As the price of gold surged past US $2,100 per ounce yesterday, Agnico-Eagle Mines Ltd. (TSX:AEM) rallied 5%. Today, the stock is rising again, and is up more than 2.3% at the time of writing. Let’s look into why Agnico-Eagle stock is rallying and what this means going forward.
Agnico-Eagle: My favourite gold stock
I’ve written about Agnico-Eagle many times before. So those of you that have followed my work will know that this is my favourite gold stock. The reasons for this are quite simple.
Most important is the fact that Agnico operates a high-quality, low-risk business. For example, the company only operates in politically safe, pro-mining jurisdictions. This includes places like Canada, Europe, Australia, and Mexico. It’s a strategy that has always had clear value, but today, with increased geopolitical risks globally, it’s all the more relevant and valuable.
Furthermore, Agnico has a long history of solid operational and financial management. This has translated into relatively low costs, strong cash flows, and strong shareholder returns. We can see this evidenced in Agnico’s fourth quarter 2023 results. Production increased 13% to a record 903,000 ounces. Also, all-in sustaining costs were marginally lower than last year, which is a strong accomplishment given the inflationary environment that exists.
The price of gold is rising
It’s no secret that investors are worried about many things. For example, inflation remains a big problem that the Fed continues to grapple with. Consequently, the market feels like it’s on shaky ground.
But this is good news for gold and gold stocks, which normally tend to outperform in periods of high inflation, high economic risk, and high geopolitical risk. This is why the price of gold has rallied 65% since the beginning of 2019 and is 10% higher than 6 months ago.
This is also why I think it remains a good time to invest in gold stocks.
Agnico-Eagle: A safe haven
Gold stocks are known to be safe havens in times of turmoil. As gold prices are an excellent store of value, they don’t tend to be as volatile as currencies. This is why investors flock to gold and gold stocks in these times. And this is what we’re seeing today.
So Agnico is a safe haven on two fronts – due to its gold exposure and due to its low-risk business model. This has enabled it to have a strong balance sheet and long history of dividend growth. In fact, Agnico has over $300 million in cash, net debt of $1.5 billion, and liquidity of over $2 billion. Finally, Agnico has paid dividends for 30 consecutive years, and today, the stock is yielding over 3%.
So it’s likely that Agnico-Eagle will continue to fare well as gold prices continue to rise, with a very attractive risk/reward profile working in investors’ favour.
The bottom line
As the market becomes increasingly jittery about inflation, interest rates and geopolitical risks, gold prices will continue to rise. Inflation remains persistently above targets, and this bodes well for gold prices going forward.
