TORONTO Jul 31, 2015 (Thomson StreetEvents) -- Edited Transcript of Agnico Eagle Mines Ltd earnings conference call or presentation Thursday, July 30, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Sean Boyd Agnico Eagle Mines Ltd. - Vice Chairman and CEO * Dave Smith Agnico Eagle Mines Ltd. - SVP and CFO ================================================================================ Conference Call Participants ================================================================================ * Andrew Quail Goldman Sachs - Analyst * Patrick Chidley HSBC Canada - Analyst * David Haughton BMO Capital Markets - Analyst * Mike Parkin Desjardins Securities - Analyst * Stephen Walker RBC Capital Markets - Analyst * Don MacLean Paradigm Capital - Analyst * Tanya Jakusconek Scotiabank - Analyst * John Bridges JPMorgan - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Agnico Eagle Mines Limited Second Quarter 2015 Conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sean Boyd. Please go ahead, Mr. Boyd. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [2] -------------------------------------------------------------------------------- Thank you, Operator, and good morning, everyone, and thank you for joining us for our second quarter 2015 conference call. What we proposed to do today, we posted a deck of slides, but I don't propose to go through them one by one. But, just wanted to caution everybody that there are forward-looking statements both in the slides and in the presentation. So, please be forewarned and read the cautionary statements. But, what we wanted to do today is give you an overview and a sense of how we're thinking about our business, where the focus is, what we're going to emphasize, going forward, where the opportunities are for us to improve the quality of the business. So, I'd like to start with the first -- or the second quarter and the first half, and just talk a little about the operations. We continue to get strong production. We continue to get strong cost performance. We had inline production, slightly lower unit costs than expected, with the cash cost number around $600 an ounce. We're seeing very good results at a number of our operations. And we're doing this, and also posting record safety performance, which is I think very important, because a safe operation generally means we've got a very productive operation. But, on the cost side we see major improvements on several of the regional operating platforms. In Mexico, we continue to see record production. We see cash costs slightly below $400 an ounce. That's about $100 an ounce improvement from the prior year. In the Abitibi, our four mines there had an average cash cost in the second quarter of $622 an ounce. That's also down by about $100 an ounce from a year earlier. In Kittila, the expanded throughput rate helps to drive cash costs on a unit basis lower, also down from a year earlier period by about $100 an ounce. So, all of this good cash performance has resulted in us lowering our full year cost guidance. Also, the inline production and the good cash cost performance has allowed us for the second quarter this year to generate net free cash flow. We had operating cash flow after working capital changes of $188 million. We reinvested in our project $111 million, so we generated net free cash flow from the quarter of $77 million. In the second half, we expect to have continued good cost performance and cash-generating performance. We expect steady production. We expect to [meet] our full year production guidance of approximately 1.6 million ounces. We're working on several things. Maybe we can do slightly better than that. And we expect to meet our improved cost guidance. As we go forward, the emphasis will be on looking to add value at each of the operations by advancing several of our key near-term production initiatives that we have internally at these projects. But, pulling back a little bit before I go into a little bit of detail, as we move forward, our strategy is really based on three underlying principles and drivers. One is to execute on the existing plan that takes advantage of the opportunities that we see at our existing operations to not only grow the business, but to improve the equality of the business. And we saw a couple of those with approvals of go-aheads on Goldex in developing additional satellite zones, and also with extending the mine life at Meadowbank. The second big part of our strategy is ensuring that we maintain a high quality pipeline of development projects, and we do that both through exploration success and also through selective M&A, more focused on sort of earlier-stage opportunities. And number three is really develop the next generation of senior managers and leaders. And I think this is particularly important, and we spent a lot of time yesterday at our Board meeting. This is particularly important certainly now, given the increasing complexity of the gold business and the challenges that the industry faces in the lower gold price environment. So, despite the current volatility in the gold price, in our view, we need to sort of have a balanced approach where we need to continue to make the appropriate investments in both our assets and our people. So, in the first half of 2015, we've made very good progress on all three of these fronts. We have managed to increase our investment in exploration, and we've seen very good value creation, particularly in Nunavut, with that exploration. And we've got some other things that are really coming to the forefront in exploration I'll talk about in a minute. And we've also moved several of our key development projects forward. At the same time as we're lowering our operating costs and we're improving our financial position by reducing our net debt in the first half of the year by $159 million to approximately $1 billion. So, on the back of this stronger financial position, we have approved an increase in capital spending in 2015 of approximately $58 million, and an increase in our exploration spending of $20 million. Now, just going through the components of each of those, on the CapEx side, in the $58 million we have $9 million to develop the new gold zones at Goldex. So, I'll talk about that in a minute, but that makes very good sense in this market, because not only are we extending the life, we're also opening up additional opportunities at that and in the regions with the Akasaba West project. At Meliadine, we've increased the