Agnico Eagle’s ‘exceptional’ results elicit market shrug

As investors work out whether they're more concerned about inflation or interest rates, it's been a wild ride for miners such as Toronto-based Agnico Eagle Mines Ltd., which reported first-quarter results on Thursday.

The company, the top gold producer in Canada, reiterated production in 2022 should surge to at least 3.2 million ounces — up 60 per cent from the 2 million ounces record set in 2021 — despite lingering effects from COVID-19 that caused workforce disruptions at the start of the year.

It also announced adjusted earnings per share in the first quarter of 61 cents, beating consensus estimates of 39 cents, which Fahad Tariq, an analyst at Credit Suisse, attributed to “fundamentally ... higher revenue and lower depreciation.”

Agnico's freshly minted chief executive Ammar Al-Joundi, who took over in February after the unexpected departure of chief executive Tony Makuch barely two weeks into the job, called the results “stellar.”

“The first quarter, we think, is our weakest quarter, and the first quarter was a good quarter,” Al-Joundi told the Financial Post on Friday. “So we see continuing strength through the rest of the year.”

Challenges in the first quarter came from labour disruptions from the Omicron variant of COVID-19, higher-than-expected inflation, and costs from integrating Kirkland Lake Gold's operations and workforce after the $13.5-billion acquisition closed in February.

Al-Joundi added Agnico's costs came in lower than expected, which he called “exceptional” given inflation pressures, with the company reporting all-in sustaining costs at US$1,079.

Despite gold prices remaining elevated near US$1,900 per ounce, investors have oscillated between jazzed and nonplussed. Agnico's shares have slid almost 15 per cent since April 18 to $71.52 on Thursday, but they bounced back on Friday, closing up 4.56 per cent at $74.78 in Toronto.

It mimics a broader trend sweeping across the gold industry. Gold hit a record high in August 2020, briefly breaking more than US$2,000 per ounce before settling to a range between US$1,700 and US$1,900 per ounce. But investors' shine for gold mining companies quickly wore off and throughout much of 2021, share prices traded at levels similar to where they were when gold prices, and their profits, were much lower.

That all appeared to change in late January when Russian troops gathered on the borders of Ukraine, and eventually invaded the country. Amid subsequent western sanctions against Russia, and the trade disruptions it caused, gold prices shot back above US$2,000 per ounce in March.

Despite the fluctuations, gold remains far above the US$1,150 to US$1,300 per ounce range that dominated from roughly 2014 to 2019.

Nonetheless, the price of the VanEck Gold Miners ETF, a basket of the world's largest gold miners, has been up and down. After peaking at US$42.94 per share in late July 2020, it slid to US$29.30 — a 30 per cent drop, and around where it stood for most of 2019 when gold prices were hundreds of dollars lower.

But as Russian invaded Ukraine this year, the index surged back up to US$40.86 in early April, only to spend the last few weeks sliding. It's down 16.7 per cent to US$35.41 as of April 29.

Similarly, Agnico's share price has gyrated, peaking at $109.74 in November 2020 before sliding back to $59.04 as of Jan. 22 before rebounding.

The fluctuating price of gold is largely tied to a stronger U.S. dollar and the potential for “aggressive rate hikes” by the central bank in the U.S., Credit Suisse analyst Tariq said.

“As we have written previously, weekly gold price oscillations seem to depend on which macro factors investors are focusing on that week — interest rates or inflation,” he said.

Gold typically benefits as a safe-haven asset in times of inflation, but that can be offset if the U.S. dollar value rises with increased interest rates.

Agnico said it managed to keep inflation down by hedging its purchases of currencies and diesel, the fuel that powers much of its operations.

“These hedges have partially mitigated the effect of inflationary pressures to date and are expected to provide a degree of protection against inflation for the 2022 sealift diesel costs,” the company said in a press release.

Al-Joundi said the company expected inflation to be around three to five per cent as 2021 ended, but the rate has been closer to five to seven per cent in the first few months of 2022. He said he believes inflation will probably end up around seven to 10 per cent.

Agnico's merger with Kirkland Lake Gold helped propel its guidance for 2022 gold production to record highs, but because the deal only closed in February, the quarter results do not reflect a fully merged company.

Kirkland's chief executive Makuch was originally slated to be CEO of the merged company, but quickly departed with no reason offered. Still, Al-Joundi, Agnico's longtime chief financial officer and heir-apparent to the CEO spot before the merger, told shareholders “the integration has gone exceedingly well.”

GOLD PRICE OSCILLATIONS SEEM TO DEPEND ON WHICH MACRO FACTORS INVESTORS ARE FOCUSING ON.