Agnico Eagle: Costs and Interest Rates Are Key
Agnico Eagle’s stock staged a remarkable comeback after its spring plunge. Starting in July, it rose from under USD 140 to around USD 225. With the sharp decline in gold prices, the Canadian company’s stock has fallen again, though it remains well above its midsummer lows. Fundamentally, Agnico’s stock could be a strong winner if gold prices rebound. The company is considered the industry leader in cost efficiency and has already laid the foundation for future growth through shrewd and relatively inexpensive acquisitions in Finland at the start of the year. In this regard, as with costs, it is also in a better position than its domestic competitor, Barrick Mining.
Operationally, virtually everything went according to plan in the first half of the year. Agnico Eagle produced 1.77 million ounces, up 1.7% from the previous year. Revenue, however, rose 29.5% to USD 3.91 billion, mainly due to the higher gold price. Despite global inflation, costs rose only slightly by 2% to USD 1,160 per ounce (AISC). Adjusted earnings, up 82.4% to USD 985 million, rose sharply, while free cash flow more than tripled, reaching USD 710 million.
Management remains fully committed to share buybacks and dividends, allowing shareholders to share in the company’s success. In the first half of the year, a total of USD 0.80 per share was distributed, with half paid out in each quarter. As part of the NCIB (Normal Course Issuer Bid) program approved by the Executive Board, the Group repurchased shares worth approximately USD 100 million from January through the end of June. Last year, the company remained largely cautious.
The main drivers through the end of the year are likely to be, above all, the gold price and US interest rate trends—as is the case for all gold producers. Currently, 78% of the market expects no rate hike in October and anticipates three rate hikes thereafter. Incidentally, the Federal Reserve has never raised interest rates ahead of the November midterms. Political neutrality clearly remains the priority here. For Agnico, keeping costs under control and maintaining high margins remain important.
Lahontan Gold: Easy Gold and High Grades
Lahontan Gold is now gradually receiving results from the ongoing work at the Santa Fe project. Most recently, the data from the earlier Heap Leach Pad drilling program at the once-historic mine were particularly noteworthy. Significant amounts of gold and silver were found in nearly all drill holes. This is especially remarkable because the earlier mining residues were simply stockpiled here. The rock is loosely consolidated and can be mined quickly and easily. In some cases, high-grade zones are being uncovered, such as drill hole SF26-0195, which returned 2.72 g/t gold and 2.8 g/t silver over a length of 16.5 m.
However, this “pile” of ore is merely a “bonus” for Lahontan Gold, as CEO and founder Kimberly Ann once put it. The focus is now on finalizing preparations to begin construction of the gold mine next year. According to the updated resource estimate published in mid-August, the project has a total resource of 2.385 million ounces of gold equivalent. The resource estimate covered a total of 136,515 drill metres.
Lahontan Gold has now commissioned independent consultants to prepare a revised economic assessment of the deposit. This PEA is expected to be released soon. The deposit’s major advantage lies in its infrastructure. It is located in Nevada, one of the world’s most established mining regions. This factor should reduce the capex for mine construction.
Lahontan Gold’s stock has traded sideways for months but is currently at the upper end of its range. Good news, a strong gold price, or a compelling PEA could trigger a breakout. Overall, the company should now be entering a re-rating phase. Markets value companies that begin construction of a gold mine higher than pure-play developers.
Lundin Gold: A Quick Rebound?
Lundin Gold’s stock should benefit disproportionately from higher gold prices. And that is due to the company’s operational successes. Lundin Gold operates the Fruta Del Norte mine in Ecuador. Some in the mining industry believe it may be the largest gold deposit on Earth.
In any case, the potential still appears enormous. The company has reported major successes in recent months. The epithermal gold trend at the newly discovered Quebrada Dorada site was extended by a full 8 km. In July, the company announced the discovery of two new copper-gold porphyry systems, bringing the total number of identified porphyry deposits in the district to seven. The company also plans to present an initial resource estimate for one of them, Sandia. The record-breaking drilling program, totaling over 130,000 m, also yielded remarkable results. For instance, the company reported first-class drill results from the Bonza Sur epithermal target, including 204.26 g/t gold over 3.05 m.
Management is already working to expand the processing plant. Its capacity is set to increase from the current 5,500 metric tons per day to 6,500 to 7,000 metric tons per day. This is expected to be completed by year-end. In the first half of the year, the plant produced just under 239,000 ounces of gold, with grades exceeding 8 g/t. Financially, Lundin Gold is already well-positioned. In the first few months alone, free cash flow totaled USD 445 million.
The stock is holding up relatively well in this market environment. It has lost about 15% from its August high. Given its operational successes, the stock should benefit disproportionately from the next upturn in the gold price.
With Lundin Gold, investors are betting on a single-mine company that, however, delivers top results both operationally and financially. Lahontan Gold is moving ever closer to mine construction; a re-rating of the stock could begin with the next round of news. Agnico Eagle is not only the sector’s cost leader but also well-positioned for the long term.
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