Contributed by Mark Malinowski, produced with Avi Gilburt
Inflation has driven up the price of everything, that’s what the Fed and the mainstream media have been telling us every day for two years. So what happens when the fed claim that inflation is under control and that they plan to reduce the cost of borrowing? Historically, when the Fed begins to reduce the cost of borrowing, it is a great time to invest in precious metals and precious metals mining companies. Now is the time.
The traditional view for finding value would be to look at the cash cost of producing an ounce of gold equivalent, GEO. However, all-inclusive sustaining cost, AISC, includes sustainable production costs. The AISC includes all the different costs incurred in the production of gold throughout the life cycle of the mine. In other words, how much does it actually cost the company to produce that ounce of gold and maintain this level of production over time.
What are these companies? What do we like about their fundamentals?
Agnico Eagle Mines
Agnico Eagle Mines (NYSE:AEM) is a leading global mining company in the precious metals sector, with over 65 years of operational experience. The majority of its operational assets are located in Canada, but also in northwest Mexico, Australia and Finland. About half of these assets resulted from an all-stock merger with Kirkland Lake Gold in February 2022. At the time the merger closed, the combined company had a valuation of $22.4 billion. Today, it is trading slightly higher, with a valuation of USD 26.3 billion. In a higher interest rate environment, not only did the merger add no debt to the company, but what I find most interesting is that it trades at a P/E ratio of ‘around 10x, while many precious metals companies in much riskier locations trade. the 16 to 20x range. The lower end of this target would put the individual stock price at ~$83 (~$112 CAD). The average mining of precious metals is currently over 35 times. Agnico Eagle reported a year-to-date AISC of $1,162/oz at the Scotiabank Mining Conference. Another way to look at precious metals mining companies that our resident fundamentals analyst, Lyn Alden Schwarter, prefers is through operating cash flow, and she finds that “AEM is one of the best-adjusted mining companies to risk on a fundamental basis.
Stocks camped deep in the green shaded region of Lyn’s FAST charts with strong EW setups have performed very well in the past, demonstrating the synergy between “fundamentals and technicals.”
Let’s compare Agnico Eagle to one of the big names, Barrick Gold (GOLD). Even though Barrick Gold didn’t have a great year in 2022, which significantly affected earnings, and therefore the PE ratio, let’s leave that aside for now. What I want to draw your attention to is the effectiveness of Agnico Eagle’s assets, when they can fetch over $130 more per ounce than Barrick on a sustained basis. They pay a higher dividend yield and carry less debt.
When we start looking at 2023, Barrick’s 2022 shareholder report, their forecast for 2023 was as follows:
Although inflation has reduced this gap this year, the advantage is still in AEM’s camp since the price of gold is increasing while they operate in a very stable environment.
How about a value development miner?
Osisko Mining (OTCPK:OBNNF)/ (OSK: CA) is another Canada-focused precious metals exploration company with a mid-tier market value of CAD 1.1 billion. It holds a 50% interest in three properties, the Windfall gold deposit, the Quevillon property and the Urban Barry property, all located in Quebec. All of these projects are under the banner of Windfall Mining Group, which is a partnership with Gold Fields. In the last quarterly report, EPS was 0.56 CAD, but what would be more interesting in this case is not a peer comparison, but rather a value comparison based on extractable assets.
Osisko has carried out surveying, engineering and analysis for seven years at various sites, but it is its Windfall gold deposit that requires the most physical work. This year they will continue the excavation work, after signing a power line agreement for the construction of a dedicated 69 kV line and the execution of the further development of their mining plan from the 2022 feasibility plan. have many more details in the September 2023 presentation, but one of the main ones is 4.1 million ounces of gold measured and reported based on $1,600 worth of gold, giving a net present value of 1.2 billion Canadian dollars from 2022 and the market capitalization is 1.0 billion dollars. at the time of writing. What is this gap? These are the fundamentals that are knocking on the door, given the price of gold (~$2,000) and the new progress in their mine development, there appears to be good reason for upside. I also view Gold Fields’ investment as an important step in avoiding debt and continuing to develop and improve its existing and future operating sites.