spend there by $22 million, and that's essentially to utilize the remaining work season to continue to position both the site and the economic analysis for decisions that we'll make on the bigger picture in Nunavut in the first half of next year. We've decided to invest $27 million at Meadowbank essentially to develop the vault pit extension, which now makes good sense at a Canadian dollar gold price here at these levels, but also makes good sense in the overall strategic focus of Nunavut, where we're extending the mine life at Meadowbank by a year, which has important implications for how we think about Amaruq as a satellite deposit for Meadowbank. Of the $20 million in increased exploration spend, $15 million of that is at Amaruq to fund potentially the phase two program, and that's basically been a results-driven program and allocation of capital since the start of that program. And we've allocated increasing spending on exploration as that deposit has continued to grow, and I'll talk a little bit about that in a minute. At the operational level, as we said, our mine's performing extremely well. In Quebec, at LaRonde, we have exceeded our development targets by about 15%, so we're getting good development performance in the lower mine. We'll be commissioning the new coarse oar conveyor system this quarter. Our production was up in the quarter, with cash costs down by almost $100 an ounce. And as we open up the lower mine and improve our flexibility to move around in the lower mine, we see our gold production increasing, and eventually anticipating it exceeding 350,000 ounces per year by 2019. And that's up from a level of around 200,000 ounces last year. So, we still see significant growth coming from our LaRonde asset. At Canadian Malartic, we've got steady production. Mine site cost per ton is expected. Cash cost, very attractive levels at $609 per ounce in the quarter. We still have several optimization initiatives and work ongoing, one, to minimize the length of our normal planned maintenance shutdowns. We're focused on improving the efficiency and costs around the management of our waste rock, which is a significant expense. And we're also focused on the mining rate in the north wall, where we have very good grades, and we've got that to about two million tons a month. So, we're looking at ways that we can maintain that, or slightly improve that. As far as the future of Malartic, we're doing well on the permitting side, on the Barnett extension. We're on track with that permit. And also on the future, we've started our drilling program at Odyssey. We continue to get some interesting results there at depth, and that was one of the things that attracted both Agnico and [Yamanas] to that property, given the higher grade potential and the significant thicknesses and mineralization, which may be appropriate to apply the Goldex type low-cost mining method to it. At Goldex, that philosophy of incremental sort of phased approach to the Goldex restart has worked extremely well, as can be seen in the operating results at Goldex, good, steady production, very good cost per ton performance, very good cost per ounce performance, generating net free cash flow. And so, to continue to take advantage of the infrastructure and the low-cost mining method at Goldex, we made a decision to develop additional ore zones on the property, which extend the mine life out to 2024 at essentially steady production rates. But, this, as we said earlier, opens up additional upside to both the production rates and the mine life from the Deep 2 zone, which we have drilled, and we've got a resource in the lower part of that mine which isn't part of the current plan. We've got a higher grade South zone, which also may be able to be brought into the mine plan, and we've got the Akasaba West deposit that we're still working on our analysis, and on the permitting, which will give us, we feel, additional incremental low-cost ounces using the extra capacity that's available at the Goldex plant. At Lapa, unfortunately, it's a short mine life. It's expected to finish before the end of next year. We are, however, continuing on a very focused exploration program, both on the Lapa site and to the property adjoining Lapa to the west. So, we're hopeful, but at this point we still need to continue that drilling program. But, I think I'd like to take the opportunity now to thank the employees at Lapa for continuing to deliver on their targets despite the prospect of mine closure next year. So, that's not an easy thing to do for people that have experience in the mining business, and that team over the last several years has sort of put the interests of the Company first and done an exceptional job of maximizing net free cash flow at Lapa. In Nunavut, we continue to focus on moving several of the pieces forward so that we're in a position in the first part of next year to decide how we move that larger Nunavut platform forward. But, I think what we see, given our long experience in the mining business, that Nunavut's a unique place. It's got that unique combination that many companies in the industry are looking for, with the ability to do business combined with significant exploration potential. And we're certainly seeing that with our results at Amaruq. So, the question we need to still answer as a Company is how all of these opportunities fit together, and we also need to ensure that we move at a pace that is consistent with the quality of each of the opportunities, and also the market conditions. So, we're in that information-gathering phase, whether it's doing additional economic assessment work, or whether it's doing exploration drilling work, or geophysical work, or geochemical work, to get the critical technical and exploration information to put us in the position to make some larger decisions in the first half of next year. Particularly at Meadowbank, we announced, as we said, the extension of the Vault pit, which extends the mine life to [two or three] 2018. And as we also said in the press release, that reduces the potential production gap that we have with the satellite deposit at Amaruq by a year. At Amaruq, our drill holes have extended the Whale Tail deposit at depth. The deposit's been traced now to a depth of 568 meters. Strike length is still 1.2 kilometers. That part of the Amaruq deposit, Whale Tail, remains open in all directions. We have picked up additional mineralization outside of the Whale Tail deposit area, to the