AEM - Agnico Eagle: Is It Time To Invest For The Long-Term?

2023-11-07 17:42:52 ET

Summary

• AEM posted a net income of $178.61 million in 3Q23, or $0.36 per diluted share, compared with $66.68 million, or $0.15, in 3Q22.
• Agnico Eagle had gold production this quarter. Production was 850,429 Au Eq. Oz, up from 816,795 Au Eq. ounces last year.
• I recommend buying AEM between $47.65 and $46.0, with possible lower support at $43.75.

Introduction

Agnico Eagle Mines Limited (NYSE: AEM ) is among the top long-term gold miners that I have been covering on Seeking Alpha quarterly since 2014. On October 25, 2023, the company released its results for the third quarter of 2023.

Note: This article updates my July 28, 2023, article.

With a 49 Au Moz P&P mineral reserve, AEM is currently the third-largest producer of gold. Following the acquisition of Kirkland Lake Gold, the company grew larger. More recently, it bought 50% of Canadian Malartic from Yamana, bringing its ownership of the mine to 100%.

One of the company's real assets is the location of its mines, which are spread mostly in the Northern Americas and Australia and provide great security compared to Barrick Gold (GOLD), which struggles with riskier assets.

Ammar Al-Joundi, President and Chief Executive Officer, said in the conference call:

With regards to operations, we had another solid quarter. With three good quarters behind us, it's obvious that we're well on our way to comfortably meet our guidance. With regards to production, we're well positioned to be above the midpoint of our guidance and if things go well with us in Finland, we will be closer to the top-end of that guidance on the production side.

CEO Ammar Al-Joundi referred to the news released on October 27, 2023, regarding the company's mine in Finland.

Agnico Eagle Mines Limited today announced that the Supreme Administrative Court of Finland issued its ruling on Kittila's operating permit and has restored Kittila's operating permit to 2 million tonnes per annum .

AEM will be able to produce more at the Kittila mine due to this positive court decision.

3Q23 Results Snapshot

AEM posted a net income of $178.61 million in 3Q23, or $0.36 per diluted share, compared with $66.68 million, or $0.15, in 3Q22. Adjusted net income was $0.44 per share.

The company generated revenues of $1,642.41 million this quarter, well over $1,449.70 million in 3Q22. Revenues were up 13.3% sequentially. Due to the acquisition of the remaining 50% of Canadian malartic, which increased production, the comparison is not exactly apples to apples.

Production in the third quarter of 2023 was 850,429 Au ounces, above the 816,795 Au ounces produced last year. All-in-sustaining costs ("AISC") per ounce were $1,210 per ounce . AEM sold 843,097 Au Oz in 3Q23.

Agnico Eagle stated that, as mentioned above, the company is in a good position to meet the 2023 guidance. 2023 production is predicted to be 3.24–3.44 million ounces , with 3.5 million ounces anticipated by 2025.

Stock Performance

My top choices for long-term gold miners have been Agnico Eagle, Newmont Corporation (NEM), and Barrick Gold Corporation. Although my holding in Kinross Gold ( KGC ) is smaller, I am a long-term owner of that company as well.

As shown below, AEM has increased by 13.25% over the past year, following GOLD. NEM lagged behind by a negative 8%, while KGC beat the group with 42% YoY growth.

Agnico Eagle currently produces gold from twelve mines; specifics are provided below:

Investment Thesis

The investing thesis with AEM is quite easy to understand. My strong recommendation is to accumulate AEM on weakness. The presentation proved that AEM possesses senior gold mines of the highest caliber with remarkable growth potential operating in low-risk mining jurisdictions.

Unfortunately, in 2023, there was less of a strong connection between AEM and gold prices, which traditionally follow the precious metal. It was not particular to AEM but to the entire gold mining industry.

However, I believe this connection will come back soon. Gold is trading between $1,950 and $2,020 per ounce, which allows the company to generate significant free cash flow, but the market is still hesitant to commit fully to this industry.

In essence, gold is currently weakening due to the FED's actions, but things are looking better in the near future. I believe the market is waiting for the FED to signal a clear pause in interest policy early in 2024 to start buying the miners and helping push gold over $2,050 per ounce. However, gold is now over 20% higher on a one-year basis.

It is, therefore, essential to trade short-term LIFO for at least 40% of your AEM position in my view.

Agnico Eagle: Financials and Production History Until 3Q23: The Raw Numbers

Source: Company filing and fun trading.

Gold Production Details

Gold Production

Agnico Eagle had gold production this quarter. Production was 850,429 Au Eq. Oz, up from 816,795 Au Eq. ounces last year.

Balance Sheet Analysis

Revenues of $1,642 million in 3Q23

Agnico Eagle Mines Limited's revenues were $1,642.41 million, up 13.3% compared to the same quarter a year ago and down 4.4% quarter over quarter.

The company posted $178.61 million in net income, or $0.36 per diluted share, in the third quarter of 2022. Adjusted net income was $0.44 per share for the third quarter of 2023.

In the third quarter of 2023, an ounce of gold was sold for $1,928. Copper was priced at $3.73 per pound, zinc at $1.07 per pound, and silver at $23.55 per ounce. During the quarter, the total cash from operating activities was $502.09 million, compared to $575.44 million in the previous year.

Free Cash Flow was $71.31 million in 3Q23

The trailing 12-month free cash flow ("FCF") is estimated at $614.04 million ("TTM"), and the free cash flow for 3Q23 was estimated at $71.31 million.

The declared quarterly dividend amounts to $0.40 per share, representing a 3.25% yield.

Net Debt was $1,587 million in 3Q23

Agnico Eagle has solid financials with a net debt of $1,500.17 million, up slightly QoQ.

In 3Q23, Agnico Eagle's total cash was $364.86 million, down from $621.76 million in 3Q22. With current included, long-term debt was $1,942.55 million, as opposed to $1,342.07 million in 4Q22.

AEM had strong liquidity of $1,455 million in 3Q23, excluding the $600 million accordion.

Technical Analysis and Commentary

Note: The chart has been adjusted for dividends.

AEM forms an ascending channel pattern with resistance at $51.15 and support at $46.8. The RSI is now 58, ascending, and showing a possible further retest to the 200MA ahead.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices, but only after a downside penetration of the lower trend line. The stock will continue channeling upward until it is able to break either the upper or lower trend line.

The trading strategy I recommend is to sell Agnico Eagle Mines Limited shares about 40% between $50.20 and $52.0, with a potential upper resistance at $53.90. Conversely, I recommend buying shares between $47.65 and $46.0, with possible lower support at $43.75.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

For further details see: