Gold stocks don't get much attention until the stock markets start looking shaky, and that's definitely the scene playing out there right now. A new COVID-19 variant dubbed omicron that's potentially more infectious has renewed fears of lockdowns worldwide, and this comes at a time when the U.S. is also struggling to control inflation. It's the perfect concoction to trigger a flight of money from stocks to safe-haven assets like gold, and the perfect opportunity for you to buy gold stocks right away. Here are two compelling ones to consider.
A game-changing acquisition in the gold industry
I have often written about the compelling prospects of Kirkland Lake Gold (KL +0.00%) over the past year or so, but with the gold miner now set to be part of Agnico Eagle Mines (AEM 0.22%), I can't help but redirect my focus on Agnico Eagle Mines and the assets it's about to acquire from Kirkland Lake Gold.
On Nov. 26, shareholders of both companies approved the merger of equals, putting it on track for completion in the first quarter of 2022. After the merger, Agnico Eagle, which will own 54% stake in the combined company, says it'll become "the gold industry's highest-quality senior producer, with the lowest unit costs, highest margins, most favorable risk profile and industry-leading best practices in key areas of environmental, social and governance (ESG)."
That might sound ambitious, but here's where Agnico Eagle's confidence stems from: Kirkland Gold, is in fact, one of the lowest-cost producers in the gold industry, and the merger will make Agnico Eagle Canada's leading gold producer in terms of annual production capacity.
Image source: Getty Images.
In its third quarter, Kirkland Lake's net income hit a record high, driven by record gold production at an all-in-sustaining cost (AISC) of only $740 per ounce of gold. Most importantly, Kirkland Lake has no debt and is free-cash-positive, and reported strong exploration results at all three of its mines -- Detour Lake and Macassa mines in Canada, and Fosterville in Australia in Q3.
Agnico Eagle, evidently, has found a great deal in Kirkland Lake. Lower costs should also boost Agnico Eagle's cash flows, and I strongly expect the company to dole out bigger dividends consequentially. All in, this one acquisition makes Agnico Eagle a compelling gold stock right now.
Buy the dip in this all-weather gold stock
Franco-Nevada (FNV +1.72%) is the kind of gold stock you'd want to own at all times, simply because this company has the potential to make money even when gold prices are low.
The thing is, Franco-Nevada buys gold from third-party miners, and it can negotiate prices substantially lower than spot prices as it takes care of those miners' upfront capital requirements in return. It's called a streaming agreement, and means three important things: Franco-Nevada enjoys exploration upside without bearing any risks and costs associated with exploration, generates high margins, and can cover the costs of new agreements from existing cash flows without having to rely on debt. Franco-Nevada has similar arrangements with some oil and gas companies as well.
Franco-Nevada, in fact, is a debt-free company, which is hard to find in the commodities sector.
Franco-Nevada has a massive portfolio -- It has agreements on 325 mining assets, including 58 operational and 40 in advanced stage of development. If key mines like First Quantum Minerals' Cobre Panama mine advance as planned, Franco-Nevada's gold equivalent ounces production could grow to 660,000 ounces at the higher end by 2025 from the roughly 600,000 ounces it expects at the mid-point for 2021.
Franco-Nevada is on track to deliver a record year, yet its shares have dropped by double-digits in four months. With the company also recently increasing its dividend for the 14th consecutive year, there's little reason why you wouldn't want to buy this gold stock while there's still time.
Remember this before buying gold stocks
You shouldn't expect gold stocks to grow fast as they're, after all, commodity stocks. But during times of economic uncertainties, these are the very stocks that could help you ride out the storm. The renewed COVID-19 fears and inflation are bound to hit the stock markets, which is also when gold stocks like Agnico Eagle and Franco-Nevada that don't get much love otherwise can shine.
