Gold

Agnico and Wheaton Shares Jump as Gold Prices Rally

Agnico Eagle and Wheaton rally after the US election lifts gold prices. For holders, diesel bills and stream deliveries still shape the cash return.

by Corinne Ashdown3 min read

A corrugated steel shelter covers a diesel refuelling lane at a gold mine beneath a single maintenance lamp.
Equedia on
Listen to this article0:00 / 4:28

Agnico Eagle shares gained roughly 10% on the TSX at 12:04 p.m. ET on November 4, according to TMX Money. Wheaton Precious Metals shares gained 11.3% on the NYSE at 3:29 p.m. ET on November 4, according to TMX Money. Those intraday readings corroborate the direction of TIKR's November 4 report, which attributed the rally to gold's rise after Democrats won control of Congress. If you hold these shares, the next earnings question is how much of the bullion rebound lasts.

Reuters reported spot gold at US$4,059.95 an ounce at 2:04 p.m. EST on November 4. Its account linked the rally to a weaker dollar after the election, making dollar-priced bullion cheaper for overseas buyers. Reuters also cited expectations that congressional deadlock could weaken growth and allow easier monetary policy. We would treat that as an explanation for today's repricing, while keeping the distinction between investors anticipating easier policy and the Federal Reserve actually delivering it.

Does a stronger gold price automatically repair a miner's earnings outlook? Agnico's October 28 results put its third-quarter realised gold price at US$4,264 an ounce, above the spot reading cited here. Its quarterly by-product all-in sustaining costs were US$1,648 an ounce. It expected annual costs near the upper end of guidance because of the adjusted production plan and input cost pressures, primarily related to diesel. As we covered in Agnico Eagle Generates US$852 Million in Free Cash Flow, the company was already generating substantial cash. Today's rebound can support future selling prices, but it cannot establish a higher quarterly average or erase the fuel bill.

Wheaton gives you a different cost exposure. Its April 1 Antamina silver-stream announcement describes an upfront investment followed by ongoing payments equal to 20% of silver's spot price for delivered ounces. That example shows why we would examine the contracts before assuming that a streamer has no rising purchase costs. Wheaton also identifies reliance on mine operators and the absence of control over their operations as risks. Higher metal prices can improve the economics of contracted deliveries, while disrupted production can still reduce the ounces available to sell.

For your portfolio, we would separate a recovery in expected metal prices from evidence of improved operations. Agnico's diesel exposure and Wheaton's delivery dependence survive a strong trading session. Neither share-price gain tells us how long today's bullion price will persist or how much cash shareholders will ultimately receive. The next company report can test the operating side of that investment case, although a completed quarter cannot capture an election rally that happened after it ended.

Next, we will check Wheaton's results after the November 5 market close and its November 6 call at 11 a.m. ET, as scheduled in its October 6 notice, for deliveries, purchase costs and cash generation.

Seek the truth and be prepared,

Equedia News

Sources

Disclaimer: This letter is for informational and educational purposes only and does not constitute investment advice. Past predictions and performance are not indicative of future results. We own gold and gold stocks. Please see our full terms of use and disclaimer at equedia.com.

Many of our readers have made more than $100,000

Subscribe to our FREE monthly newsletter and see how many of our readers have made thousands in PROFITS with our ideas

Related Articles