Gold stocks like Agnico Eagle Mines Ltd. (TSX:AEM) are safe havens in difficult macroeconomic and geopolitical times. Today, there’s no doubt that the risks to the market remain elevated. These risks include rising interest rates, inflation, and ultimately, the risk of recession. Thus, it’s really not surprising to see that the TSX has been heading lower recently.
Here are the reasons that Agnico Eagle Mines stock is a good bet in this market.
Gold stocks as safe havens
Throughout history, gold has been a reliable store of value. This means that inflation doesn’t eat away at the value of gold. Instead, it remains relatively stable while other assets and commodities fall under the pressure.
This is a very timely position to have, as inflation has been running rampant recently. For example, Canada’s inflation rate was 3.4% in 2021, 6.8% in 2022, and has averaged 4.9% so far in 2023. Similarly, America’s inflation rate was 4.7% in 2021, 8% in 2022, and has averaged 5.3% so far in 2023. Since the beginning of 2019, the price of gold has rallied 50% – high inflation equals strong gold prices.
In fact, since recent 2022 lows of $1,635.30 per ounce, the price of gold has rallied more than 17%.
Agnico Eagle Mines
As a $32 billion gold mining company that focuses its operations in politically safe, pro-mining jurisdictions, Agnico Eagle Mines has a long history of reliability and solid returns. This, in fact, makes it the gold stock to own, especially if you’re concerned with this difficult and risky market.
Agnico-Eagle can be characterized as a safe bet for many reasons. In fact, its defensive attributes are threefold. First, the company benefits from rising gold prices, which I’ve gone over. Second is the location of Agnico’s operations. The locations are politically safe, stable locations that are good places to do business. Its operations are in areas such as northwestern Quebec, northern Mexico, Finland, and Nunavut. Its exploration activities are concentrated in Canada, Europe, Latin America, and the United States.
The final reason why Agnico is a safe bet is due to the company’s operational excellence. This excellence has translated into an industry-leading cost structure. In turn, it has driven strong cash flows and shareholder returns.
The proof is in Agnico’s financial results
So Agnico has benefitted from rising gold prices in the last five years. This, along with rising production, has driven a 162% increase in revenue during the time period, or a 21% compound annual growth rate (CAGR).
At the same time, Agnico’s sound operational and financial practices have driven operating cash flow growth of 246% versus five years ago, to $2.1 billion in 2022. This represents a CAGR of an impressive 28%. Furthermore, 2022 free cash flow was $559 million compared to negative free cash flow in 2018. Finally, all of this has culminated into a rapidly rising dividend. In fact, Agnico’s dividend increased 283% in the last five years, or at a CAGR of 31%.
Motley Fool: The bottom line
In closing, I would like to answer my question asked in the title with a resounding, yes – Agnico Eagle is definitely a safe bet in this wobbly market.
