Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
But as they say ‘One swallow does not make a summer’ and this one day bounce does not make up for the recent dismal performance of this stock. Back in September 2011 this stock was trading at the $70.00 level so in just six months we have witnessed a 50% drop in the stock price for Agnico-Eagle Mines Limited (AEM).
The lions share of the damage can be attributed to the demise of the Goldex Mine which had to be written off. At the time the loss was estimated to be around $1.00 per share, however, investors dumped the stock taking it down $10.58 or 18.55% on a huge volume of 13 million shares traded in just one trading session on the NYSE. The Goldex incident has severely damaged Agnico’s reputation as evidenced by the continuing slide in the price of this stock.
For disclosure purposes we do own this stock and it has been good to us over the years, but, we are surprised by the continuation of this sell off.
However, this does serve as a reminder to us all, of just how precarious the mining industry can be, when we see a once highly regarded gold producer with a solid reputation taking such a battering.
Back to today’s good news, a 6.96% jump, which may have had something to do with their recently reported figures, including an increase in dividend payments, which are as follows:
Fourth quarter and full year 2011 highlights include:
ñRecord operating cash flows – cash provided by operating activities up 46%, year over year
ñRecord annual gold production at Pinos Altos – strong quarterly (52,574 ounces) and record full year gold production (204,380 ounces) at total cash costs1 of $299 per ounce for the year
ñRecord annual gold production at Kittila – record gold production in 2011 of 143,560 ounces at total cash costs of $739 per ounce
ñLaRonde Extension – achieves commercial production in November 2011
ñQuarterly dividend up 25% to $0.20 per share – Company has declared a dividend for 30 consecutive years
ñGrayd Resources Acquired – advanced La India property and Tarachi exploration property in Mexico key assets
ñMeadowbank partially written down, Goldex operations suspended – Meadowbank value reduced to approximately $762 million. Goldex investigation and remediation underway
Agnico-Eagle is pleased to announce that its Board of Directors has approved the payment of a quarterly cash dividend of $0.20 per common share. The next dividend will be paid on March 15, 2012 to shareholders of record as of March 1, 2012. Agnico-Eagle has now declared a cash dividend to its shareholders for 30 consecutive years.
We would draw your attention to the fact that they have managed to pay a dividend for last 30 years which is no mean achievement. Years ago a popular strategy was to buy and hold for the long term, thus riding out the peaks and troughs, confident that a quality investment would be worthwhile. However, today’s investor may not have the patience to persevere with a poorly performing stock, as there are a great variety of other vehicles vying for each investors hard earned cash, such as ETFs, other producers, options trading, etc.
Agnico-Eagle will need to rectify this situation and quickly rebuild investor confidence.
Sean Boyd, President and Chief Executive Officer, commented as follows:
“In 2012, Agnico-Eagle anticipates meeting its targets, increasing profitability and growing the shareholders’ exposure to gold on a per share basis”
Three Year Plan Outlines Further Production Growth
The Company is announcing its production and cost guidance for the three-year period of 2012 through 2014.
In 2012, payable gold production is expected to be in the range of 875,000 ounces to 950,000 ounces. Total cash costs per ounce in 2012 are expected to be in the range of $690 to $750.
In 2013, Agnico-Eagle expects to have payable gold production of approximately 990,000 ounces, growing to 1,055,000 ounces in 2014. Total cash costs per ounce are expected to be at similar levels to those now forecast for 2012.
For now we will adopt a wait and see approach to this stock, should it show signs of recovery then we could become buyers once again. We would also need to see the gold bugs index, the HUI, spring to life and head north, it has been range bound between the 500 – 600 level for over a year now. In fact the HUI was trading at 500 in early 2008, so we could argue that this sector has done nothing for the last four years or so. To add some balance to the debate many of our peers are predicting a massive upward move in mining stocks, so maybe Agnico-Eagle Mines Limited will take part in the rally, when and if, it materializes.
Agnico-eagle Mines Limited has a market capitalization of $6.20Bln, a 52 week trading range of $31.42 – $76.49, a P/E ratio of 54.43 with EPS standing at 0.67 and closed today at $36.59. 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.
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