I've heard fishermen delight in a most elegant quip about their profession. "If fishing were easy," I've heard several say, "they'd call it catching."
Well, fishing isn't the only activity that has its inherent challenges conveyed right there in the word itself. As a metals industry analyst, I am constantly amazed by the array of challenges, risks, and tribulations that miners must endure to gain access to their earthen bounty. If mining were easy, after all, surely we'd have another word for it; perhaps "scooping."
Few companies know better than Agnico-Eagle Mines (NYSE: AEM) just how difficult a pursuit this mining can be. Long-standing CEO Sean Boyd and his team are some of the most highly respected executives in the business, epitomized by Minefinders (AMEX: MFN) CEO Mark Bailey's public vote of confidence in the Agnico team during my recent interview with him. Bailey corroborated my long-held view that Agnico has suffered a spate of unfortunate challenges and detours that in no way reflects negatively upon the quality of the company and its management.
Over the past 12 months, Agnico has suffered a kitchen fire at its Meadowbank mine, the closure and writedown of its prolific Goldex mine due to instability in the mine's hanging wall caused by groundwater intrusion, and more recently the partial writedown of its Meadowbank mine as a result of "persistently high operating costs."
In the company's year-end earnings release, Boyd acknowledged that "2011 was a very difficult year for our company," but in fact the company's string of gut-wrenching challenges stretch back further still. This eagle broke a wing back in 2009 while putting the final touches on an aggressive growth spurt that included construction of five new gold mines more or less simultaneously, and has yet to achieve the production volume of 1.2 million ounces per year that at one time had been anticipated for 2010 output. Agnico now expects 2012 production to dip to between 875,000 and 950,000 ounces, and finally break the 1-million-ounce mark by 2014. Cash costs of production will remain elevated near the $700 level for the next few years, representing quite a shift from bygone years when Agnico ranked among the industry's lowest-cost producers. Another relic of a bygone era is the convenient valuation comparison I was once able to draw between Agnico and its mid-tier rival Yamana Gold (NYSE: AUY). Yamana is now targeting production of 1.75 million gold-equivalent ounces by 2014, and commands a market capitalization that is roughly twice that of Agnico.
As horrendous as that all sounds -- and as a shareholder I can tell you it's not exactly music to my ears -- I want investors to understand that Agnico's long list of trailing challenges and pitfalls do not reflect negatively upon the quality of this well-respected management team. Rather, Sean Boyd and his team have done a terrific job navigating their way through one of the industry's more noteworthy spells of unrelated misfortunes and externalities. Although I no longer rank the stock among my top picks for gold -- as I once did -- I nonetheless perceive considerable value in the current share price and intend to hold my shares for the long haul. Likewise, even though it is now battling just to break even, I will retain my bullish CAPScall initiated in 2007. With an annual dividend yield of nearly 2.2%, Agnico is returning cash to shareholders at the same rate as major producer Newmont Mining (NYSE: NEM); and far faster than global production leader Barrick Gold (NYSE: ABX) with its 1.2% yield.
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