Gavin Graham's Golden Gains

08/29/2019 5:00 am EST

Focus: COMMODITIES

Gavin Graham

Chief Strategy Officer, INTEGRIS Pension Management Ltd

Gavin Graham, an international securities specialist and contributing editor to Internet Wealth Builder, has held senior positions in London, Hong Kong and Toronto. Here, he discusses his bullish outlook for two favored gold holdings.

Agnico Eagle (AEM) is a senior Canadian gold mining company which operates eight mines in Canada, Finland, and Mexico. It also has exploration and development activities in each of these companies as well as the U.S. and Sweden.

Gold production for the second quarter was 412,315 oz. at an all-in sustaining cost (AISC) of $953 per oz. The major achievement in the second quarter was the May 19 announcement of commercial gold production at the Meliadine mine in Nunavut in the Arctic. The mine came in at a cost of $830 million, $70 million below its forecast budget, another example of Agnico's efficient operations.

The other new mine in Nunavut, called Amaruq, is expected to declare commercial production in the third quarter and to produce 125,000 oz. this year. These two new mines will help Agnico achieve its forecast of 1.75 million oz. of production this year at an AISC of $875-925 per oz.

Agnico pays a quarterly dividend of $0.125, an increase of 6.3% from 2018, giving it a yield of 0.85%. With the two new Nunavut mines in full production for 2020, and potential upside from its purchase of the Malartic exploration assets in Quebec, Agnico will experience growth in production towards its long-term goal of two million oz. per annum. I rate the stock a buy.

Franco-Nevada (FNV) is a precious metals and energy royalty and streaming company with a large and diversified portfolio of cash flow producing assets in Canada, the U.S., Australia, Africa, and Latin America. Its has been the best performing precious metals stock over the last decade.

The major development was the coming on stream of the massive copper/gold mine, Cobre Panama, just after quarter end. First Quantum, the operator, has reiterated guidance for 140,000-175,000 tonnes of copper to be produced in 2019, which led Franco-Nevada to forecast its 2019 GEOs would be at the top end of its indicated range of 465,000-500,000.

Also, after quarter-end, the company paid Range Resources $300 million for a 1% overriding royalty on its 350,000 acres of Marcellus shale in the U.S., which caused it to raise its forecast energy revenues in 2019 from $70-85 million previously to $100-115 million. The Brucejack gold mine operated by Pretium Resources has also now started generating royalties.

The company pays a quarterly dividend of $0.25, up 4.2% from $0.24 last quarter, for a yield of 1.08%. Overall, Franco-Nevada remains one of the best managed and lowest risk ways to play the precious metals bull market and continues to expand its portfolio of top-class assets. We rate the stock a buy.

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