Agnico Eagle(US:AEM) seekingalpha.comยท2024-05-17 03:41Core Viewpoint - Gold is performing well in 2024 with a ~16% return YTD, and gold miners are also seeing decent performance, but the preference is for gold ETFs over miners due to rising production costs [3][5]. Gold Market Performance - Gold miners, particularly those in developing countries, face challenges such as increased labor and political unrest, leading to higher operating costs [3]. - Agnico Eagle Mines (AEM) has shown a strong performance with a ~26% YTD increase, outperforming peers like Newmont (4%) and Barrick (-4%) [3]. Production Costs - Newmont's all-in-sustaining costs (AISC) rose from mid-$900/oz in 2019 to $1485/oz in Q4 2023, significantly offsetting gains from higher gold prices [6]. - Agnico's AISC increased from mid-$900/oz in 2019 to $1,117/oz in 2023, with a guidance of ~$1,225/oz for 2024, indicating more stable cost growth compared to peers [6][7]. Jurisdictional Risk and Stability - AEM's focus on developed markets has historically led to lower margins, but current conditions favor its stability and margins due to a centralized footprint in economically stable areas [7]. - The company is expected to benefit from higher gold prices, especially as fiat currencies devalue globally [7]. Valuation and Profit Outlook - AEM's 2024 guidance projects a gold production outlook of 3.45Moz at a $1,225/oz AISC, leading to an expected pre-interest and tax profit of ~$3.97B [8]. - After accounting for net non-operating interest and taxes, the expected non-GAAP profit is ~$2.71B, resulting in a low P/E of 12.5X based on a market capitalization of $34B [8]. Investment Outlook - AEM is viewed as a better risk-reward opportunity compared to Newmont and Barrick due to its stable AISC and lower jurisdictional risk [9]. - The fair value of AEM is estimated at around $42 per share, with a forward P/E of 15-16X based on earnings estimates, indicating significant upside potential with rising gold prices [9].