I'm all-in on AEM Agnico Eagle because I want a low-drama miner. If I'm right about the price of gold going up, I don't want to see my mining investment upended by execution or expropriation issues. The below excerpt from a BofA report dated 2-1-24 makes the case for AEM well:
Agnico Eagle Mines (AEM) = reliable gold
We set Buy-rated Agnico Eagle as our 2024 top pick among the senior precious metal producers. Our price objective (PO) for AEM is $66.00 per share.
Investment Thesis
Strong management team
Agnico Eagle (AEM) has an extremely credible management team, in our view. The company has a strong history of meeting or exceeding its targets and expertly executing on project. Starting form Chair of the Board, Sean Boyd, AEM’s board and management represent among some of the strong teams in the mining space.
The Canadian gold mining leader: Canada a top-tier jurisdiction
AEM is the largest gold miner in Canada by a large margin. AEM’s Canadian asset base comprises of 84% of our estimated NAV. Canada is a top-tier, high-quality, low-risk jurisdiction for gold mining when compared to many other regions in the world (such as Africa or Latin America) and ultimately commands a valuation premium, typically. Canadian gold mines and projects are typically highly sought-after, i.e. meaning companies with exposure to the jurisdiction often have enhanced M&A appeal, which typically also comes with premiums in the gold mining sector.
Valuation attractive vs historical standards
While AEM trades at a premium versus its senior peers, it is notably trading at a significant discount to its own historical standards. On P/NAV, AEM is trading at a P/NAV of 1.34x, versus its historical P/NAV of 2.04x. This is more than 1 standard deviation below the average. Similarly, on EV/EBITDA24 AEM is trading at 7.6x, and on EV/EBITDA25 trading at 6.4x, well below its historical long-term average of 13.3x.
Many potentially positive catalysts for 2024
We see multiple potentially positive catalysts for AEM in 2024. First, the company is expected to report an exploration update with Q4’23 results on 15-Feb-24. Key assets expected to potentially deliver materially positive exploration updates include Odyssey (at the Canadian Malartic mine), Kittila in Finaland, Hope Bay in Canada, and Fosterville in Australia. In H1’24, AEM is expected to provide the results of an underground mining study at the Detour Lake mine, that should more clearly demonstrate a path to annual production of 1Moz. It’s Meliadine project in Canada it to be fully ramped-up to a production rate of 6,000 tonnes per day (tpd) by year-end 2024 (driving free cash flow generation). The outlook for long-term production at Canadian Malartic (via underground sources) should become increasingly apparent in 2024 via exploration and planning updates, with a target to add several hundred thousand ounces to annual gold price production. Note that at the Canadian Malartic complex there is expected to be, after the cessation of open mining operations toward the end of this decade, 40,000tpd of excess milling capacity. Today, the Odyssey underground is expected to be the dominant source of future ore but only account of one-third of total milling capacity of around 60,000tpd. There are many more intriguing potential options in the region to augment ore supply. Additionally, in Q3’23 results, AEM suggested the ability to extend the mine life at the Amaruq gold mine in Canada by at least one year, with details to be provided by mid-2024. |
