Uncertainty Will Likely Push Gold to $2,500, Agnico CEO Says

(Bloomberg) -- The head of Agnico Eagle Mines Ltd. says gold prices have a lot further to run as a raft of favorable conditions are being supercharged by the stimulus being pumped into economies to manage the global pandemic.

“What we had prior to Covid were conditions that were going to take gold to these levels anyway,” Chief Executive Officer Sean Boyd said Wednesday in a phone interview. “There’s more to come here, in our view. We would not be surprised to see it at $2,500 within the next two years because there’s still so much uncertainty out there.”

Spurred by pandemic-induced economic concerns, gold has skyrocketed this year. Spot prices are on course for the biggest annual increase in more than a decade, and reached a record $1,981.27 on Tuesday.

In a show of resilience, Agnico raised the lower end of its gold production guidance even after most of its operations were temporarily closed by Covid-19 in the second quarter.

Seven of its eight mines experienced either temporary shutdowns or reduced activity in the three-month period, the Toronto-based miner said Wednesday in its second-quarter earnings statement. However, because governments in Canada and Mexico were persuaded that mining is an essential service, those shutdowns were shorter than the miner initially expected.

That meant a move to lower guidance earlier this year proved too pessimistic, Boyd said. The miner is now back on track for a strong second half and has increased the lower end of its output guidance by 3.1%.

Agnico also kept its full-year guidance for all-in-sustaining costs unchanged. While some Covid costs have risen, the company realized as it restarted mines -- including those in Canada -- that it can produce the same output with fewer contract workers, Boyd said. “In some mines it’s about 3% less in terms of total headcount.”

By shuttering mines temporarily, the pandemic has masked the full effect of higher prices on gold miners, Boyd said. The impact on earnings and free cash flow for the sector, in the second half of the year, will be “dramatic,” he predicts.

“It kind of reminds me of back in the late ‘70s, 1980, when the gold miners were just piling up money.”

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