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Bob Kirtley, Gold Prices (10 clicks)
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AEM Chart 24 jan 2011.JPG

Agnico-Eagle Mines (AEM) has dropped around $20.00/oz since December, and could be oversold at this point. The technical indicators suggest that AEM is now oversold, also note the widening gap between gold prices and the stock price. Let's take a quick look at it to try and ascertain whether this stock is a Buy, a Hold or a Sell.

We do have to say at the outset that we do own this stock and it has been one of our favorites, especially as we benefited from it in the early stages of this bull market, when the stocks clearly demonstrated good leverage to gold prices. However, our opinions are also clouded by the stocks inability to keep pace with gold prices over the last few years, as we have brought to your attention from time to time. So we have one positive influence in terms of being fond of Agnico-Eagle and one negative influence in that the leverage to gold appears to have deserted the stocks in general, and Agnico-Eagle is no exception.

Agnico’s goal is to increase annual gold production to between 1.0 million and 1.1 million ounces in 2010 by building and exploring its own mines. Five internal expansions are expected to contribute to continued growth post-2010. The company aims to grow gold mineral reserves to between 20 million and 21 million ounces by year-end 2010 through aggressive exploration on 100%-owned properties in Canada (Ontario, Quebec, the Yukon and Nunavut), the United States (Nevada), Finland and Mexico (Chihuahua). Watch out for Fourth quarter 2010 results on Wednesday, February 16, 2011, after normal trading hours.

Agnico-Eagle is a Canadian-based gold producer with operations in Canada, Finland and Mexico, and exploration and development activities in Canada, Finland, Mexico and the U.S. The LaRonde mine is Canada’s largest operating gold mine in terms of reserves. Agnico-Eagle has full exposure to higher gold prices consistent with its policy of no-forward gold sales, it does not hedge production. It has paid a cash dividend for 28 consecutive years.

Agnico-Eagle Mines Limited trades on the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.

Agnico-Eagle has a market capitalization of $11.47 billion, a 52 week trading range of $49.64 - $88.20, a rather high P/E ratio of 38.43 on volume of 2-5 million shares traded per day.

BUY: For the short term trader-- or indeed an options trader-- Agnico looks oversold and a bounce could be on the cards. However, for the long term investor we would need to see a significant turnaround in the HUI and some rapid improvements in this sector before we would become buyers again.

HOLD: Yes, for now at least, as the chart suggests that the stock is oversold-- and if anything-- it is more of a buying opportunity, so to sell now might be somewhat of a give away.

SELL: No, not as Agnico is at a low point, better prices lie ahead when gold prices rally and stock moves higher, although we may well sell into such a rally.

With the mining sector being sluggish it's hard to see just what the ignition will be for Agnico to be propelled highe. As we have stated in the past, this is not 1980 and there are other attractions for the gold bugs' investment dollar.

Before throwing the towel in we also need to consider just where our cash can be placed in order to get a better return than that is on offer with this stock. The mantra of the juniors springs to mind, however, if the large caps are not performing and the mid caps are not performing, why do we expect investment dollars to buy into the junior story? It's highly speculative with a high percentage of failures, so quality selections are vital to success in this area.

Something to sleep on, we would like to be more positive but we do need to see things as they are and not as we would like them to be.


Disclosure: I am long AEM.

Source: Agnico-Eagle Mines Limited: Buy, Hold or Sell?