The Golden Eagle Breaks a Wing

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Someone forgot to tell this gold miner that it's best to underpromise and overdeliver.

Then again, since this marks at least the third time that Agnico-Eagle Mines (NYSE: AEM  ) has flown smack into a window of its own creation, investors may simply have expected the company to know better.

It seems that my top pick for 2009 may not close out the year with anywhere near the strength I had anticipated. Agnico shares had soared to a 46% gain for 2009 just a couple of weeks ago, but they've come crashing down to Earth in recent days.

Agnico turned in a disappointing third-quarter loss of $17 million, effectively dismantling any boost from the 73% surge in gold production volume over the prior-year period. A $23 million non-cash hit from the weakening U.S. dollar -- combined with a sharply higher cost of $449 per ounce, owing to mine ramp-up delays -- contributed to the shortfall. The principal culprit remains the problematic Kittila mine in Finland, which began to reveal challenges earlier in the year. Logistically, Agnico-Eagle is spinning many plates at once, with three new mines in 2009 struggling to reach design capacity, even as the important Meadowbank project approaches its grand opening in early 2010.

Long-term investors are encouraged to note that logistical hiccups are par for the course in the mining industry, and that the market's swift reactions to such news often exhibit a decidedly near-term focus. From minor delays like Newmont Mining's (NYSE: NEM  ) adjusted Boddington timetable, to major setbacks like those famously endured by Coeur d'Alene Mines (NYSE: CDE  ) , mining is naturally wrought with uncertainty.

For Agnico-Eagle shareholders, this marks an opportune moment to consider your initial motivation for holding shares. Those seeking more instant gratification from Agnico's ambitious doubling of previously forecast 2009 production to 1.2 million ounces in 2010 will feel like prey to the revised guidance of 1 million to 1.1 million ounces.

Meanwhile, far-sighted Fools will keep their eagle eyes fixed upon the miner's low-cost mine profile, and its sustainable production levels above 1.2 million ounces annually. If they do, they're bound to view the recent $20-per-share haircut in an entirely different light. I have consoled Fools stinging from market-driven production cuts by coal miners such as Arch Coal (NYSE: ACI  ) . When Goldcorp's (NYSE: GG  ) San Dimas mine encountered lower-grade ores a year ago, impacting Silver Wheaton's (NYSE: SLW  ) quarterly production, I welcomed the delay.

Although these production hiccups were easier to stomach when gold was mired in price weakness a year ago, I remain entirely convinced that Agnico-Eagle itself remains a gold mine. I predict that this eagle will take flight again, but I invite you to share your own views by voting in the poll below.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 46 potential investments; you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker thinks you can guess which of the James Bond movies he prefers. He can be found blogging actively and acting Foolishly in the CAPS community under the name TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, Arch Coal, Coeur d'Alene Mines, and Silver Wheaton. The Motley Fool has a gilded disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2009, at 3:52 PM, ndfaninsb wrote:

    I cant help but question why these gold miners lose money on the weakening dollar. This is the same nonsense that had your other pick Yamana put in a terrible 2nd quarter. If I were in gold mine management why would I put any money into bets on the dollar? Why would I not think that there are real fools(not the motley kind) running Agnico and Yamana. I just cant find any reason to beleive both of these companies will continue to drop the ball. Gold Is at an all time high and the dollar is going to keep going down and these guys cant make any money? Please tell me what Im missing here?!?!?!?

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