In your local supermarket, organic growth comes at an extra price. In the gold market, however, the organic aisle offers the same compelling discounts to reserve valuations found throughout this precious sector.
Organic methods for nourishing production pipelines command no special premium in the market for precious metal miners. Since I consider organic growth a healthier alternative in this era of constrained credit and forced consolidation, let's peer into earnings results for some standout miners that are busy growing into their own enormous shoes.
My top stock pick for 2009, Agnico-Eagle Mines (NYSE:AEM), has not exactly met my expectations thus far in 2009; instead, it's basically matched the S&P 500's 9% rally year to date. Headline earnings of just one measly penny per share aren't likely to help, though from an operational perspective, the miner enjoyed a remarkable quarter. Adjusting for stock options and a non-cash currency exchange loss of $16.7 million, Agnico-Eagle beat expectations by 33%, with an astonishing 76% increase in gold production over the prior-year period.
Executing a steady production-growth spurt that I have long considered unrivaled in the industry, Agnico-Eagle commenced commercial production at two new mines in May. It acheived a first pour at Pinos Altos, and it remains on track for a start-up at the final mine in the growth spurt (Meadowbank) in early 2010. Fools with their eye on the organic growth prize will recall that Agnico expects to double gold production from 2009 levels in 2010.
As I scan the industrial world through my Foolish lens, I don't see any growth stories that even come close. The runner-ups all seem to come from within the same sector, including fellow organically focused miners such as Yamana Gold (NYSE:AUY) and Coeur d'Alene Mines (NYSE:CDE).
Goldcorp (NYSE:GG) is gearing up for a serious growth spurt of its own, with the world-class Penasquito mine commencing operations later this year, and the Pueblo Viejo joint venture with Barrick Gold (NYSE:ABX) set for early 2010. Despite the distinct annoyance of a quarterly loss on a $326 million currency-related charge, Goldcorp remains the lowest-cost senior producer, and it anticipates 50% production growth over the next five years -- albeit from a 2.3 million-ounce starting point that's four times the scale of Agnico's 2009 output.
Goldcorp and Agnico will necessarily revert to a more acquisitive focus as their pipelines mature, rejoining the likes of Newmont Mining (NYSE:NEM) and Kinross Gold (NYSE:KGC). However, for the time being they appear content, like this Fool, to bask in the glory of an organic story.
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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 41 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, Coeur d'Alene Mines, Kinross Gold, and Yamana Gold. The Motley Fool has a gilded disclosure policy.