southwest at Mammoth and to the northeast at IDR. And this may suggest we have a larger mineralized zone at Whale Tail, or it may suggest we have additional satellite zones. So, we still need to do some work there. We will continue to do, and are continuing to do, not only the phase two drill program of 50,000 meters, but also we're doing prospecting. We're doing geochemical sampling of soil till and rock sampling. We're seeing some interesting results here, which seem to correspond with the geophysical work. And we're also continuing with geophysical work in the area. So, we expect to have an updated resource out in the next few weeks, and we expect to have sort of very early preliminary design and economic analysis by early next year, [though] this type of work is important in not just making a decision on capital allocation for Amaruq, but also making decisions on capital allocation in the wider Nunavut platform and within the entire Company. Meliadine, as we said, we continue to move that property forward at a very measured pace. We signed the impact and benefits agreement with the Kivalliq Inuit Association in July. This follows the receipt earlier this year of the project certificate that was issued from the federal government. We continue to work on optimizing the economic study by incorporating a portion of the large gold resource into the mine plan, as we also prepare the project -- the site to be in a position early next year to decide on the timeline and pace for the development of Meliadine. But, we'll do that, as we said, in the context of our opportunities not just in Nunavut, but also in other parts of the business. In Finland, we've got record processing throughput at the plant. The focus is really in Finland on taking advantage of not only the higher throughput capacity, but also with some of the recent drilling that may suggest we have a parallel zone very close to the main zone. And the recent drill hole shows that that zone may be quite close to underground infrastructure, which could be very important in terms of the timing of introducing a potential parallel zone into the mine plan. So, at Finland, the focus has always been it's [been] a big deposit. It is a big deposit. How do we sort of optimize the throughput rate to take advantage of not only the expanded plant but also the size of that deposit and hopefully shorten the life. So, a big part of that story will also be exploration. That program expands as we move through the balance of the second half of this year. We're moving in a large, big drill that will be drilling from underground, focused largely on the new parallel zone. In Mexico, we've got good production growth, excellent cost performance, the second consecutive quarter of record production, with cash cost below $400. The business continues to generate very strong net free cash flow. The Pinos Altos shaft is on schedule and on budget. We continue to look at the center zone as a potential satellite zone. We expect to eventually add this to the mine plan. We've gone through half of our expected drilling there. So, we continue to move that forward. At La India, we continue to get good performance. One of the things on La India is, very early on, we had identified the potential for the sulfides to be brought into the mine plan, but we took a very conservative approach with respect to the sulfides. We didn't really incorporate that into any sort of official mine plan. But, it's apparent now, based on our experience at the site and our mining experience there, and some work we've been doing on metallurgy that we can likely bring some of those sulfides into reserves, and ultimately into the mine plan. So, we continue to work on that, so that gives us some upside at La India. At Barqueno, the exploration program continues. We've got an active drill program there. We've got nine drills. We're getting good results, and we expect to have an initial resource on Barqueno before the end of the year. So, I'd like to sort of close it off there and open it up for questions. But, I just wanted to mention that we'll be out and around over the next several weeks meeting with a number of our shareholders and investors. And we're hosting three site visits over the next few weeks, both to Amaruq this month and in September to Malartic, LaRonde, and Goldex, and also to Barqueno. And so, we hope to sort of see you out at those trips, or also to see you on our investor trips that we've got planned over the next few weeks. So, we are actually working hard in August, so we hope you're in town and are available to see us as we get around. So, Operator, I'd like to open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator instructions.) Andrew [Quail]. Please go ahead. -------------------------------------------------------------------------------- Andrew Quail, Goldman Sachs - Analyst [2] -------------------------------------------------------------------------------- Yes, morning, Sean and team. Congratulations on a strong quarter. Pretty easy question. Just looking at Kittila, the grade obviously dropped off a bit there versus I suppose history. Do you see that coming back in the second half of 2015 and going forward? Because, I mean, your throughput obviously, as you've mentioned, is you're going up there, and your increase [of the] capacity. Is grade going to come back? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [3] -------------------------------------------------------------------------------- Yes. We'll be mining reserve grade for the rest of the year. I think we had one month where grade was lower because of consequence of a longer shutdown in April, where we've had to modify the mining sequence and bring in some lower grade [scopes]. We're basically back on sequence, as we speak, and back on tonnage. So, I think we're looking for average grades for the rest of the year. -------------------------------------------------------------------------------- Andrew Quail, Goldman Sachs - Analyst [4] -------------------------------------------------------------------------------- Thanks, guys. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Patrick Chidley. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [6] -------------------------------------------------------------------------------- Yes, morning, Sean and everybody. Just a question on the follow-up on Nunavut. You did mention I think last quarter some progress that you were making in terms of thinking about power infrastructure for both Meliadine and the regional sort of plan. Could you update us on where you are on that and if you've made any sort of breakthroughs? