Wednesday, February 18, 2009
(Cont'd from above)...

Jim:       First, let me give you my stance on gold… it has been very consistent since the show began four years… when I was just 59... I believe in gold, period… I think it has a place in every portfolio… why… because we have been witnessing chaos… endless chaos… an unholy mess of problems for sometime now… when you see an otherwise balanced man rampaging about how they know nothing at the fed… when you see the stock televangelist go on the Today show, saying that equities may not be any good for the next five years… will you ever see me on that show again…. wwwaaaa…. anyway, you should be thinking gold… so, the simple answer is yes… I would join the gold rally… I am now hearing from people all over the country that email me to say that gold is a bubble… like the dot.com bubble… the real estate bubble… like the South Sea bubble… like the tulip bubble… well, that was a few centuries ago, even I wasn’t alive then… I say wait a second… that is a little ridiculous… not everything that goes higher is part of a bubble… we have never had seen so many things go wrong at once… except the Great Depression… why not have gold as a hedge now… the only way out of the jam we are in is for governments to borrow as much as they can and spend it to turn things around… that is inherently and ultimately inflationary… and gold thrives on inflation.

Of course, there is the deflationary course of bonds defaulting world wide… the most deflationary force that could possibly occur is a default in bonds.. .witness the possible cram down of GM bonds… there are billions of dollars in them that look like they are going to be crunched… or the bonds from all of these companies that went private… or government bonds from countries in Europe that might not be able to pay off at all… that is deflationary… or all of the defaulting mortgage bonds and bank bonds… deflationary… it shouldn’t be good for gold right… because gold is inflation… it doesn’t matter… it doesn’t matter, does it… I think gold will hold its value thru the chaos of deflation and thru the turmoil of inflation… it can be the ultimate hedge… and with everything going wrong the ultimate hedge is exactly what you need… so my take is… we should have some gold.

So then the next question is should it be bullion… that is the name for physical gold.. it is also the name for cubes of soup that you have when the only thing left is gold and nuclear war… should it be a tracking stock for the price of bullion… the gold kind… or should it be in the form of actual gold stock… not the soup stock, I am really on this theme right now, I can’t get it out of my head…. bullion has series issues… first you can’t keep it in your house… it is too dangerous… they break in, they might have it… I have been thinking about digging a hole, but then you know dogs come by… so you have to keep it in a depository bank which is expensive and too cumbersome for most of you… how about the tracking stock, SPDR Gold ETF (GLD)… that makes a ton of sense because I am talking about the metal going higher… and that is exactly what it tracks… I am not as keen on most of the gold stocks… because it has been my experience that many gold companies fail to deliver… either because they can’t keep pace or they run into problems excavating gold… or their cost for finding and getting the gold to you are too high… when I was young and working at Goldman Sachs… isn’t this like Goldman Sachs trash week… that is what I am hearing… it is like shark week… I often recommended South African gold stocks… they were great for a time because they went up with gold and they paid huge dividends… but eventually refining costs exculated as the low hanging gold, so to speak, ran out… the stocks then turned disastrous because they stopped delivering.

But what can a company that does deliver for you do to your portfolio… a company like Agnico-Eagle Mines Ltd. (AEM) which has been my favorite name in the group for a while… and we just so happened to have on the line now… just so you know… here is my history… back on January 27th I disagreed with the chart watchers and said that I thought that you should wait for a pull back to $44 before buying this one… no pull back has come… instead Agnico-Eagle is up 3.1%… but listen to this… the GDX, the gold miners ETF, another way to play it is up 11.7%… and the aforementioned GLD, tracking the price of gold, is up 9.7%… so you might feel ripped off if you bought Agnico-Eagle… well, I don’t know why don’t we hear from Agnico-Eagle’s CEO, Sean Boyd… who has been a straight shooter… let’s have him help us out…. Mr. Boyd, welcome back to Mad Money.

Start of Interview with
Sean Boyd, CEO
Agnico-Eagle Mines...

Sean:     Nice to be back, Jim.

Jim:     Look’s like a really blow out quarter and one of the things that I was impressed by… is the dramatic increase in the amount of gold that you are predicting you will be producing. Talk about that big increase that is coming.

Sean:     Well, we have been building 5 new mines for the last couple of years, and we have got 3 producing gold now. We have got another one starting in two months, a mine in Mexico starting in 6 months, and our final mine in the 5 mine production growth starts in 2010. So our timing in terms of bringing on new production, couldn’t be better, given where the gold price is and where we expect it to go.

Jim:     There have been cost associated with… will soon the costs for all these new mines be behind you?

Sean:     Yes, the biggest investment was last year when we spent $900 million on cap-ex. That cap-ex in ‘09, is $450 million and in 2010 $150 million, so the big cap-ex year is behind us.

Jim:     Alright, does that include… I am trying to get a handle on how much it cost… now, in your release which everyone should be reading before they consider buying this stock… you have a lowest quartile production cost of $463... will that be going down or going up when you start with these new mines?

Sean:     No, that will be going down. And the reason that the 4th quarter is a little bit higher than normal is because we had our byproduct revenue was down significantly in Q4 ‘08 due to the dramatic drop in both zinc and copper prices. But as we go forward the zinc and copper components of our revenue stream are much smaller, it gets much more driven by gold. And in 2010, our revenue mix will be about 95% gold and the rest zinc byproducts.

Jim:     Well, that is good because the copper and zinc has really hurt the earnings here… what I am trying to figure out next, is what are you going to do… if your cap-ex, your capital expenditures are down.. if your big costs of production are in the past… what will you do with all the cash that you will generate if gold is above $900?

Sean:     Well, this goes back to we have always been a big fan of companies like Homestake. We have paid a dividend for 27 years, and our inclination will be to increase that dividend. Back in the 1930’s, not that we want to go back into that period, but Homestake paid out over $170 per share in dividends over a 5 year period. So if we see gold continuing to move, with our increased production, the dramatic rise in that, our track record has been to pay dividends.

Jim:     Excellent. Sean Boyd, CEO of Agnico-Eagle Mines Ltd. (AEM). Congratulations on a good quarter, and thank you for coming on the show.

Sean:     Thanks Jim.

Read Jim's next Segment here  
    

Read Jim's next Segment here