On February 8, 2022, Kirkland Lake Gold Ltd. and Agnico Eagle Mines Ltd. completed a merger of equals. Kirkland shareholders received 0.7935 Agnico (AEM) common shares in compensation for each Kirkland Lake Gold Stock. 

The Toronto Stock Exchange delisted Kirkland Lake Gold stock at the close of trading on February 9, 2022. While the New York Stock Exchange delisted Kirkland shares on the open of trading on February 9, 2022.

If you currently hold Kirkland Lake Gold stock you should complete, sign, date, and return the letter of transmittal. The letter of transmittal was sent to Kirkland Lake Gold shareholders before the closing of the merger.

The letter of transmittal is also available under the Kirkland Lake Gold profile on the SEDAR website, and through EDGAR on the SEC website.

The new company will continue operations under the Agnico Eagle Mines. The newly formed company is a senior Canadian gold mining company. Agnico currently has operations in Canada, Australia, Mexico, the US, Colombia, and Finland.

Agnico Eagle Mines (AEM: NYSE)

If you previously held Kirkland Lake Gold stock or are considering gold mining companies, you may want to know more about Agnico. In 1972 Agnico Mines and Eagle Gold Mines merged to create the current company which has constantly produced value for its shareholders. 

In February 1973, the company’s stock was trading at $3.88 a share. The current share price of AEM is $54.81, at the time of writing. That equals a cumulative growth of 1,361%, not including all the dividend payments. Dividend streams will increase that number considerably as the company has managed to pay cash dividends every year since 1983. 

Current operations include mining fields in the following locations:

• Canadian Malartic, Canada
• Detour Lake, Canada   
• Fosterville, Australia
• Goldex, Canada
• Hope Bay, Canada
• Kittila, Finland
• La India, Mexico
• LaRonde Complex, Canada
• Macassa, Canada 
• Meadowbank Complex, Canada
• Meliadine, Canada
• Pinos Altos, Mexico

 Kirkland Lake Gold & Agnico Eagle Mines Reserves

As of December 2021, Agnico had 2.385 million ounces of proven gold reserves. However, probable gold reserves are almost ten times as much at 23.3 million ounces. This figure is without Kirkland Lake Gold’s reserves.

Source: Agnico Eagle Mines

The acquisition of Kirkland Lake Gold stock brings another 3.7 million ounces of proven gold reserves. And 15.2 million ounces of probable gold reserves, as of December 2021. The combined proven reserves total 6.9 million ounces and a probable reserve total of 38.5 million ounces.

Source: Agnico Eagle Mines

Kirkland Lake Gold & Agnico Eagle Mines Forecast

The forecast for the merger of Kirkland Lake Gold with Agnico Eagle Mines depends greatly on the price of gold. The profit of a gold mining company is dependent on two factors, extraction costs and the spot price of gold. 

The current conflicts in the world, rising inflation, and economic uncertainty are all factors that bode well for the world’s most coveted precious metal. Holding gold has several characteristics that make it a hedge against inflation as well as protect your portfolio from stock market crises. 

With inflation on the rise, it is likely that gold rises also. If you hold gold and cash loses value through inflation, you will want more of that cash to compensate for your ounce of gold. This is especially true if real interest rates fail to catch up with inflation. 

Currently, the yields on 10-year bonds and 30-year bonds are well below the inflation rate. Real interest rates are in fact negative. The latest inflation data showed prices increased by 6.8% in April 2022. While 10-year bond yields average at 2.84%, so bond yields have a lot of ground to cover before yielding positive real interest.

Bond prices take a long time to catch up with inflation. As a bondholder of a 30-year security, you know a few years of inflation are not going to change your overall view on returns.

However, this feature of the bond market may end up pushing investors elsewhere as they seek ways to protect their cash from rising inflation. 

Exploration & Reserves

We can also add to the price and extraction cost, the unexploited mining capacity, or proven reserves. Mining capacity can also be increased through exploration. Agnico Eagle Mines has several ongoing exploration fields.

Sources: Agnico Eagle Mines

The newly merged company, as we saw above, has a combined proven reserve of 6.9 million ounces and probable reserves of 38.5 million ounces. More importantly, the company is aware of the need to find new project pipelines to extend the firm’s future. 

Mining Costs & Predictions

Mining costs as mentioned earlier are one of the most important factors for a miner’s profitability. The company had all-in-sustaining costs for 2020 (full extraction costs) of $1,051 for 2020 per ounce. And are predicting a reduction of their mining costs to a range between $950 and $1,000 per ounce for 2021.