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [7] -------------------------------------------------------------------------------- No, no breakthroughs. It's still early. There's a number of things that we're focused on on the energy side. One is liquid natural gas. The other is small turbines, hydropower. So, those things are more longer-term, and we have recently started innovation group here in the Company, and they're focused with our technical service and business strategy group of looking at those issues. But, I think that's an important question, because, long-term, places like the Canadian North will be a place of increased activity as far as resource extraction. So, our focus is more on is there a breakthrough either on the energy side or logistics and transportation. And if we take a multi-decade approach, which we do in our business, and we continue to allocate resources to looking at those key areas. And we have continued a dialogue with the levels of governments, both with visits to Ottawa and to Nunavut to talk to government officials about what our particular needs are, given our asset base and platform that we have there. So, no breakthroughs, but we are continuing to do a lot of [work]. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [8] -------------------------------------------------------------------------------- Okay. Thanks, Sean. And just a quick follow-up, if I may, just on Amaruq and the Mammoth Lake drill results. Can you speak to how much drilling's going on at Mammoth Lake, and what these initial drill results mean? I mean, does it look a lot like the stuff at Whale Tail? -------------------------------------------------------------------------------- Unidentified Company Representative [9] -------------------------------------------------------------------------------- Yes. During the spring program, we moved the rigs on the western part of the [trail], and what you saw in the press release, we hit on two sector, Mammoth I and Mammoth II. On the Mammoth II, we have only three holes drill on that [one], and Mammoth I probably 12 to 15 holes. And historically, we cannot comment about that as a deposit, the size, the grade. And what we are doing right now is we just finished the conversion program on Whale Tail, and we start to step out the West and fill the gap between what we named the first Mammoth I and Whale Tail. This is the program from now. And we have a good indication that we can -- well, [probably] connect Mammoth I and Whale Tail, but a [better] question would be what kind of grade we can get there, and how big it will be. We don't have that answer yet. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [10] -------------------------------------------------------------------------------- Right. And that is shown on slide 15, right? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [11] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [12] -------------------------------------------------------------------------------- Yes, just as Mammoth I, yes. -------------------------------------------------------------------------------- Unidentified Company Representative [13] -------------------------------------------------------------------------------- Exactly. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [14] -------------------------------------------------------------------------------- And then, Mammoth III is just where you've got one drill result there, is it? -------------------------------------------------------------------------------- Unidentified Company Representative [15] -------------------------------------------------------------------------------- Is the other one on the left side of the map that they show that that grade, that 13.3 gram over -- I don't have my glasses--. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [16] -------------------------------------------------------------------------------- Three meters? -------------------------------------------------------------------------------- Unidentified Company Representative [17] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [18] -------------------------------------------------------------------------------- Yes. Okay, thank you very much. Great. -------------------------------------------------------------------------------- Unidentified Company Representative [19] -------------------------------------------------------------------------------- Okay, thanks. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- (Operator instructions.) David Haughton. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [21] -------------------------------------------------------------------------------- Good morning, Sean and team. Thank you for the update. Got a question on Goldex, and just looking at your page 12 of the presentation, can see where the Deep 1 is with the Dx zone, or the Deep Zone. Can you just walk us through the kind of mining method that you've got, and how that might interplay, if at all, with the GEZ above it, and whether there's scope also for Deep 2? -------------------------------------------------------------------------------- Unidentified Company Representative [22] -------------------------------------------------------------------------------- Well, basically we're mining long haul stops at 50 meter levels, and using [ace fill]. We've been able to produce in that around [6,500] tons per day in the last few quarters at the cost that we prescribed. And I think the unit rates that we're using on the satellite zones, on the M&E zones, are basically -- are easily [replicated at depth] in the deep zone. So, the only thing we're going to do differently in the deep zone is basically add a automated conveyor to facilitate trucking up the main crushing and hoisting level. So, it's just a continuity on the life-of-mine basis of the current operation. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [23] -------------------------------------------------------------------------------- Okay, and then -- go ahead, sorry. -------------------------------------------------------------------------------- Unidentified Company Representative [24] -------------------------------------------------------------------------------- I didn't add anything. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [25] -------------------------------------------------------------------------------- Right. And the 6,000 tons a day, is that just to give you some wriggle room because you've been able to mine at a higher level? You'd mentioned 6,500 tons a day. Is that a possibility? -------------------------------------------------------------------------------- Unidentified Company Representative [26] -------------------------------------------------------------------------------- Well, budget-wise, we were budgeted for 6,000 tons per day. The team up there has been able to better that performance. And over the coming years, as we develop the deep zone, it is within our plans to continue looking at how we can optimize that daily throughput and (inaudible) through the plant. We have the flexibility in the plant to process more tons, and this Akasaba project is a satellite pit nearby that we plan to integrate, as well, and try to [maximum] all the install capacity that that -- try to [keep] low-cost profile, moving forward. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [27] -------------------------------------------------------------------------------- Okay. Switching over to Meadowbank now, the addition of Vault and the cutback there extends the life. And I guess the goal here is to reduce any hiatus that might exist between the completion of Meadowbank and the startup of Amaruq. Is that right? Do you have scope also to extend life beyond Vault? -------------------------------------------------------------------------------- Unidentified Company Representative [28] -------------------------------------------------------------------------------- Well, I think at this stage we looked at the recent success at Amaruq. I think we're trying to focus on getting more flexibility, moving forward in the north and maintaining our infrastructure in place and our people in place. And basically, we reviewed - the Vault reserves have been in and out of the plan depending on gold prices and FX assumptions. And I think the latest FX rates have been helpful, and now we've been in a position to review [NAV] down the line with the Vault pushback. And at this stage, we're in a position to maintain similar NAV on the current life-of-mine plan and gain a year to better prepare for eventuality with Amaruq down the road. So, it's more flexibility at this stage. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [29] -------------------------------------------------------------------------------- And just looking at page 16 of the presentation with the conceptual kind of open pit, the drilling results suggests greater and better hits at depth. Do you think that's enough to either start thinking about a deeper pit, or would you be thinking about an underground in addition to the open pit? -------------------------------------------------------------------------------- Unidentified Company Representative [30] -------------------------------------------------------------------------------- Well, I think I can let the geologist talk after that, but I think at this stage we're more focused on a satellite pit for the early portion. If the pit at Whale Tail extends towards the West, certainly we'll be able to maximize tonnage for a few years in that area, and then we can evaluate as we continue the drilling program how the underground potential pans out. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [31] -------------------------------------------------------------------------------- I think one of the things from the underground perspective is that the earlier interpretation had, we felt, suggested that the Eastern part of Whale Tail was closed off. I think the latest drill holes at depth below 500 meters, which were on the Eastern side of Whale Tail, have changed the geologists' interpretation. And so, it's wide open again to the East. So, ultimately, I think what that tells us is that there's probably a ramp here at some point in the future of Amaruq, and that's interesting because our challenge always at Meadowbank is we could not find anything meaningful in terms of ounces below the pit, even though that was our hope here. Very early on, we're getting very good thicknesses at very good grade at depth which suggests that this one has longevity that Meadowbank didn't. So, those are some of the things that we need to get more information on because they have implications not just for how we think about Amaruq and its connection with Meadowbank, but also how we think about Amaruq and its connection to the overall Nunavut strategy and approach to allocating capital, which involves Meliadine. So, there's a lot of moving parts here, and that's why we're trying to use the time we have this year to gather that information, do that assessment across a lot of disciplines, including the technical aspects, the permitting aspects, and the exploration upside potential. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [32] -------------------------------------------------------------------------------- Okay, thank you for the update. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Mike Parkin. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [34] -------------------------------------------------------------------------------- Hi, guys. I was just wondering, it sounds like you've got a number of projects advancing nicely. Is there any sense in terms of the maximum number of development projects you'd entertain at a given time? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [35] -------------------------------------------------------------------------------- I think if you look at a number of these projects, they're largely at or near existing operations, which can be nicely tucked into the existing team. So, as far as people capacity, it's very manageable. The constraint in our tough gold price environment is obviously capital. So, we'll have to make some difficult choices in terms of the pace at which we decide to move some of these projects forward. So, that's more the constraint than the technical ability or the people that we have to put on these projects. And that's largely because a lot of that skill is in place at a number of these opportunities. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [36] -------------------------------------------------------------------------------- Okay. And just a follow-up on the Goldex Deep, this estimated capital for development, does that include any increase for the tailings facility? