Agnico Eagle: In A Bearish Market, There Are Always Opportunities
Introduction
Agnico Eagle Mines Limited (NYSE: AEM) is one of the top long-term gold miners I have tracked for over a decade. On February 15, 2024, the company released its fourth-quarter and full-year 2023 results.
As of December 31, 2023, AEM had 53.8 Au Moz P&P mineral reserves, making it the world's third-largest gold producer. Following the acquisition of Kirkland Lake Gold in February 2022, the company expanded, and it most recently purchased 50% of Canadian Malartic from Yamana, bringing its ownership of the mine to 100%. Gold reserves increased by 10.5% YoY, as shown in the company presentation below:
One of the company's advantages is the location of its mines, primarily in the Northern Americas and Australia, which provides better security than most of its competitors, who operate in less favorable jurisdictions such as Africa.
Ammar Al-Joundi, President and Chief Executive Officer, said in the conference call:
2023 highlights and full-year, four important milestones and achievements. One, record gold production. Best ever in the quarter, best ever for a full year. That's impressive for any company. It's especially impressive, I think, for a company that's been around for 66 years. Two, record cash from operations. Best ever in a quarter, best ever in a year. Three, record mineral reserves, up 10%. It's almost 54 million ounces.
4Q23 and Full-year 2023 Results Snapshot
AEM posted a net loss of $381.011 million in 4Q23, or $0.77 per diluted share, compared with $194.11 million, or $0.45, in 4Q22. Adjusted net income was $282.03 million in 4Q23.
This quarter, the company generated revenues of $1,756.64 million, a significant increase from $1,384.70 million in 4Q22. Revenues rose 26.9% YoY and 7% sequentially. Due to the recent acquisition of the remaining 50% of Canadian Malartic, the revenue comparison is not completely accurate.
The fourth quarter of 2023 set a new record of 903,208 Au ounces, outpacing the previous year's production of 799,438 Au. The all-in-sustaining costs ("AISC") per ounce fell to $1,227 from $1,231 in 4Q22. AEM sold 874,629 Au Oz in the fourth quarter of 2023. Agnico Eagle is currently producing gold from twelve mines; details are provided below:
Furthermore, Agnico Eagle achieved another record year by producing 3,439,654 gold-equivalent ounces at the top of the guidance and generating $6,626,910 in revenue, as shown in the graph below:
Note that the production forecast for 2023 is 3.243.44 million ounces, with 3.5 million ounces expected by 2025. The company also provided a production forecast for 20242026. Production in 2024 is expected to be 3.353.55 million ounces, a slight increase from the previous year, with AISC remaining stable at $1,200 to $1,250 per ounce. Based on the most recent company presentation:
Stock Performance
Agnico Eagle, Newmont Corp. (NYSE:NEM), and Barrick Gold Corp. (NYSE:GOLD) are my top picks for a solid long-term gold mining portfolio. All three senior gold producers are down year over year, with NEM currently losing the most. However, one advantage is that these businesses are stable and will eventually outperform the market.
Additionally, all three pay dividends ranging from 2.82% to 4.82%, with AEM currently yielding 3.29%. Unfortunately, we learned today that NEM has reduced its quarterly dividend to $0.25 per share from $0.40 per share.
Investment Thesis
The investment thesis for AEM is straightforward. I recommend accumulating AEM on weaknesses. AEM owns senior gold mines of the highest quality, with significant growth potential, in low-risk mining areas.
The company has paid dividends for 40 years in a row and has gold mineral reserves of 53.811 million ounces as of December 2023, having acquired the remaining 50% interest in the Canadian Malartic complex and recently declaring mineral reserves at the East Gouldie project.
Unfortunately, in 2023, there was less of a correlation between AEM and gold bullion, which has historically tracked the precious metal. Despite the fact that gold is now priced well above $2,000 per ounce, producers have followed the overall market, and are quite depressed now. This bearish situation applies to the entire gold mining industry, not just AEM. However, analysts see better days on the horizon.
