Best Stock for 2009: Agnico-Eagle Mines

Which stocks are looking fine in ’09? Discover all our Foolish ideas for The Best Stocks for 2009.

For comedians, wide receivers, and synchronized swimmers, timing is everything. But for truly successful investors, nanoseconds don't matter; they're guided by longer timeframes and the confidence of a rock-solid investment thesis.

2008 shook the confidence of investors the world over, and I see additional storm clouds gathering over Wall Street in 2009. Although I previously expected gold to end 2008 much higher than it actually will, the underlying reasons to own gold only strengthened as the metal's price faltered. The investment world is buzzing with debate over whether continued deflation or a reversal to rapid inflation is in store. Frankly, gold appears set to rise in either environment.

That makes Agnico-Eagle Mines (NYSE:AEM) my best stock for 2009. With a near-term production-growth pipeline that I consider unrivaled in the industry, a low cost structure with high-grade ore, and an extremely low geopolitical risk profile, Agnico-Eagle may be preparing for flight once more after its recent unscheduled landing.

The case for Agnico-Eagle
Plummeting zinc prices, mine commissioning delays, and a painful 60% overrun in capital spending characterized Agnico's earthbound trajectory through much of 2008. After adjusting forward projections for all of these developments, though, the undeniable growth potential of this company still shines through. Agnico expects to double gold production in 2009 to 590,000 ounces, then double it again in 2010 with 1.2 million ounces. Targeting 300% organic production growth over two years, for a metal that I expect to increase in price substantially, Agnico-Eagle Mines stands out to this Fool as a viable safe haven against an unsettling global backdrop of economic woe.

According to guidance issued last week, Agnico still expects to commission two new gold mines in 2009, after launching two this year. The addition of the Meadowbank mine in early 2010 will mark the culmination of an impressive growth spurt, and the beginning of the long-term production parameters outlined in the table below. Agnico expects long-term averages of 1.27 million ounces of annual gold production, with an average of 3.9 gold grams per tonne, at an average cost of $325 per ounce of gold from 2010 through 2018.

*Pinos Altos mine in Mexico also contains silver reserves of 73.1 million ounces.

An important note...
Because cost accounting procedures vary greatly, Agnico's cash cost is not comparable to Newmont Mining (NYSE:NEM) or Barrick Gold (NYSE:ABX)'s third-quarter production costs of $480 and $466 per ounce, respectively. On an equivalent basis, Agnico's costs land somewhere between the incredible $140 per ounce Yamana Gold (NYSE:AUY) reported last quarter, and Kinross Gold (NYSE:KGC)'s projected 2008 average cost of $375.

The rally in progress
Agnico-Eagle shares have more than doubled since hitting a 2008 low on Oct. 24, at $20.87. Yamana shares bounced the same day, and they've surged more than 90% since. Larger rival Kinross, later bolstered by the acquisition of a $42-per-ounce Chilean gold asset from Teck Cominco (NYSE:TCK) and Anglo American (NYSE:AAUK), has soared more than 140% from the 52-week low it reached on the very same date. Gold and silver mining stocks have forged an overdue rally, as an opposing U.S. dollar rally first sputtered and then reversed direction. Without attempting to guess the short-term trajectory of a rally, I believe the long-term bull market for gold and silver remains securely intact. I just hope that my timing is better than Hank Paulson's when I propose that the worst may be over for quality gold-mining stocks.

Agnico-Eagle has received a modest four-star rating out of a possible fives stars from the community of investors at Motley Fool CAPS. Help set your fellow Fools straight by giving this stock your golden seal of approval.

Further Foolishness:

• Honorable mention goes to Yamana.
• Did you catch silver for $1 per ounce?
• Is Agnico-Eagle is all about timing?