tootalljones
1 year ago
i bought around another 25,000 shares of barrick this a.m.....here is a nice article on why is it much cheaper than AEM....
https://www.pgpf.org/blog/2022/07/national-debt-could-be-over-twice-the-size-of-the-economy-in-just-30-years
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Dividends Analysis
Barrick Gold Vs. Agnico Eagle Mines: Only One Of These Is A Strong Buy
Dec. 23, 2023 7:15 AM ETBarrick Gold Corporation (GOLD) Stock, AEM Stock, ABX:CA Stock, AEM:CA StockGDX, NEM, NGT:CA129 Comments
Samuel Smith profile picture
Samuel Smith
Investing Group Leader
About this article
Ticker
Analyst rating
STRONG BUY
Price at publication
$18.31
Last price
$15.68
Change since publication
-14.39%
S&P 500 change since publication
3.44%
Days since publication
39
Summary
Barrick Gold and Agnico Eagle Mines are leading gold miners with strong balance sheets and diversified asset portfolios.
While we are bullish on the long-term outlook for gold, we think only one of these miners is a Strong Buy at the moment.
We compare them side-by-side and offer our take on which is the better buy right now.
I am Samuel Smith, Vice President of Leonberg Capital. I lead the investing group High Yield Investor where we do our best to find the right balance between safety, growth, yield, and value.
Stack of gold bars
brightstars
Barrick Gold Corporation (NYSE:GOLD) and Agnico Eagle Mines Limited (NYSE:AEM) are leading blue-chip gold miners (GDX) with decent dividends and promising growth profiles alongside high-quality asset portfolios and strong balance sheets. In this article, we will compare them side by side and offer our take on which one is a Strong Buy right now.
GOLD Stock Vs. AEM Stock: Asset Portfolios
Agnico Eagle is the third-largest gold miner in the world, with a strong presence in low geopolitical risk geographies such as Canada, Mexico, Finland, and Australia. The company's portfolio includes five main assets: Detour Lake, Canadian Malartic, Meadowbank, Meliadine, and Fosterville. These mines contribute significantly to Agnico's annual production of 3.1 million ounces of gold, along with minor production of copper, zinc, and silver. That being said, the company's overall portfolio contains both low-cost and higher-cost mines, resulting in an average all-in-sustaining cost (AISC) of USD $1,100 per ounce in 2022.
AEM's portfolio growth has been notable over the years, expanding from one operating mine in 2008 to 11 by 2022, including the addition of high-grade, low-cost mines through its recent merger with Kirkland Lake Gold. However, recently, the company's return on invested capital has fallen below its weighted average cost of capital, indicating challenges in generating sustainable economic returns. Agnico's strategic focus on the Abitibi region, along with developments like Hope Bay and Hammond Reef projects, aims to increase production, but cost management and capital efficiency remain critical for long-term success.
Meanwhile, Barrick Gold ranks one spot ahead of AEM as the world's second-largest gold miner, with operations in more geographically diverse and geopolitically risky regions, including the Americas, Africa, the Middle East, and Asia. The acquisition of Randgold in 2019 and the formation of Nevada Gold Mines ("NGM") in a joint venture with Newmont (NEM) were significant steps in its expansion and increased focus on what it calls "tier 1" mines in a strong move to improve production quality and efficiency. NGM exemplifies the company's emphasis on cost reduction through its operational synergies. However, despite the quality of its assets, GOLD's significant presence in higher geopolitical risk areas poses lingering risks to the company's bottom line despite its efforts to adhere to high environmental standards and contribute to local communities at all of its operations.
Like AEM, GOLD's asset base is diversified across both low-cost and higher-cost mines, leading to an average AISC of USD $1,200 per ounce in 2022. Barrick's growth prospects include expanding production at the NGM joint venture, Pueblo Viejo mine, and Lumwana copper mine, with potential developments like Fourmile and Reko Diq promising substantial increases in production (including a large increase in copper production) in the years to come.
Despite their diversified portfolios, both companies face similar challenges in generating returns above their cost of capital. Agnico Eagle's focus on lower-risk areas is a strategic advantage, but its portfolio's cost structure and return metrics suggest a need for improved efficiency. Barrick's diversified global presence, coupled with strategic joint ventures like NGM, highlights its scale and operational synergies. However, Barrick also grapples with balancing its portfolio's costs and maximizing returns on invested capital while also dealing with higher geopolitical risks.
Both companies are focusing on optimizing existing operations and expanding through strategic organic projects whenever possible instead of pursuing expensive acquisitions such as their peer Newmont recently did through its acquisition of Newcrest. Agnico Eagle's attention to the Abitibi region and its expansion through mergers and acquisitions highlight its growth-oriented approach. In contrast, Barrick's emphasis on organic growth, as seen in developments like Fourmile and Reko Diq, suggests a long-term view aimed at leveraging existing infrastructure and maximizing resource potential.
GOLD Stock Vs. AEM Stock: Balance Sheets
Both Barrick Gold and Agnico Eagle Mines Limited have solid balance sheets. Barrick Gold has a strong liquidity profile (with billions of dollars in cash and undrawn liquidity on its credit line), an investment-grade credit rating, and basically zero net debt. Moreover, it also consistently generates free cash flow from its operations, giving it a steady stream of cash combined with existing balance sheet liquidity to pay a nice dividend to shareholders, buy back shares opportunistically, and also be positioned to make other opportunistic growth investments that align with its overall corporate strategy and long-term vision.
