TORONTO Oct 29, 2015 (Thomson StreetEvents) -- Edited Transcript of Agnico Eagle Mines Ltd earnings conference call or presentation Thursday, October 29, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Sean Boyd Agnico Eagle Mines - CEO * Dave Smith Agnico Eagle Mines - CFO * Tim Haldane Agnico Eagle Mines - SVP, Operations, USA & Latin America * Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe ================================================================================ Conference Call Participants ================================================================================ * Mike Parkin Desjardins Securities - Analyst * John Tumazos John Tumazos Very Independent Research - Analyst * Patrick Chidley HSBC Canada - Analyst * David Haughton BMO Capital Markets - Analyst * Andrew Quail Goldman Sachs - Analyst * Stephen Walker RBC Capital Markets - Analyst * Greg Barnes TD Securities - Analyst * Tanya Jakusconek Scotiabank - Analyst * Anita Soni Credit Suisse - Analyst * Don Maclean Paradigm Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Agnico Eagle Mines Limited Third 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, CEO, Chief Executive Officer. Please go ahead, Mr. Boyd. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [2] -------------------------------------------------------------------------------- Thank you, Operator. And good morning, everyone. Please take note that the conference call will contain some forward-looking statements. We'll start with the highlights of the quarter. Another good, solid operating performance, essentially across the board, getting good contribution not only on the production side, but also on the cost side. We saw particularly strong performance coming out of the Abitibi operations which drove record quarterly growth production and low cost. We saw two new production records set at Canadian Malartic. Our cash costs for the quarter at Canadian Malartic came in at $544 an ounce. So, on the back of a very strong quarter we have updated our guidance for 2015. Our production guidance has gone up 50,000 ounces as we said largely on the back of the four mines in the Abitibi offset by the Meadowbank mine where the inclusion of the Vault pitch and the extension of the Vault pit has changed the mining sequence and lowered the mining grade. So, all told, allowing us to increase the guidance on production and also lower the guidance on unit costs, we're looking at cash costs of about $600 as guidance for 2015 and all in sustained costs of $850 and ounce. We continue to be very active on the exploration front. In fact, our exploration spend doubled in the quarter versus the previous year's quarter. The main focus of the drilling continues to be in Mexico at Barqueno and we'll talk about that when we get to the Southern business slide. But also in Nunavut at Amaruq where the drilling was focused on Whale Tail essentially where we were focusing in the area between Mammoth at one and Whale Tail and the drilling has indicated that Whale Tail and Mammoth, there's now a single mineralized system that now extends over 2 kilometers and it remains open in all directions. Also of note in the quarter for drilling, where we were focused on the V zone, although it's still early, the results in this area seem to indicate the potential for a possible second open tip which could be very important in terms of the economics, given that the Amaruq area is going to be a satellite to some metal band compurgation. Financial flexibility continued to improve in the quarter despite focusing on exploration and moving projects forward and the long-term focus on our business. We still did manage to continue to improve the balance sheet. We reduced our net debt in the quarter by $20 million. From the operating result perspective, the unit cost performance was very strong as you can see and it really wasn't all driven by favorable FX or on our mines, ability to manage the cost, but also on our focus over the last little while of trying to optimize operations from a production standpoint. Our teams across the board have done a very good job squeezing out additional ounces which have helped us lower the unit costs. So, not only on a cash cost basis at 536 but also on an all in sustaining cost basis in the quarter of $759, a very good performance. As we said, that good performance allowed us to improve our financial position. Our net debt as we said was down about $20 million to a little over $1 billion. The reasons for the improved financial position as we said, our growth in operating cash flow which was driven by the increased output and the lower unit costs. On the financial highlights slide you can see the operating cash flow number was strong. Before working capital changes in the quarter we generated $218 million in operating cash flow. That works out to about $1 per share. As we said, we were still spending that money focusing on the long-term aspects of our assets, particularly on the exploration front. Even with that we were able to reduce the debt. Getting into the assets in particular, LaRonde had a very strong quarter. Production of 72,000 ounces, cash costs of $558. We're starting to see a pick up in grade. The grade in the quarter was a little over 4.2 grams per ton versus roughly about 2.9 grams per ton in the quarter a year earlier. Our recoveries were extremely strong. That's 95.6%. In the first nine months of the year we averaged 3.8 grams per ton at LaRonde. So, we're starting to move closer to the reserve grade which is 5.2 grams per ton. Running LaRonde at about 6,000 tons a day. Our cost per ton was lower with the additional tonnage versus a year earlier quarter at CAD101 per ton. So, good job at managing the costs. Our flexibility in the lower mine improves, continues to improve as we add additional infrastructure and commission that