Gold stocks are trading like dot-coms were in the late '90s, and Agnico-Eagle Mines (NYSE:AEM) is no exception. Its stock price over the past 6 years has mimicked the volatility felt throughout the sector. This trend has been seen in the prices of gold ETFs, and even the supposedly more stable financial products like mutual funds.
Agnico-Eagle was recently in the news because it had seemingly abruptly divested its shares in Rubicon Minerals (RBY), which is primarily engaged in exploration, rather than mining.
Official news releases were nil to scant from Agnico-Eagle itself, and as of this writing, nothing official from the company has been released. Rubicon has acknowledged the divestiture, but hasn't said much else about Agnico-Eagle's selling of its stake.
Nothing in Agnico-Eagle's Q1 necessarily raises any red flags. In fact, the mining company has $155 million in cash reserves, and its operations throughout the world, and in particular, its LaRonde, Lapa, and Pinos Altos mines, are all projected to generate yields on target- and on schedule.
But some analysts are not so sure. Agnico-Eagle was recently downgraded, with an analyst pointing to the aforementioned mines generating higher costs than expected. If this is true, margins next year will thin, and who's to say if this love-hate volatility about gold stocks among the world's exchanges will still be in play then, and whether or not it will weigh in or against Agnico-Eagle's favor.
Agnico-Eagle has recovered some of its share price, since its nosedive last year following the closing of its Goldex mine. This has lead many to wonder whether it should take some cash off the table (and recover some of the losses from its 2011 high), or whether it should stay the course.
There are, of course, other similar options in the gold sector. Brigus Gold (BRD), Aurizon Mines (AZK), Lake Shore Gold Ordinary Shares (NYSEMKT:LSG), and Richmont Mines (NYSEMKT:RIC) are just a few to name. All are along the same lines of mining that Agnico-Eagle is in, as most in this group are Canadian as well. The biggest difference is that Agnico-Eagle's a much larger organization, and its market cap reflects that, at $6.9 billion compared to a range of $200 million to $500 million the others fall in. Brigus Gold and Aurizon Mines' mining property profiles are similar to Agnico-Eagle's, in terms of locations, but again, Agnico-Eagle simply operates at a larger scale.
A mid-tier gold producer like Brigus Gold will generate 1.9 million ounces of gold in reserves this year, whereas Agnico-Eagle is projected to generate 2.2 million at its mine in Meadowbank alone. Additionally, with Agnico-Eagle's scale, you get stability, which is very attractive in the gold sector these days.
Bear in mind that "gold" isn't a destination for many investors. Rather, it is more of a defensive hedge and category for most-which is why most investors go with an ETF or mutual fund when it comes to gold. But if you desire a greater risk/reward position in gold, then Agnico-Eagle is where you want to build a position.
Some might propose Rio Tinto (NYSE:RIO) as a better option, but again, you run into the "mutual fund effect." When gold rallies, you don't get as much in return (if in fact you're thinking there are better days ahead for gold).
Besides, Rio Tinto does not only deal in gold. It deals in copper, aluminum, other metals, and minerals. And, as we've seen in the past 10 years, metals and minerals don't always rally together. Sometimes they contrast and contradict each other (especially copper, aluminum, and gold-which are requisite inputs for silicon wafers and microprocessors).
Investors should also weigh the impacts of what the Fed will do, and what exactly Ben Bernanke is going to say next. Will Operation Twist continue? Will we get another QE? Ultimately, this kind of gossip is the kind of thing that insiders and gamblers care about.
If you are of the mindset that gold is a valuable commodity, in terms of its usefulness as a material input (to manufacture things, such as silicon wafers and the like-and not just jewelry), then you want to invest in a company that will provide this service of mining gold for the world at a higher standard than its competitors. This is what Agnico-Eagle represents.
But, if you are an investor that is not particularly aware of the geopolitics that surround mining in general (about the environmental consequences of strip mining and the like), and you merely are looking for something to cushion your portfolio against when the abruptness of the markets come crashing, then an ETF or mutual fund may be a better route.
Remember that Agnico-Eagle was slaughtered back in October because of Goldex, and has not come close to recovering since then. In the last half of 2012 and into 2013, look for Agnico-Eagle to recover from Goldex, and to recover the bulk of its 2011 high.
For the rest of 2012, these are the key indicators to watch out for regarding Agnico-Eagle:
- Its capex numbers will always be a concern, especially since this miner seems to have higher social and environmental values than its competitors do.
- If you're new to investing in miners, buying and selling into competitors is common (especially since, in many ways, it's the only means for access to certain properties), so you want to pay close attention to these transactions and deals this year, in order to accurately forecast where Agnico-Eagle might be next year.
- Although it can be nerve racking, check in with developments on Goldex, because the mine is not ruled out completely, and this year, some operations are scheduled to resume. And when it does, and if things are just as great in the second quarter as they were in the first, expect Agnico-Eagle to do well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.