While the general market (SPY) has suffered two violent legs down in its cyclical bear market, the Gold Miners Index (GDX) has suffered three legs down and has seen a much more violent bear market.
This has made the sector fertile ground for new investment ideas relative to other sectors. Still, with mining being a complex business and the gold price being quite volatile, the key to outperformance when dabbling in the sector is to own the highest-quality names.
In this update, we’ll look at two of the largest gold miners globally and determine which is the most attractive name from an investment standpoint - Agnico Eagle Mines (AEM) or Newmont Corporation (NEM).
Scale & Business Model
Newmont and Agnico Eagle Mines (“Agnico Eagle”) share very similar business models, given that they are two of the world’s largest gold producers that receive over 90% of their revenue from gold with limited contributions from other metals.
In Newmont’s case, it is the world’s largest gold producer, with 15 operating mines in Africa, North America, South America, and Australia, and annual production of 6.0 million ounces of gold (+ 1.3 million additional gold-equivalent ounces).
Meanwhile, Agnico Eagle has 13 mines across Canada, Finland, Australia, and Mexico and expects to produce 3.4 million ounces of gold this year.
Based on Newmont having slightly more mines (15 vs. 13), double the production profile, and having a massive development pipeline with over ten projects, it certainly wins from a scale standpoint. This slightly edges out Agnico Eagle’s smaller production profile and less robust development pipeline, though Agnico Eagle still has one of the best development pipelines among its peers.
It is also worth noting that while Agnico Eagle has a smaller production profile and slightly less diversification, its jurisdictional profile is superior, with 95% of future production coming from top-rated mining jurisdictions.
That said, Newmont wins by a hair in this category for investors looking for a global producer with diversity. Continue reading "Which Is The Better Gold Mining Stock?"