infrastructure in the lower mine. And we continue an active drilling program focused below the 311 level as we see the ability to add ounces ultimately to the mine plan. I think that this quarter gives us a sense of what is possible at LaRonde, what we're capable of doing as we begin to access increasing quantities of higher grade ore in the lower mine. And as we've said many times, this mine is set to produce in the mid-300,000 ounce per year range. We see years in the mine plan in the middle of -- where it will exceed 350,000 ounces. And that's without using the additional plant capacity that will be available when the Lapa mine comes off stream by the end of next year. We have some ideas where we can hopefully take advantage of that. So, we could be in a position at one point to see the LaRonde comp producing around 400,000 ounces a year. So, we'll talk about that at the end when we give you some sense of where we feel we're heading in terms of our five year production outlook. Canadian Malartic, a very strong quarter, increased throughput, higher grade, good cost performance. Recoveries at 89%, setting records on quarterly tons and total average tons per day. Our tonnage, 53,700 tons was up from 52,500 in year early quarter. Our costs per ton was CAD19.60. So, we can see the results of continuing to focus on taking small steps from an optimization standpoint. There's additional things that we continue to work on. Our goal is to get the mine up to 55,000 tons per day and that will help us manage our costs per ton. That will be the focus going forward. We continue with the permitting activities for the Barnat Extension. Everything is going as planned. As we look at the mine plan going forward, we see it equals 50% share of production here getting to the 325,000 ounce per year level. So, a good, solid asset. Long life, generating increasing quantities of gold at low costs, generating good cash flow. And we'd like to congratulate the Malartic team for pouring their 2 millionth ounce of gold on September 22. At Goldex, the mine continues to run extremely well. We average 6,200 tons a day in the quarter. That's up from 5,850 a year earlier. Our grade was 1.85 grams per ton versus 1.72. So, we got higher output in the quarter at 31,000 ounces. Costs below $500 an ounce on a cash cost basis. Our recoveries were up as well, almost 95% versus about 93% a year earlier. So, across all measures the mine continues to perform extremely well. We announced in July an extension of the mine life out to 2024. We would expect as we continue to analyze additional opportunities at Goldex with other satellite zones that we'll be able to extend it beyond 2024. And we continue to look at the Akasaba West deposit. We submitted the environmental impact assessment for permitting and we would expect that that could augment production at Goldex by 20% to 30% once that's in the mine plan. So, in Quebec, despite the fact that the Lapa operation will come off stream before the end of next year, we have the makings of a long-term production base in the 800,000 ounce or better range. So, good solid basis in Quebec. Lapa, despite the short life of the mine, the employees continue to performance extremely well, managing costs, getting extra ounces out of the deposit. 26,000 ounces cash cost at $522 an ounce. Commercial production, as we said, is forecast to end by Q3 2016 and we've already begun the process of transitioning the Lapa workforce into other Agnico Eagle operations, replacing contract employees at those operations. So, all in all, continued good performance coming out of Lapa. At Meadowbank, we saw average daily throughput at about 10,800 tons a day. That's down from a year earlier. We're averaging about 11,500 tons a day. That's simply the result of transitioning into harder ore at the Vault pit. We have done a good job moving waste in the quarter. So, continue to get good performance on the mining side, the mining rates. Good development there. As we announced in July, we're extending the mine life to Q3 2018. We expect production in the fourth quarter to be similar to the third quarter and in terms of production profile going forward with the results of adding the Vault pit we would expect to see Meadowbank produce about 50,000 less ounces next year than the plan that was on the table about a year ago. We would expect it to produce about 50,000 ounces more 2017 than the earlier mine plan and we would expect it to produce 130,000 ounces or so in 2018 and in the earlier mine plans we had no ounces at Meadowbank. Moving on to Amaruq, the midyear inferred resource, just to remind everybody, was 9.7 million tons at 6.5 grams, giving us about 2 million ounces. The 2015 drill program is now complete. We ended up drilling 378 holes, drilling a little over 100,000 meters into the deposit. Of note, the recent drilling has confirmed that Whale Tail and Mammoth one zones form one mineralized system over 2 kilometers long. That's been traced down to at least a depth of 450 meters and the system is open at depth and a long strike. This area will certainly be a major focus of drilling in 2016 as we indicated at the start. At the V zone we've encountered a shallow, dipping structure with lots of visible gold at outcrops on the surface. So far we've traced it down to a depth of 155 meters. We've got holes in there of over 5 meters, over 30 grams, 23 meters at almost 8 grams, 21 grams at 3 meters and also this area will be a key part of the program for 2016. As we said, although it's still very early, this could potentially be a second source of open pit ore at Amaruq which could be very important for the project economics. As far as where we are with the project, we've got the road permitted, so we would expect to receive a permit to start constructing the road in 2016. That will be a year-round road that will allow us to