In late 2011, gold prices peaked at close to $1,900 per ounce, then retreated steadily to levels of just over $1,000 per ounce at the end of 2015. They are currently at just over $1,249.
There are certainly many questions that remain with respect to where gold is going from here, but one thing is sure: the industry has suffered through a period of record production and declining demand and, in response, has worked hard at reducing costs and improving balance sheets. This leaves many gold companies well positioned to reap the rewards of rising gold prices.
Agnico Eagle Mines Ltd. (TSX: AEM)(NYSE: AEM) is one such company. In fact, it is, in my view, one of the premier gold companies that can provide investors with exposure to this sector.
Let’s take a look at the company’s second-quarter results. Agnico reported adjusted net income of $0.24 per share compared to $0.09 per share in the same quarter last year. That’s a 127% increase in EPS, which was driven by higher gold prices, higher production, and lower costs.
And these strong results have encouraged management to increase their guidance for 2017. Production is now expected to be 1.62 million ounces versus 1.57 million ounces previously for a 3.2% increase in guidance.
Production growth going forward also looks promising, as Agnico is expected to see increasing production in the next few years versus declines in production for its peer group. Agnico is building on the success at Meadowbank in Nunavut; Meliadine represents a key opportunity for production growth.
Management has pointed out that Meliadine has better infrastructure than Meadowbank, and with management’s expertise and experience in the area, the company is well positioned to drive shareholder value with this new high-grade resource base.
Also, importantly, the company is achieving a best-in-class operating structure, with all-in sustaining costs (AISC) of $785 per ounce compared to $848 per ounce in the same period last year. And management has lowered its expected AISC for 2017 to $830-880 per ounce from previous guidance of $850-900 per ounce.
This compares to Kinross Gold Corporation’s (TSX: K)(NYSE: KGC) expected 2017 AISC of $925-1,025 per ounce, Goldcorp Inc.’s (TSX:G)(NYSE:GG) 2017 expected AISC of $825 per ounce, and Barrick Gold Corp.’s (TSX: ABX)(NYSE: ABX) expected AISC of an even lower $720-770 per ounce.
Furthermore, Agnico has the lowest political risk profile of its peer group, with gold mines in politically safe areas such as northwestern Quebec, northern Mexico, Finland, and Nunavut, and exploration activities in Canada, Europe, Latin America, and the United States.
A well-diversified portfolio still has a place for gold stocks, and as we see the continued strength in gold prices fall to the bottom lines of companies such as Agnico, this diversification continues to be a welcome addition to investors’ portfolios.
