wave of consolidation that will continue in 2025. And Agnico Eagle’s history shows that it’s not scared of dealmaking at the right price.

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.