Elliott Wave Analysis: Agnico Eagle Mines
The most recent wave pattern still active, posted on November 3 by Garrett Patten (another of our team leaders), was:
“The previous wave pattern stopped when the June low fell, but with another 5 up from the October low, it seems like a good opportunity to try again.” Garrett’s price target for this setup is in the 70s with a stop below 10%, resulting in a risk/reward greater than 1-4.
This setup was also “officially” updated by Zac on November 28 when it reached the first resistance level in Garrett’s November 3 post. It has also been covered in three videos and over a dozen chart updates since that time. Zac’s recent chart from December 8 gave members clear parameters for short-term focus and support.
Since then, AEM has seen a strong reversal, closing up more than 7% from the low on the morning of December 11. Great question, but with clearly defined stops and aligned fundamentals, this setup is in the money. Although this could soon reach a local top, the key question of where the ideal support lies for further upside will be based on ideal Fibonacci ratios between 38.2% and 61.8% from the low of october.
On December 11, Zac Mannes posted the following chart, sharing that:
“2.50 seconds could certainly be considered the start of the (VS) signal a background 2x for (B) either as E of a triangle or as Y of a complex combination, but with only 3up so far there is still a risk of an additional low towards the 76.4% Fibonacci at 2.08 . »
So while the fundamentals of this company make sense, the chart isn’t as clear at the moment. We took the first steps Garrett wanted to see on December 1, when he commented, “We need to get back above the October high as the next step toward confirming a bottom.” » However, I am rather waiting for the chart to be clarified, but that does not mean that this is not a potentially bullish setup.
Lyn says that when it comes to mining companies, management decisions are important, but the direction of the gold is also of paramount importance.
“I see gold as being a pretty good long-term base since it started consolidating in mid-2020. The current Fed tightening is putting some pressure on gold, but that can only last for so long, and so if we look out over the coming years, I think gold is pretty well positioned for a breakout bullish.
An interest rate hike by the Fed may slow lending to the private sector, but increases interest on public debt and thus budget deficits, which are a source of money creation. The 2020s will likely be defined by varying levels of fiscally driven inflation, and if this begins to be seen by market participants as a longer-term problem, then gold will likely be one of the biggest beneficiaries. . -Lyn Alden
What are we looking for in a configuration?
We want companies with strong balance sheets and strong operations in safe operating environments, such as Canada and the United States. The stability of government and regulatory requirements creates clear conditions for investment decisions.
When we compare Agnico Eagle and Osisko Mines, both companies are undervalued relative to metal prices and relative to their peers. Although Agnico Eagle has a much clearer model with which one can make decisions based on price and model, there is a lack of clarity on the chart at the moment at Osisko Mining Inc. but overall, it looks like there will be a moment to shine.
Both of these stocks display price action behaviors that are associated with diagonal patterns rather than standard impulsive moves. Many traders find the “choppy” structure inside the diagonals difficult to navigate. However, when the path is clear, there are actually many more business opportunities over a longer period of time, and so it can be more rewarding.
There is still a near-term opportunity for AEM to form a near-term local top, but subsequent support levels will provide another excellent opportunity to add or start a position based on Fibonacci retracement levels. We will continue to monitor this stock regularly.
We expect the price of gold and silver to rise significantly over the next couple of years and, as Avi Gilburt published a public target for gold on January 17, 2023This fits well with the increased profit potential of these two growing companies over the next few years.
Longer term, the outlook for metals is very optimistic for the years to come. But how to take advantage of this opportunity? The ideal way is to continue to be patient and not chase, but rather find minors that lie at the intersection of good fundamentals and reliable sentiment, as identified by the Elliott Wave structure and Fibonacci support levels. When these principles intersect with high reward, low risk setups, we have mining waves.
Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. exchange. Please be aware of the risks associated with these actions.