This Gold Miner Will Reward Your Patience

Given gold's historic ascent in recent years, Fools might presume that gold mining stocks have enjoyed blockbuster shareholder returns. But even the most profitable miners have yielded downright disappointing share performance. However, for at least one company, that dismal trend could soon take a turn for the better.

Over the past year, only a select few miners -- including notably resurgent mid-tier producers Gammon Gold (NYSE: GRS) and New Gold (NYSE: NGD) -- have managed to outperform gold itself as measured by the SPDR Gold Trust (NYSE: GLD). In the trailing five-year period, the miner that Fortune Magazine crowned as the fastest-growing company in 2010 -- Eldorado Gold (NYSE: EGO) -- stands among truly select company as a serious outperformer of gold. Meanwhile, painful share dilution that has plagued many forlorn underperformers, perhaps most notably Yamana Gold (NYSE: AUY).

But even after years of relative weakness, I still believe that carefully selected miners will substantially outperform their underlying metal prices as this secular bull market unfolds. That's particularly true for miners whose full potential the market never seems to have fully reflected.

Agnico-Eagle Mines (NYSE: AEM) exemplifies this compelling possibility -- however much the company's latest mishaps might suggest otherwise. From a recent fire in the kitchen facility at Agnico's Meadowbank mine to the growing pains the company endured while building several new gold mines simultaneously, Agnico's shares have taken hits that had no bearing on the company's true potential.

Incredibly, this stock has advanced only about 60% since I selected the miner as my top gold pick for 2009, even though gold has added 84%, from $850 to $1,563.50 as of this writing. In the interim, Agnico's gold production per 1,000 shares promptly tripled from 2008 to 2010, and that production is slated to expand by another 50% over the next five years.

Agnico reported adjusted net earnings this week of $76.5 million, representing a 221% year-over-year increase in earnings per share. First-quarter gold production grew 34% to 252,362 ounces of gold, although costs came in substantially higher at $531 per ounce, as a result of the Meadowbank fire. Megaminer Barrick Gold (NYSE: ABX), for its part, turned in a highly competitive comparable cost of $308 per ounce of gold.

Meanwhile, Agnico has reported exciting success year to date with its aggressive $145 million, 40-rig exploration program. This organic growth potential is precisely the sort of factor that I believe the market has failed to grasp in assigning value to the shares.

Enjoy the resulting market disconnect while it lasts. Agnico-Eagle Mines' potential won't remain underrealized for long. The impact of the Meadowbank fire is strictly temporary, while the gains looming for this well-run gold miner are bound to exhibit far greater permanence.

• Add Agnico-Eagle Mines to My Watchlist
• Add Gammon Gold to My Watchlist
• Add New Gold to My Watchlist
• Add Eldorado Gold to My Watchlist
• Add Yamana Gold to My Watchlist