On June 10, the spot price of gold was $4,060 an ounce. A week later, that price had jumped to more than $4,300, a 6% increase in just one week. The primary reason for the jump was that U.S. President Donald Trump said on June 15 that the U.S. and Iran had signed a preliminary agreement to end the war in the Gulf.
The news eased worries over global inflation and higher interest rates, which can make gold a less attractive investment. It also sent the dollar lower, making dollar-priced metals more affordable for holders of other currencies.
Two gold mining stocks best positioned to benefit from a rise in gold prices are Agnico Eagle Mines (AEM 3.66%) and Alamos Gold (AGI 2.60%). Here are three reasons why I like these stocks.
Image source: Getty Images.
Their low-political-risk moats
Resource nationalism and geopolitical instability are massive risks in mining — just ask any mining company operating in Ghana or Mali, where governments have introduced higher state participation and royalties.
Agnico Eagle and Alamos Gold offer defensive footprints centered primarily in low-risk, tier-1 mining jurisdictions. Agnico’s core production is in Canada, Finland, and Australia. Alamos Gold is heavily concentrated with its mines in Northern Ontario and Mexico. By investing in either, you can eliminate the risk of sudden asset nationalization, windfall tax surprises, or severe political blockades that can plague operations in South America, Africa, or parts of Asia.
Today’s Change
(-2.60%) $-0.97
Current Price
$36.34
Key Data Points
Market Cap
$15B
Day’s Range
$35.68 – $38.41
52wk Range
$23.92 – $55.41
Volume
5.9M
Avg Vol
3.6M
Gross Margin
58.60%
Dividend Yield
0.36%
Strong cost control and free cash flow
With gold prices holding in historically strong ranges, both precious metals companies are translating elevated spot gold prices directly into record-breaking margins because they manage their all-in sustaining costs (AISC) better than many of their competitors.
Agnico Eagle reported a net cash position of $2.92 billion and free cash flow of $732 million in the first quarter. The company was recently upgraded to an A- credit rating from Fitch. It reported record adjusted net income of $1.7 billion, or $3.41 in adjusted earnings per share (EPS), an increase of 123% year over year. While its AISC per gold ounce rose 26% over the same period last year to $1,483, its average realized price per ounce was $4,861, up 68% year over year.
While Alamos Gold saw a 12% year-over-year AISC spike to $1,862 per gold ounce in the first quarter, it expects costs to tumble as its processing throughput accelerates. It predicts yearly AISC between $1,500 and $1,600 per ounce. Even with the rise in AISC, the company saw margins soar because average realized price per ounce jumped 72% over the same period last year, to $4,829 per ounce. Adjusted EPS climbed 293% year over year to $0.55.
Today’s Change
(-3.66%) $-6.33
Current Price
$166.66
Key Data Points
Market Cap
$83B
Day’s Range
$165.69 – $176.53
52wk Range
$114.60 – $255.24
Volume
4.7M
Avg Vol
2.7M
Gross Margin
60.15%
Dividend Yield
1.02%
Organic growth driving dividend increases
The two companies have organic, high-return expansion projects that allow them to grow production internally. Agnico Eagle began production from the Canadian Malartic East Gouldie ramp ahead of schedule and executed high-grade resource expansion at Detour Lake.
Alamos Gold’s massive Island Gold District (IGD) expansion outlines a trajectory to scale annual production to an average of 534,000 ounces starting in 2028. At current elevated gold prices, the 5% after-tax net present value (NPV) of this district alone sits well into the billions, making it one of the most profitable upcoming assets in Canada.
The potential for increased production and profits has enabled both companies to increase their dividends. Agnico Eagle increased its dividend by 12.5% this year to $0.45 per share. Even with the increase, its payout ratio remains below 16%. Alamos Gold increased its quarterly dividend by 60% this year to $0.40, yet retains a payout ratio below 5%, meaning there’s room for future increases.