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [37] -------------------------------------------------------------------------------- No, we don't need to spend anything on increasing the tailings facility. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [38] -------------------------------------------------------------------------------- Okay. That's it for me. Thanks, guys. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Stephen Walker. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [40] -------------------------------------------------------------------------------- Great, thank you very much. Good morning. Just wanted to follow up on Mike's question, Sean, with respect to capital allocation. You suggest that you're going to sort of incrementally spend on a number of projects. If you had to prioritize which projects you'd put the first dollar of capital to work in, second dollar, et cetera, et cetera, could you maybe give us your thoughts on how you'd prioritize the various projects, whether it's looking at Goldex Deep versus the -- obviously opportunities at Amaruq and El Barqueno, and et cetera? If you look at those projects that you've highlighted as opportunities, how would you prioritize them as far as capital allocation? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [41] -------------------------------------------------------------------------------- We already did some of that, Steve -- it's a good question -- with Goldex. So, that was a clear winner, solid rate of return, capitalizes on some excellent work that was done and good thinking that was done when we were actually criticized. I remember being [up the road]. What, you're spending $90 million to restart Goldex? Are you guys nuts? What the heck are you doing? But, at the end of the day, I have to take, and the Board has to take the lead from the operating and technical people, and the skills and experience they bring to the table. So, that one was an easy one, right in our backyard, existing deposits, near-existing infrastructure that still had some excellent exploration opportunities. Where it's less clear right now for us is Nunavut. We believe in the long-term benefits of that as a place that we can add a lot of value over time. We still need information on how we fit those pieces together and how we allocate capital. Certainly Amaruq's very exciting, lots of good drilling. It is early, and it is exploration. And I'm sure there's going to be a lot of pluses and minuses. We're on a roll now, but we're also on a roll in Finland. I'm quite interested in that one, because that one's been one which has been a bit of a head-scratcher because it's large, and we've struggled with how do we get the throughput up. And the throughput wasn't really a question of the plant, because we've managed that side. It was more mining [rate]. If we have a zone that's extensive and parallel to the main zone, and now appearing near existing infrastructure, then maybe we can accelerate something there. And I think why I'm excited about that one, although it's early, is that we already said we're taking Kittala from the 140,000 ounce per year range up to 190,000 to 200,000. Now, it does, this additional potential source of ore, give us more headroom above that. So, those are the types of things which would take priority, because generally those will be high rate of return, low risk, with capacity from a people point of view to do. So, as we've said a few times over the last while, and even in this presentation, we're still in the information-gathering phase to lay our thinking out to the Board and make some decisions, going forward. But, I would say -- we use the word pace. We're actually pretty good at pace. Pace was all about -- LaRonde was all about pace. It was never a question in the early days whether that was going to get built. It was sort of how could we move that forward, which we did. Goldex is a great example of being patient. We waited 37 years before the conditions were right, whether it was the market or technical view and analysis. So, if we have to park some things, we park some things. And I would say one more point. Agnico's still here after 58 years because we've done a lot of good technical work and good thinking. We've invested in our people's ideas, whether it was exploration or project build. But, overriding all that is we've managed the financial risk extremely well, and we'll continue to do that. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [42] -------------------------------------------------------------------------------- Maybe, Sean, as a follow-up question, when you went to the Board for the go-ahead to increase capital and move projects forward, what did you represent as what you thought was a reasonable gold price environment, or assumption for that to be approved, and the plan that you put forward? And second to that, and more importantly, with a number of (inaudible) high quality, high return projects where you can put capital to work, are you prepared to issue equity or further debt, take on further debt to finance any of these projects, or is the goal to fund these out of free cash flow? And if you could kind of -- if you could answer those, I'd be curious to hear your [comments]. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [43] -------------------------------------------------------------------------------- Yes. We were using spot gold prices, and that's in local currency terms. I think one of the things that, as we sit here, we roll it back to January of 2010. The US dollar gold price was essentially where it is today. But, if you look at the gold price in Canadian dollar terms, it's up 24%. If you look at the gold price in euro dollar terms, it's up 24%. If you look at the gold price in Mexican peso terms, it's up a lot more than 24%. So, given the location of our assets, as we've said, we've got sort of that built-in hedge. So, the [lump] deposit works not only because of a desire to minimize costs and keep a workforce in place as we get better understanding of Amaruq, but also because we're taking advantage of the lower Canadian dollar. And so, we were using spot with respect to that analysis as we presented it to the Board. And those were incremental investments that will be paid for in the second half out of our business, and out of net free cash flow. So, that was an easy decision to make for the Board, given that few of those projects extended mine lives, but some of that expenditure was to gather additional information on bigger picture, particularly in the Nunavut platform. As far as taking on additional debt or issuing equity, we haven't made a decision on how we finance as we go forward. That will be determined on the quality of the opportunity and how we see the ultimate fit. Now, do we have debt capacity? We have some, but again, it comes down to managing financial risk. And we don't control the gold price. We control what we spend and how we spend, and that's where the focus is in (inaudible). -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [44] -------------------------------------------------------------------------------- Great. Thank you, Sean. