Billionaire John Paulson Bought $50 Million of Agnico Eagle Mines Ltd.; Should You Buy, Too?

Why is the smart money buying Agnico Eagle Mines Ltd. (TSX:AEM)(NYSE:AEM)?

| More on:
The Motley Fool

It’s one of my favourite ways to invest in gold — and apparently billionaire investor John Paulson agrees with me.

In recent months, Paulson has expressed his concerns about inflation. That’s probably why he has purchased over US$1.3 billion in the SPDR Gold Trust. Paulson has also bought huge stakes in gold mining companies like Goldcorp Inc., Silver Wheaton Corp., and Yamana Gold Inc.

He also picked up another name. In a recent SEC filing, Paulson disclosed that he own 1.3 million shares of Agnico Eagle Mines Ltd. (TSX: AEM)(NYSE: AEM). As of June, his total stake in the miner was worth US$50.1 million.

It’s an odd bet. Since prices peaked in 2012, spot gold rates are off more than 30%. Miners are struggling just to keep the lights on, let alone grow operations. But while most investors have given up on the sector, there are a number of catalysts that should push Agnico shares higher.

First, history shows gold should jump higher soon. Earlier this month, gold prices fell to around US$1,200 per ounce. Since June 2013, gold prices have fallen to this level three times, and each time the market found a bottom.

Why is this level so important? Gold prices MUST rise for miners to remain profitable. The average breakeven cost for gold companies is roughly US$1,300 per ounce. If gold prices remain below this level, firms will start going out of business or scale back operations. Lower supply will ultimately result in higher gold prices.

Second, Switzerland is scheduled to hold a referendum on whether the Swiss National Bank will be required to hold more of its assets in gold. Right now, most of the bank’s assets are backed by euros and U.S. dollars. Today, less than 8% of its assets are backed up by gold.

If the measure passes on November 30, the Swiss National Bank will be forced to bring its percentage of assets backed by gold up to 20%. This will amount to it purchasing 50 million ounces of gold over the next few years, equal to roughly half the world’s annual mine supply. That would put an enormous bid underneath gold prices.

As one of the largest producers in the world, Agnico is like the Exxon Mobil Corporation of the gold mining industry. The firm has the raw scale needed to survive the sector’s current doldrums. And because of the leverage inherent in its business model, Agnico’s profits could rise much faster than the underlying commodity.

What’s interesting is that Paulson likely paid between $25 and $30 per share for his recent purchases. That’s roughly in line with where the stock closed on Friday. That means you can buy Agnico on the same terms as this billionaire investor.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton (USA). Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

Hand arranging wood block stacking as step stair with arrow up.
Metals and Mining Stocks

2 TSX Commodity Stocks With Massive Upside Thanks to Gold Bugs and the Battery Boom

Investing in mining stocks such as Barrick Gold and Lithium Americas can help you benefit from rising commodity prices.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Why Shares in This Leading Mining Stock Soared 21% in May

This gold stock has risen higher on the back of gold prices, sure, but there's even more driving shares this…

Read more »

stock market
Metals and Mining Stocks

Is Barrick Gold Stock a Buy in 2024?

Barrick Gold (TSX:ABX) is often regarded as one of the best precious metal stocks to own. But should you buy…

Read more »

sale discount best price
Metals and Mining Stocks

3 Cheap TSX Stocks to Buy Right Now

TSX stocks such as Barrick Gold and two others are trading at a cheap multiple and at a discount to…

Read more »

A miner down a mine shaft
Metals and Mining Stocks

3 Copper Stocks to Buy as the Commodity Continues to Soar

Are you looking to get in on the growth of copper stocks? These are the biggest heavy hitters out there…

Read more »

Hands holding trophy cup on sky background
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Agnico-Eagle Mines is my favourite gold stock to own, due to its low-risk profile and strong dividend history.

Read more »

Diggers and trucks in a coal mine
Metals and Mining Stocks

1 Canadian Mining Stock Worth a Long-Term Investment

Cameco (TSX:CCO) stock could be a great long-term investment for Canadian growth seekers.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Stocks for Beginners

Got $200? 1 Copper Stock to Buy and Hold Forever

This copper stock is worth its weight in gold. Or actually, in copper! Given that the price of the material…

Read more »