With 40 years of market experience Gavin Graham is a leading international investing expert; here, the contributing editor to Internet Wealth Builder reviews a recommended trio of gold and silver mining plays.
Agnico Eagle Mines (AEM) is a senior Canadian gold mining company and the third largest gold miner in the world in terms of market capitalization. Following its merger with Kirkland Lake Mining in the first quarter of 2022, the company has eleven mines in politically stable jurisdictions such as Canada, Finland, Australia, and Mexico.
In 2021 Agnico produced a record total of 2.03 million ounces (oz.) of gold at an All in Sustaining Cost (AISC) of $1,038 per oz. The Kirkland Lake deal has added 70% to Agnico’s gold production, and the new evaluation for Detour Lake indicates this mine alone could produce 1 million oz. annually for the next couple of decades. That’s equivalent to half of Agnico’s total production in 2020.
Agnico increased its quarterly dividend in March by 14.3%. The stock now pays US$0.40 per share (US$1.60 per year), giving it a yield equivalent to 3.7%. After peaking at an all-time high of $117.35 in August 2020 the stock has effectively halved despite its excellent operational performance.
The stock is selling no higher than it was five years ago, although gold is up by one-third and the company’s production is substantially higher. Agnico remains the most attractive major gold mine and is a buy.
Franco-Nevada (FNV) is the largest and longest established of the precious metals and oil and gas royalties and streaming companies, with a market capitalization of $32 billion.
Its portfolio of royalties and streams is diversified geographically and by metals and energy. It is a low-risk way to play precious metals and other commodities as its royalties are linked to revenues with no exposure to capital expenditures and rising costs.
Revenue doubled to $1.3 billion in 2021 and net income rose almost four times to $734 million ($3.83 per share). This was due largely to the successful commissioning of the enormous Cobre Panama copper mine. Note that the company reports in US dollars.
Progress continued in the first half of 2022. Net income rose 12.5% to $378 million ($1.98 per share) although revenues were essentially unchanged. The company reported record production of 369,666 gold equivalent ounces (GEO), equal to revenue of $691.1 million.
The company continues to be the most diversified and lowest risk way to gain exposure to precious metals and other commodities through its royalty structure. Buy now.
Equinox (EQX) describes itself as a growth focused gold producer operating entirely in the Americas. It has two mines in the US, one in Mexico, and four in Brazil. Mining entrepreneur Ross Beatty owns 8% of the company.
Equinox produced 593,000 oz. of gold in 2021 and has reserves of 16 million oz. It has a 60% interest in the Greenstone Mine near Geraldton, Ontario, which will be one of Canada’s largest mines with 5.5 million oz. in reserves when it comes on-line in 2024. It was 35% complete as of June 30.
High rainfall impacted production at Aurizona in Brazil which led to Equinox reducing its production forecasts for 2022 to 550,000-615,000 oz. at an AISC of $1,470-$1,530 per oz. meaning production will essentially be unchanged this year. With $160 million in unrestricted cash as of June 30, and with the new Santa Luz mine coming on stream in the third quarter, the stock's selloff seems overdone.
Equinox doesn’t pay dividends as it is still developing major projects. After its sharp fall, Equinox is very attractively valued, assuming it can achieve the 300,000 oz. increase in production from Aurizona, Los Filos, and Castle Mountain, and with Santa Luz starting commercial production this quarter. Buy now.
Pan American Silver (PAAS) is the second largest producing silver miner and one of the two largest silver producers by market capitalization. It operates silver and gold mines in mining friendly jurisdictions such as Mexico, Peru, Canada, Argentina, and Bolivia.
Its acquisition of Tahoe Resources in 2018 gave it 500,000 oz. of gold production annually, primarily from the Dolores mine. The Escobal silver mine in Guatemala is non-producing at this time but produced as much silver as all of Pan American’s existing mines in its last year of operation in 2018.
Pan American announced disappointing results for the second quarter on production issues at Dolores. That led to a writedown of the asset and saw the share price immediately drop. The stock is now 40% below the high of $38.51 reached as recently as April after the invasion of Ukraine.
Pan American’s disappointing operational performance has led to a sharp reduction in its production forecast for this year. However, operations at its flagship silver asset, La Colorada, have improved significantly according to its CEO Michael Steinmann, with production of 1.7 million oz. in the second quarter.
Gold production should pick up in the second half from the sequencing of production at La Arena and Shahuindo. The Guatemala government’s decision on reopening the Escobal mine is expected in the first quarter of 2023, which would more than double Pan American’s production if it happens. Buy now.