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [45] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- (Operator instructions.) Don MacLean. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [47] -------------------------------------------------------------------------------- Well, thanks for the call, guys. Great quarter. Sean, maybe you could just give us a bit of your thoughts about the timing of Amaruq, and it appears there's a bit of a delicate balance here between the timing of your exploration, being able to bring the project on, trying to keep the workforce of Meadowbank in place. What are some of the critical path items? How is it going on the pace of the permitting? And how delicate is that balance, in your view, now that you've bought yourself the extra year with Vault? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [48] -------------------------------------------------------------------------------- Well, it's all permit. Timeline is all permit, more Amaruq in particular. And so, all we've done is assume a timeline that matches Meliadine, essentially. But, this is different than Meliadine, in our view, because we're not asking to build a plant. And so, it should be a little bit more straightforward, but it does follow the same process. So, we've just sort of used the Meliadine timeline. But, we have sort of made the case to the appropriate authorities that we think there really should be no reason that there is a production gap, because it won't be driven by our ability to get work done, because we can work within a timeline, as we see it, but it's really a function of the authorities having the resources available to review our submission. And that's what really drive the Meliadine timeline. But, we can see that we have made some good progress on the exploration front. What that means for us, though, on the technical side is, to get the permitting clock ticking, we have to make a submission. So, we have to tell them what we would like to build. We're not there yet, but we will be there as we move through the end of this year, because we will have an initial resource, and that initial resource will likely -- we will likely put a pit design around it. We will likely go to the authorities with a plan to permit an open pit operation. And that has the potential, from a permitting perspective, to be ready some time in 2019. Our focus will be trying to do that earlier from a permitting perspective. But again, there's no guarantee. But, we've done this before. We've got probably the best team -- not probably. We do have the best team in the business in terms of getting permits in that region. [Larry Connell], who does a lot of our legwork, worked for Miramar, and so he's done it several times up there. And going back to one of the points I mentioned earlier about a place to do business, it is an excellent place to do business, because there's an understanding of gold mining and the contribution it can make. So, from that aspect, there aren't issues about people being anti-mining, anti-exploration or development. It's just a matter of going through the process of obtaining those permits. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [49] -------------------------------------------------------------------------------- Great, okay. And that sounds like that's a capacity constraint once you've scoped it. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [50] -------------------------------------------------------------------------------- That's right. And obviously, the initial revision that we get from the work that we'll have done up till the end of this year will likely change, because there's still a number of targets. And not only are they drilling targets, they're developing more targets as we speak, given the geochemical work and the geophysical work. So, we have 115,000 hectares around Amaruq, so there's a lot of work that's going to be done over a lot of years. And we feel we'll be there for a lot of years. So, that's why pace is less important. What's more important is what we were building there and how we're building it. And we're less focused on when it starts or when they start, and more about how we can manage, both from a technical point of view and a financial point of view. And that's the way we've run the business for decades, and we'll keep doing it. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [51] -------------------------------------------------------------------------------- Great. Thanks, Sean. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- (Operator instructions.) Tanya. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [53] -------------------------------------------------------------------------------- Great. Good morning. Thanks very much. Hi, guys. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [54] -------------------------------------------------------------------------------- Morning. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [55] -------------------------------------------------------------------------------- Morning. Maybe, Sean, can you just talk a little bit about how much capacity you would be comfortable in taking on on your credit facility, and sort of what a minimum cash balance you would like to have on the balance sheet at current prices. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [56] -------------------------------------------------------------------------------- Well, our cash balance is a little over $180 million. We could be comfortable at $100 million. We've had the revolver up a couple hundred million more than where we are now. We could certainly take that up if we wanted to. We're looking at extending in another year to five years. It's a relatively cheap form of financing. The interest rate's almost 1.9%, between 1.8% and 1.9%. So, we have that flexibility if we decide to use it, but we have been paying that down. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [57] -------------------------------------------------------------------------------- Yes. No, I noticed. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [58] -------------------------------------------------------------------------------- That's just been based on generating net free cash flow. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [59] -------------------------------------------------------------------------------- And what about in terms of refinancing the -- I think you have $600 million senior notes that are due in 2017. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [60] -------------------------------------------------------------------------------- No, we have $115 million. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [61] -------------------------------------------------------------------------------- Yes, sorry, $115 million, yes. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [62] -------------------------------------------------------------------------------- That's due in 2017. So, we don't look to refinance those notes. The biggest piece of repayment there is 2020, little over $300 million. So, we're comfortable with that repayment schedule. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [63] -------------------------------------------------------------------------------- Okay. And then, maybe just for the CapEx, the development over the next two years, for Meadowbank, we only have what you're putting in this year, and the rest of the book, everything else is sustaining. Is that correct? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [64] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [65] -------------------------------------------------------------------------------- And so, then it's really the payment for the Goldex 1 Deep? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [66] -------------------------------------------------------------------------------- Yes. There's a little bit work as well in Mexico, but -- as we finish off some stuff there. Finland, we continue to work on the ramps and developing Rimpi, so there's some things there, as well. But, there's no major project that have been approved. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [67] -------------------------------------------------------------------------------- Okay. No, that's perfect. Thank you. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [68] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [69] -------------------------------------------------------------------------------- [John Bridge.] -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [70] -------------------------------------------------------------------------------- Morning, Sean, everybody. Just a bit of accounting, really. I see the Mexican peso has been quite weak recently. Just wondered if there's any hedging there, or are you going to fully benefit from that weaker peso quickly? And what percentage of your costs in Mexico are locally driven? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [71] -------------------------------------------------------------------------------- Dave's just looking that up. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [72] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines Ltd. - SVP and CFO [73] -------------------------------------------------------------------------------- Hey, John. So, our Mexican peso, we're about 25% hedged, and we're comfortable with that level. It's been weak with the CAD and the euro, as well. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [74] -------------------------------------------------------------------------------- Right. [I think on] the Canadian dollar side, we're about 40% hedged or so, going forward. In terms of euro, we haven't done anything on the euro. As far as the percentage of costs, in Canada it's over 90%. In Finland, it would be up over 80% or so. In Mexico, it's 50% or so in terms of local currency. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [75] -------------------------------------------------------------------------------- Okay, that's helpful, thanks. What level did you assume in your forecasting for this year, or have you got that handy? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [76] -------------------------------------------------------------------------------- 1.20 on the Canadian dollar. Dave, do you have the euro? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines Ltd. - SVP and CFO [77] -------------------------------------------------------------------------------- Yes. The actual budget rate was 1.35, and the Mexican peso was 12.75. So, those have changed dramatically versus budget. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [78] -------------------------------------------------------------------------------- The guidance, it was, I think, 1.20 Canadian and 1.08 on the euro, I think. No, 1.15 on the euro for guide. So, there is some headroom on the cost side, given where the currencies are right now relative to guidance. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [79] -------------------------------------------------------------------------------- So, there is some good news [after] the strong US dollar. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [80] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [81] -------------------------------------------------------------------------------- Well done, guys. Congratulations. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [82] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- (Operator instructions.) Okay, there are no further questions. Please continue. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines Ltd. - Vice Chairman and CEO [84] -------------------------------------------------------------------------------- Thank you, Operator, and thanks for tuning into the call. And as we said, we'll be out in probably 10 cities in the next couple weeks and with the mine tours. So, we look to see a lot of you as we make our way around, and enjoy the rest of the summer. Thanks again. -------------------------------------------------------------------------------- Operator [85] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line, and have a great day.
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