J.P. Morgan indicated last month that the long-term outlook for gold is positive despite a possible dip in the near term before trending higher with a peak of $2,300 in 2025.
After a hiking cycle that pushed the Fed funds rate to its highest in more than 22 years, policymakers on the Federal Open Market Committee (FOMC) have indicated at least three rate cuts in 2024, as inflation eases from the 40-year highs seen in mid-2022. With gold prices hovering around $2,000/oz, is another bullish run expected for the precious metal as rates begin to fall?
However, I believe that the tight correlation between gold and miners will soon resume. AEM expects to sell its gold for more than $2,000 in 2024, resulting in significant free cash flow. The market is waiting for the Fed to signal a clear shift in interest rates at the end of H1 2024 before buying miners and pushing gold above $2,150 per ounce.
Gold Production Details
Quarterly Gold Production
This quarter's production was 903,208 gold equivalent ounces, up from 799,438 last year. It was a new record for production, as shown below:
As shown below, La Ronde Complex and particularly Detour Mine performed very well sequentially.
The company also produced 655K Ag Oz, 1,384 tons of zinc, and 682 tons of copper. Silver was priced at $23.88 per ounce, zinc at $1.14 per pound, and copper at $3.63.
In 4Q23, all-in sustainable costs, or AISC, averaged $1,227 per ounce, down from $1,231 in the same period last year.
Balance Sheet Analysis
1: Revenues of $1,757 million in 4Q23
Agnico Eagle Mines Limited's revenues were $1,756.64 million, up 26.9% from the same quarter last year and 7.0% quarter-over-quarter. It set a new revenue record and demonstrated tremendous strength.
The company reported a net loss of $381.011 million, or $0.77 per diluted share, in the fourth quarter of 2022. The fourth quarter of 2023 saw adjusted net income of $282.03 million, or $0.57 per share.
Agnico Eagle stated that the quarterly net loss includes impairment charges totaling $667 million (net of taxes), or $1.35 per share, for the Macassa and Pinos Altos mines.
In the fourth quarter of 2023, one ounce of gold sold for $1,982 (a new multi-year high). During the quarter, cash from operating activities totaled $727.86 million, up from $380.50 million the previous year.
2: Free Cash Flow was $302.12 million in 4Q23
The trailing 12-month free cash flow ("FCF") is estimated at $936.49 million ("TTM"), while the free cash flow for 4Q23 is estimated at $302.12 million. The declared quarterly dividend is $0.40 per share, representing a 3.28% yield.
3: Net debt was $1,504.5 million in 4Q23.
Agnico Eagle's financials are solid, with a net debt of $1,504.5 million, down slightly quarter over quarter.
Agnico Eagle's total cash in 4Q23 was $338.65 million, down from $658.63 million in 4Q22 (restated). With current debt included, long-term debt increased to $1,843.1 million from $1,342.07 million in 4Q22. Agnico Eagle has excellent liquidity at $2,339 million after increasing its credit facility to $2 billion in February 2024. From the Agnico Eagle Presentation:
Technical Analysis and Commentary.
Note that the chart has been adjusted to reflect dividends.
AEM follows a descending channel pattern, with resistance at $50 and support at $46.4. The RSI is now 55 and ascending, indicating a possible retest of $53. However, the resistance is just below and will be difficult to overcome following the recent announcement of results.
Descending channel patterns, also known as falling channels, are short-term bearish patterns that often appear as continuation patterns within longer-term uptrends. As previously stated, I believe that the predominant bearish trend for gold miners will reverse later in 2024.
The trading strategy is to sell LIFO Agnico Eagle Mines shares for about 40% of your position between $49.9 and $50.7, with a potential upper resistance at $53. Conversely, I suggest buying shares between $47.0 and $46.0, with possible lower support at $44.25.
Finally, keep in mind that the TA Chart is only valid for one or two weeks at most, assuming no major news is expected. To be accurate and implement a viable strategy, you should update your analysis every five to seven trading days.
This article first appeared on GuruFocus.