Agnico Eagle Mines also has a strong balance sheet with a very manageable amount of debt and also has plenty of liquidity and consistently generates free cash flow. Moreover, its less geopolitical risk than Barrick puts less potential stress on its balance sheet should a worst-case scenario play out for either company.
As the chart below shows, GOLD has come a long way in reducing its debt burden over the years whereas AEM has had consistently low debt levels.
Chart
Data by YCharts
GOLD Stock Vs. AEM Stock: Growth Profiles
Barrick Gold plans to double its copper production by the end of the decade and increase it further to an estimated 1 billion pounds or 450,000 tonnes per annum by 2031. The Reko Diq project in Pakistan and the Lumwana Super Pit Expansion are two critical projects that will help achieve this growth. When at full production, Reko Diq is expected to be among the world's top 10 copper mines, while the Lumwana Super Pit Expansion is expected to deliver up to 240,000 tonnes of copper per year.
Barrick's gold growth initiatives are expected to increase the company's production by around 30% to 6.8 million gold-equivalent ounces by 2031. The company is also exploring the high-grade opportunity at Horsham in the Carlin District and multi-million-ounce potential growth opportunities at Turquoise Ridge.
Agnico Eagle aims to expand its mill at Detour beyond 28Mtpa and conduct a study for an underground component, combining to potentially contribute around 300koz pa to production. Meanwhile, the Canadian Malartic Complex is progressing with the Odyssey development and evaluating exploration opportunities. Agnico Eagle has partnered with Teck Resources in a 50/50 joint venture for the San Nicolás copper-zinc project in Zacatecas, Mexico. The San Nicolás project is one of the largest undeveloped volcanic-hosted massive sulfide deposits globally and is expected to produce 63 thousand tonnes per annum of copper and 147 ktpa of zinc in concentrate over its initial five years.
In addition to both GOLD's and AEM's production growth initiatives, we are bullish on the long-term outlook for both copper and gold prices. We expect factors such as accelerating central bank purchases of gold, escalating geopolitical tensions, and the likelihood of Federal Reserve interest rate cuts next year to drive gold prices meaningfully higher. Moreover, Goldman Sachs has predicted a significant jump in copper prices in the coming years due to an existing supply deficit and strong anticipated demand growth, particularly from electrification and electric vehicle growth.
Combining strong production volume growth potential with favorable price outlooks for the underlying metals produced gives both businesses a substantial long-term growth outlook. Production costs will also have a significant impact on profitability levels, though increased robotics and artificial intelligence technologies should help provide some deflationary relief on that side of the profitability equation as well (and some already is via increased digitization of mining operations and the growing use of autonomous trucks at some mining sites), though it may be several years before any noticeable impact is felt.
GOLD Stock Vs. AEM Stock: Valuations
On a head-to-head basis, GOLD is more attractively priced than AEM. GOLD's Price to Net Asset Value (P/NAV) ratio stands at 1.04x, indicating that its stock is trading near its net asset value. In contrast, AEM's P/NAV ratio is significantly higher at 1.48x, indicating that its stock is priced at a premium relative to its net assets.
On an EV/EBITDA basis, GOLD is trading at just 6.05x, which is significantly lower than AEM's 8.19x. This lower ratio for GOLD implies a more attractive valuation in terms of operational earnings. Furthermore, GOLD's NTM Price-to-earnings (P/E) ratio of 16.78x is substantially lower than AEM's 28.51x, which further highlights that investors are paying a higher price for AEM's earnings compared to GOLD's. In terms of free cash flow generation, the Price to Free Cash Flow (P/FCF) ratio for GOLD is 20.42x, compared to AEM's higher 24.91x, further reinforcing the narrative that GOLD is cheaper than AEM.
Both offer pretty attractive dividend yields by gold mining industry standards (north of 2%), with AEM paying out a stable quarterly dividend that has grown over time:
Chart
Data by YCharts
Meanwhile, GOLD has a variable rate dividend payout policy based on the amount of cash on hand at the end of each quarter. While not as attractive as a fixed policy like AEM's, GOLD's policy gives it much more capital allocation flexibility and also enables management to buy back stock aggressively whenever it is opportunistic to do so without compromising its balance sheet strength. Given the nature of the mining industry, we think that GOLD's dividend policy actually makes more sense.
After comparing them across the spectrum of major valuation metrics, we can confidently conclude that GOLD stock is far less expensive than AEM at the moment, and we also think that its dividend/buyback/capital allocation policy makes more sense for the gold mining business model than AEM's does.
GOLD Stocks Vs. AEM Stock: Investor Takeaway
Both GOLD and AEM are blue-chip stocks, and - given our bullish long-term outlook on gold and copper - we think both are reasonable, if not attractive, investments right now. While AEM has the edge in terms of lower geopolitical risk in its locations, GOLD is larger, has a stronger balance sheet at the moment, and also has more promising growth potential in copper.
Last but not least, GOLD's stock price is far cheaper than AEM's. As a result, we rate Barrick Gold Corporation a Strong Buy and rate Agnico Eagle Mines Limited a Buy.
This article was written by
Samuel Smith profile picture
Samuel Smith
28.84K Followers
Samuel Smith is Vice President of Leonberg Capital,
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