In an October 25, 2015 interview, Sean Boyd, Vice-Chairman and CEO of Agnico Eagle, said he sees a “perfect storm” coming of increasing demand combined with the increased difficulty in bringing new gold mines into production, which will “dramatically” increase gold prices.
With more than 30 years of experience in the gold mining industry, Boyd explained that the gold mining sector is much more challenging and complex than it was even 10 years ago. He said there are “Fewer and fewer quality opportunities to not only grow our business, but to actually improve the quality of our individual businesses.”
The extra volatility in the gold price creates uncertainty that makes it even more difficult to plan four or five years out, Boyd said. Even so, he said that he has always maintained that the volatility comes out of the North American paper market. The real physical market is in the East where populations and wealth are increasing. Boyd said, “That’s just going to drive the price up. We believe gold will move up and move up steadily.”
Boyd sees a gathering “perfect storm,” when investors realize how difficult it is to actually find gold deposits and put deposits into production, even as demand is significantly increasing from China and India.
Boyd said, “Gold is not just an important part of the Chinese mindset,” but the Chinese see gold as fundamental to supporting their currency. He pointed to the growth of the Shanghai Gold Exchange as one indicator of the increasing demand for the precious metal in the Far East. Boyd said, “Demand is certainly going to increase over time in the Far East and that’s only going to be positive for gold.”
Boyd sees a time when investors realize that “the paper market is not the real market,” and that most of the world wants gold. At the same time they realize that the mining industry is having a tougher and tougher time producing gold. He said that the industry is cutting back on growth assets and exploration, which means “fewer deposits in the pipeline” and “less production going forward.” He thinks that sometime in the future, “All these pieces could fall into place at the same time.”
For his company, Agnico Eagle, he feels that now “is the best time to be growing.” The company has doubled its exploration budget this year, basing spending on results. He also believes that now is the best time to be buying equipment, since the prices they are getting for equipment is very cost effective. Boyd stated, “A down cycle is the time to invest in people and equipment.” His company is gathering information to grow for the next 5 to 10 years and they use that information to “Always take a measured approach” and “never bet the company on one single transaction.”
For investors, Boyd believes everyone should “have some gold exposure.” When gold turns, it will be “very quick,” and it will happen “quite dramatically in a short period of time, so you have to be positioned.”
Recently, Boyd said he is seeing a different kind of investor calling for meetings with his company. Value funds are calling. He had seen them in the past, and they are back. “They’ve realized,” he said, “that this is a space they need to be in. It is going to turn.”
Personally, Boyd said he only owns Agnico Eagle shares. He suggested that investors remove themselves “from what’s being said about gold on Wall Street,” which is generally negative. He recommended looking at what’s really happening, especially in China and India. They are buying gold and form a “Huge market for gold.” That market, he said, “is going to determine where the price of gold is going to settle.” He warned that debt levels have never been properly addressed since the 2008 crash. Central Banks have dealt with debt and the financial crisis by inflating assets, which, Boyd said, “will be good for gold.”