If we couple their capacity to reduce the mining costs with an increase in the price of gold, we get a scissor effect and a greater possibility of stock price growth. And to many, it looks like the gold price will rise considerably over the next few years. Some forecasts see the price of gold above $2,300 by 2024. 

Source: Agnico Eagle Mines

Recent Deals

The company has acquired various mining operations through the purchase of other mining companies or by purchasing mining fields. Most recently Agnico announced further investment into Cartier Resources (ECR: TSX-V). The company had already acquired 35.3 million shares in December 2016, following an investor rights agreement.

The new investment of 14 million shares, at $0.13 per share, brings Agnico’s total holdings of Cartier Resources to 17.7% of outstanding shares. The new investment also includes warrants for 1 share, exercisable at a price of $0.16 per share for 36 months.

Agnico Eagle Mines Ltd. Past Performance

AEM has had a total return of 193.55% from February 1973, when the company’s stocks became publicly quoted securities. In November 2010, the stock reached its all-time peak at $85.52, after which a bear market sent the stock’s price down to a low 0f $22.15 by August 2015.

By November 2020, the company’s stock almost reached its previous peak, when it traded at $84.43. From that peak, the stock price started falling, and the pandemic helped the sell-off, sending the price down to $46.26. 

Source: YahooFinance

Company Projection

The company’s profitability in the immediate future depends a lot on the price of gold. Since Agnico/Kirkland have combined proven reserves of 6.9 million ounces they have a few years ahead before they run out. Plus, the gold they can still find among the 38.5 million ounces of probable reserves.

Given that they are actively exploring a multitude of sites, and some are bound to be fruitful, the long-term operationality of the firm seems safe. So, what remains are extraction costs and the price of gold. For a Canadian company, they also have some foreign exchange risk since gold is traded in US dollars.

However, the greatest impact will come from the first two factors. It seems that the company has extraction costs under control, given their 2021 guidance for their all-in-sustaining costs. Those costs may rise if inflation keeps up its pace. Having said that, then too should gold prices see higher prices in the long run. 

Mining Industry Prospects

The mining industry, as with pretty much any large-scale industry, is facing growing concerns about carbon emissions, waste, the environmental impact of mining, and so on. Many activists promote these concerns, and the general conscience of investors is more environmentally minded. However, I do not feel these will be challenges the mining industry cannot meet.

Agnico for one has a whole department dedicated to sustainability. They have also made a sustainability commitment incorporating all the ESG (Environmental, Social, and Governance) requirements.

More specifically their sustainability commitment has the following objectives:

• Operate a safe and healthy workplace. The aim is to reach a workplace that is free of injury and fatalities. 
• Protect the environment by mitigating the impact of its operations and maintaining viability.
• Respect employees, by maintaining a safe and healthy workplace also based on reciprocal respect and integrity.
• Respect communities by contributing to the social and economic development of local neighborhoods.

ESG requirements may seem costly at the beginning, but the long-term benefits of cleaner, safer, and environmentally friendly production should pay off in the long run. Not only should companies see their bottom line improve, but as we go forward more conscientious investors will be attracted to these types of companies.

Conclusion

The merger of Kirkland Lake Gold stock with Agnico Eagle Mines stock has given rise to a larger mining company with a higher production capacity. It’s still early to determine if the merger’s effects on costs and scalability have paid off.

However, the company seems very dynamic with an array of acquisitions throughout the decades, the last one being Kirkland Lake Gold. Agnico is also actively involved in exploration which may open up new mines. And although not everyone agrees, the company is environmentally minded which will also attract those that always thought of mining as a negative impact industry.

The above factors are coupled with an economic environment of uncertainty and rising inflation, factors that could push up the price of gold. A higher gold price should mean that an efficient and sustainable mining company can expand its profits. 

If gold prices are high enough, that could also cushion any blows from a decrease in demand for gold. A decrease in demand could happen if economies are shrinking. Therefore, less industrial demand and less demand for jewelry.

Bottom line

If you are thinking of holding this type of stock, you may want to consider holding physical gold. The precious metal avoids the corporate risk you have when owning stocks. Gold price returns also have a very low correlation to stock returns, which may help protect your portfolio in times of turmoil. 

You could take advantage of investing in gold through a Self-Directed RRSP or TFSA. These accounts allow you to watch your savings grow in a tax-enhanced environment. Several companies in Canada offer specialized services for both, you can read their reviews here.