Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
For Canadian investors, adding mining stocks to portfolios makes a lot of sense, including as an inflation hedge, strong operating cash flow and frequent dividend payments to shareholders. If it is possible to buy a number of well-run, high-quality mining stocks during a downturn in share prices, the returns could be significant when commodity prices recover.
This is despite the fact that the price of gold hit an all-time high of $2,135 per ounce in 2023, accumulating a 13 per cent gain for the year. However, with a more favourable interest rate environment in 2024, the price of gold is likely to continue to rise, leading to a rebound in the price of gold stocks that have under-performed over the past year.
With a current market capitalization of C$33 billion, Agnico Eagle Mines (TSX:AEM) is one of Canada’s largest gold mining companies, with operations in North America, Europe and Australia. Following the acquisition of Kirkland Lake Gold in 2022, the company has a portfolio of high-quality exploration and development projects.
In the third quarter of 2023, the company reported production of 850,000 ounces at a cost of less than US$900/oz. Management aims to increase annual production at the Detour mine to 1 million ounces as the main driver of the company’s earnings growth this year.
Additionally, adjusted EPS for the third quarter came in at US$0.44, compared to expectations of US$0.42, while revenues rose 13.1 per cent year-on-year to US$1.64 billion. It’s worth pointing out that the company’s cash cost guidance for the year is forecast to be between US$840 and US$890, compared to US$857 per ounce over the past three quarters. The company’s adjusted net income per share for the third quarter was US$0.44 lower than the same period last year due to inflation and a higher cost base, a situation that should improve significantly in 2024.
The company also recently expanded its nickel investments in Canada by acquiring a stake in Canada Nickel Company. In December 2023, Agnico Eagle announced the acquisition of 19 million units of Firefox Gold, which is expected to increase gold production this year.
As of the third quarter of 2023, Agnico Eagle had US$355 million in cash and US$1.1 billion in available liquidity on its revolving credit facility. The company’s net debt increased to $1.6 billion due to higher working capital requirements. However, the ratio of net debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) remains quite low at 0.5 times.
The strong balance sheet puts Agnico Eagle in a position to pay shareholders an annual dividend of C$2.15 per share, yielding 3.2 per cent. Importantly, the dividend has grown by more than 300% over the past eight years. At the current forward P/E of 20.5 times, the stock trades at a 50 per cent discount to the analyst consensus target price.