link the projects to the Meadowbank project which will help us reduce the cost. We'll start construction of that road from the Vault tip which will allow us to use the waste from the Vault and I think from our perspective what we're focused on over the next few months is completing an updated resource which will give us a better sense of how we're going to move that project forward over the next couple of years. The resource will include all of the drilling that was done from June 30 to middle of October of this year and given some of the drill results, we certainly expect that resource to grow. At Meliadine we continue to update the study. We would expect to have that work done in February, giving us some sense of what adding additional resources into the mine plant does to the rate of return. From our perspective, what we see at Amaruq, given its potential and its proximity to Meadowbank, combined with the large Amaruq reserve and resource at Meliadine, what we see is an ability, given our skill set and the asset base that we own 100% in Nunavut, the ability to build a platform and a business in Nunavut that rivals the size of our Quebec business. Moving on to Kittila, Kittila processed almost 4,000 tons a day. That was up significantly from what we did a year earlier. Our grades were a little over 4.6 grams. Recoveries were almost 86%. So, getting good recoveries coming out of Finland. I think most important now is the fact that we continue to get good drill results in the Parallel Zone next to the Main Zone and we're focused over the next few months of adding extra drilling capacity at Finland in the underground to give us a better sense of the extent of that mineralized zone. If we look at the long section of Kittila, we've got basically all of that reserve and resource which is over 7 million ounces was essentially undrilled until most recently from the service and it was only until earlier on this year we were able to get some big underground drill in place. So, we're looking before the end of the year to have an additional drill underground which will allow us to move into some open areas and we would certainly expect that deposit to continue to grow as we move forward. We've also added a cross section to the presentation. Moving on to the Southern business, in Mexico our operating margin was extremely strong from the entire business in Mexico in Q3, generating operating margin from the three mines of over $60 million. Nine months, we generated over $200 million. So, that business continues to generate very strong net free cash flows for us. At Pinos Altos, the flagship mine, our throughput rate was 5,400 tons a day. That's up about 7% over the quarter in the previous year, producing almost 50,000 ounces at a cash cost of around $400 an ounce. So, excellent free cash flow generation coming out of Pinos Altos. Creston Mascota, we continue to get steady production at good cost but also getting some good exploration results at the bottom of the pit, a bit higher grade which will certainly help production going forward. And at La India, we continue to get excellent performance but we're still optimizing that asset. We're looking to add to the mine life and we're looking to increase production levels as we go forward. At El Barqueno we have 11 drills continuing to operate on the property. We've got so far to the end of Q3 43,000 meters done, 171 drill holes. We expect to have an initial resource reported with our year end results in February 2016. The Azteca-Zapoteca area continues to be the area of main focus. We've done some conceptual pit outlines. We've done some early metallurgical testing. We're going to move to large scale column testing in the fourth quarter. We started baseline environmental and social work on the project to move that forward. The way we look at El Barqueno, it's the type of project that we've done very well with in Mexico and we see that at a minimum being another La India type but it's also a project where we're now seeing drill holes and good intersections below the potential outlines for pits. So, hopefully we can ultimately have an underground operation at the El Barqueno site. As we wrap up on the quarter, what we can look forward to over the next few months, as we've said many time, we're still in the information gathering phase as we put a number of our projects together over the next few months to lay out our long-term growth plan. We'll have an updated resource in Amaruq. We'll have an initial resource at Barqueno. We should have updated mineral reserve and resource for -- in Mexico for both La India and Creston Mascota. We look forward to more drill results at the Parallel Zone at Kittila. And I think most importantly, being able to update the Nunavut strategy and not only the Nunavut strategy but the longer-term sort of building blocks for the company. And we would put LaRonde plus the ability to increase throughput at LaRonde and take advantage of the head room and the plant in that as well as Goldex and Akasaba. So, that's where we're moving forward. And at this point I'd like to take questions. Operator? Operator? -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- Yes? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [4] -------------------------------------------------------------------------------- Can we open the line for questions, please? -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Yes. We can. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [6] -------------------------------------------------------------------------------- Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Mike Parkin. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [2] -------------------------------------------------------------------------------- Hi, Sean, and guys. I just had a question on the Mexican operations. I noticed on your charts there in the presentation, it all shows costs per ton ticking up quarter over quarter. Anything explaining that? It seems to be kind of an annual thing on some of the assets. I was just wondering if you had any comments on that? -------------------------------------------------------------------------------- Tim Haldane, Agnico Eagle Mines - SVP, Operations, USA & Latin America [3] -------------------------------------------------------------------------------- Yeah. It's Tim here. One of our comments normally is don't pay a lot of attention to the mine site cost per ton at Pinos Altos because that's a multi-process, multi-mine type operation and the -- so, it's an underground mine, open pit mine, mill, heap leach, variable strip ratios. So, it's going to be noisy. It's going to move around at La India and Creston Mascota I think you can probably attribute some of the movement in the mine site cost per ton to mine productivity which usually slows down a little bit during the rainy season. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [4] -------------------------------------------------------------------------------- All right. Thanks, guys. That's it for me. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [5] -------------------------------------------------------------------------------- Next question, Operator? -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- John Tumazos. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [7] -------------------------------------------------------------------------------- Congratulations on the record output and all the progress. At Kittila in the new zones, are the metallurgies the same sulphur and carbon contents? I think the ores would process at the same rates and the reserve life already is 20 years or more. What are the logical increments for the next few expansions there? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [8] -------------------------------------------------------------------------------- Yeah. The metallurgy is the same and what we're really trying to determine is the extent of the zone and the proximity of the zone to the existing underground workings including the ramp that's moving from the main zone area out to the Rimpi area. And that's an operation that's running at about 4,000 tons a day. The plant can probably do 20% more than that. But at this point, we're probably maxed out on the mining rate. But if this zone materializes, given its proximity to the main zone, then there's certainly an opportunity for roughly the same amount of development to access more tons and hopefully increase the mining rate. So, that's the opportunity. That's why we've introduced a second drill that will start before the end of the year in the ramp and drill that area more aggressively. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [9] -------------------------------------------------------------------------------- Thank you. If I can ask a different question, Meliadine, what's the target for resource conversion? Should we expect reserves to go up? 10%? 20%? 50%? Obviously there's a lot -- 700 million -- -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [10] -------------------------------------------------------------------------------- We haven't really been focused on conversion drilling at Meliadine. It's the -- the budget was largely focused on the underground ramp access to the deposit. So, we shouldn't see any change in the classification of the resource reserve for the February update. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [11] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- (Operator Instructions) Patrick Chidley. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [13] -------------------------------------------------------------------------------- Hi, everybody. Just a question on the Amaruq. Just between the two zones, the Whale Tail and the Mammoth Lake. That one hole there appears to be pretty significant to join up the zones. Have you got anymore drilling there? What's the plan for the next few months to be able infill that further? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [14] -------------------------------------------------------------------------------- We will build a -- between them with one well -- we'll know where we see a few holes that the -- plus while we think how this effects, to be assured that we can have some economic envelope between the two zones. But it's early to comment on that. But it's looking good for now. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [15] -------------------------------------------------------------------------------- So, the widths look pretty similar? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [16] -------------------------------------------------------------------------------- It could be sooner for now, what we saw. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [17] -------------------------------------------------------------------------------- Okay. And you highlighted some stuff in the V zone. I'm wondering if that's in the current resource or is that outside of the current resource? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [18] -------------------------------------------------------------------------------- For now, what we did, when we come out with speculation, we calculate 100,000 on V. We set up the program last year when we discovered a well cave and this year we complete the program, the commercial program on the well and before the program's up we move two rigs on the V zone and what we saw is a completely turned zone than last year. We understood better the zone and we saw lenses keeping this out. If you want, V1 and V3, and what you saw on the table is more V2, better grade. And what we think again, this is about the size. But the size will be -- we'll know the size next year when we restart the program during winter. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [19] -------------------------------------------------------------------------------- When you do you start up drilling again? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [20] -------------------------------------------------------------------------------- We stop October 13. We bring the guys in January and probably in mid-February the program will restart next year. -------------------------------------------------------------------------------- Patrick Chidley, HSBC Canada - Analyst [21] -------------------------------------------------------------------------------- Okay. Great. Thank you very much. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- David Haughton. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [23] -------------------------------------------------------------------------------- Good morning, Sean and Tim, thank you for the update. Still on Amaruq, just having a look at the Whale Tail to Mammoth, could you envision that as a single pit? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [24] -------------------------------------------------------------------------------- It could be a single pit but what you saw on the table on the V zone, now we focus on V zone because it's looking very close to the surface. It could be three zones. If this first zone has a certain continuity. But again we have continuity to receive all this sorts of -- between Mammoth and Whale Tail. It's hard to comment right now because we don't have the -- in hand. It will come more the December, we'll have something between Mammoth and Whale Tail. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [25] -------------------------------------------------------------------------------- Also looking at the long section that you provided in relation to that -- does this suggest that there's a lot more potential for the underground than what we previously envisioned? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [26] -------------------------------------------------------------------------------- You're right. When you're looking -- we know last year that we had some holding on the deposits, the zone is dipping South. And we're looking at the trend from West to East, as it plunging to the East, we can see the zone is increasing in thickness and is completely open at the other end of the East and it's something we'll focus next year on the underground composition and the study. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [27] -------------------------------------------------------------------------------- Okay. And Sean had mentioned in the commentary that you have got receipt of the permit for the road and that construction would take place in 2016. What sort of capital should we be thinking about for the road? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [28] -------------------------------------------------------------------------------- I misspoke on that. We expect to get the permit before the end of 2016. We don't expect an issue. We have the Nunavut planning commission conform or say that the road conforms to the land use and we've always said the capital expectations there are sort of in the $90 million to $100 million range for the road. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [29] -------------------------------------------------------------------------------- That may have been my mistake, not hearing properly. I don't know. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [30] -------------------------------------------------------------------------------- I think I probably misspoke there. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [31] -------------------------------------------------------------------------------- All right. Great. Thank you very much. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- (Operator Instructions) Andrew Quail. -------------------------------------------------------------------------------- Andrew Quail, Goldman Sachs - Analyst [33] -------------------------------------------------------------------------------- Good morning, gentlemen. Congratulations on a very solid quarter. Just switching gears away from Amaruq, Malartic, the production at Malartic was very solid and you're moving very close to the design rates at the operation. I'm just wondering if you can give us a sense of with the work that you're doing on improving performance and productivity. Do you think that you'll be able to hit 55,000 tons within the next, say, 12 months. Or what is your thought process in that regard? -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [34] -------------------------------------------------------------------------------- This is Yvon here. No, I think the performance at these sites have been very good. I think most of the performance in the last quarter has been relating to getting better crusher availability and feeding the crusher on a constant basis and having dome inventory being constant, showing us that we can provide more tons on a continuous basis. As far as the question are we going to be able to advance to 55,000 earlier, that won't happen until 2017, until we get critical permits on the crushing side. So, I think what you saw this year will be a very similar picture for next year. -------------------------------------------------------------------------------- Andrew Quail, Goldman Sachs - Analyst [35] -------------------------------------------------------------------------------- All right. Thank you very much. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Stephen Walker. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [37] -------------------------------------------------------------------------------- Thank you, Operator. Good morning. Sean, just a question on capital allocation if you would. If we assume that the organic projects, the Goldex, Kittila, Pinos Altos, Creston gets funded out of cash flow or operating cash flow, and new capital projects, can you talk a little bit about how you envision the funding for Amaruq, Meliadine, El Barqueno, particularly the funding of Meliadine and what alternatives could be considered in the context of the current spot gold price, $1,200 gold price, how you could see the financing and funding for -- not so much worried about Amaruq near-term, but I'm thinking more about Meliadine and El Barqueno. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [38] -------------------------------------------------------------------------------- There's really no change in the updates we've had over the last few weeks. I think we've been actively -- in fact quite busy over the last several weeks, gathering information and continuing to gather information on all of the opportunities we have and some of that information gathering is still in the drilling phase leading to updated resources or initial resources as well as updating some studies. So, I think we're still proceeding down on the timeline that we have been consistently talking about with our shareholders as to sort of early next year having the opportunity to pull all this together. So, no change there. We're looking at a CAD1,500 gold price. I think as Dave Smith point out, back in 2011 I think the highest price we averaged in Canadian dollars over a quarter was sort of in the CAD1,650 range. So, this is still a very robust price where in an area where we have three-quarters, two-thirds of our business. So, we have to look at it in that context and I think from Nunavut, our experience tells us that this will be one of our key operating platforms over a number of years. So, what we're trying to do is see how we can fit it in, generate the returns that we feel the need there and I should say that Meliadine's return will go up from what's in the 43101 as we incorporate resource in there. But what we're trying to do is put a growth plan in place that doesn't introduce excessive risk into our business. That's what we're working hard at doing and if it means we have to pace things out, we'll pace things out. We're still in that phase where we're gathering information to make those determinations over the next few months. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [39] -------------------------------------------------------------------------------- Thank you very much for that, Sean. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Greg Barnes. -------------------------------------------------------------------------------- Greg Barnes, TD Securities - Analyst [41] -------------------------------------------------------------------------------- Thank you. Steve actually kind of jumped on top of my question already but, Sean, you mentioned Nunavut eventually being similar to the Abitibi in terms of scale. I know you're obviously gathering information on this, but what kind of timeframe are you thinking? Is this a five year initiative? Ten year? What do you think? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [42] -------------------------------------------------------------------------------- I think minimum five. We have to think long-term. Amaruq would be a big part of that obviously. It's still very early. Our focus there is to identify a second source of open pit ore. We feel that gives us the best change to utilize the full availability of the Meadowbank plant which would certainly drive the economics and that will be I think the biggest single swing factor on the ultimate production coming out of the Meadowbank facility. And that will be driven largely by grade. So, it's still early. But if we look at the Abitibi, our sense is, and what we're still working on is we know in our mine plan if LaRonde gets up to 370,000, 375,000 ounces in our budgets and our life of mine planning, we know we're going to have about 2,000 tons a day of extra, unused capacity in the LaRonde plant which would allow us to add some ounces, possibly from Bousquet. we're still studying that low capital investment. So, that could take that complex to 400, Malartic's 300, a little over. And Goldex, we think with Akasaba we can get that up to kind of the 140-ish area. So, that's over 800. And our longer-term objective given Meliadine and given what we see at Amaruq and its proximity to Meadowbank, is that certainly has the potential to be 800-ish. So, minimum, or earliest that could happen is likely five years from now. But if it seems we have to take a bit longer because we have to manage risks, then we'll do that. -------------------------------------------------------------------------------- Greg Barnes, TD Securities - Analyst [43] -------------------------------------------------------------------------------- Meliadine is the key to that level of production? That's going to be a difficult decision. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [44] -------------------------------------------------------------------------------- Yeah. Of course it is. Largely because of the capital. But I wouldn't look at Meliadine as a 10% rate of return project. I would look at it as a project that we can likely get to our IRR hurdle rate which is 15%. So, we have to look at it in that context. The question then becomes pace. And I think what we're seeing at Nunavut with that platform is it's an area that we've said many times, it's an area we're extremely comfortable doing business in. We can get things done there. We have a unique skill set that we've developed there since 2007 and what a 10 million ounce deposit growing at Meliadine tells us and what we're seeing at Amaruq in terms of exploration tells us it's a part of the world that's just getting started in terms of understanding the mineral wealth that exists there and we have a huge head start. So, why should -- for us it's a no brainer actually. It's a great place to employ capital. We've got people that have demonstrated ability to add a lot of value when they get centered on an operating region and a platform and just like we've been in Quebec for 40 years and we expect to be in Finland for multi decades, we would certainly expect to be in Nunavut for multi decades as well. How we get there, we're not sure yet. But we have the experience and the skills to get us to where we need to be and make that a very meaningful part of our business going forward. -------------------------------------------------------------------------------- Greg Barnes, TD Securities - Analyst [45] -------------------------------------------------------------------------------- Thanks, Sean. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Tanya Jakusconek. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [47] -------------------------------------------------------------------------------- Good morning, everybody. I have a couple of questions. First one is on taxes. Maybe Dave can walk us through what exactly happened with the taxes this quarter and what we should think about? Just trying to get my head around that. And then my second question, Sean, is for you. Just on the Lapa availability, you mentioned Bousquet as a potential source of ore. Is that anything in the pit or would we be going back to town? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [48] -------------------------------------------------------------------------------- I'll do that before you get to the excitement of tax. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [49] -------------------------------------------------------------------------------- I know. I didn't know who to ask. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [50] -------------------------------------------------------------------------------- I'll deal with that. It will be underground. There will be several hundred thousand ounces of resource that have been there for the longest time. It never made sense because it didn't make sense to potentially crowd out other more highly valued tonnage in the region coming from Lapa. But it may make sense as an incremental addition to the LaRonde complex. We haven't decided one way or the other what we're going to do. We've identified it as an opportunity and our project development group in our Northern business is working on that right now. We've had studies that have been done over the last sort of five to ten years on that issue. So, it's more sort of updating that work and it will still take a few quarters to get that work done, to decide whether it makes sense for us. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [51] -------------------------------------------------------------------------------- Sean, would we need to refurbish that fast? Is it -- do we have to do water? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [52] -------------------------------------------------------------------------------- Yeah. You have to do water. It's not -- we don't see it as a massive undertaking to get that operation restarted if the returns are there. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [53] -------------------------------------------------------------------------------- Okay. Before going to taxes and our excitement, maybe just -- the cost -- in Malartic. With the input increasing, where do we see the $22 of tax cost moving? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [54] -------------------------------------------------------------------------------- Yvon's going to take that one. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [55] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [56] -------------------------------------------------------------------------------- Can you repeat the question? I'm not sure I understood. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [57] -------------------------------------------------------------------------------- Malartic costs. Where would they go when we get the throughput up from the current level of 53.7 up to 55. -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [58] -------------------------------------------------------------------------------- I think there's always going to be pressure for costs to go up because this goes back to this deferred stripping. As the stripping ratio goes down -- it's more the deferred stripping that's going to define the OPEC structure down the road. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [59] -------------------------------------------------------------------------------- Okay. And the processing cost with that? -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [60] -------------------------------------------------------------------------------- They're going to be relatively flat going forward. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [61] -------------------------------------------------------------------------------- Okay. So, in that nine -- offering? -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [62] -------------------------------------------------------------------------------- Yep. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [63] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [64] -------------------------------------------------------------------------------- I was kind of hoping you were going to forget about the tax question. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [65] -------------------------------------------------------------------------------- This is the exciting part. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [66] -------------------------------------------------------------------------------- It is highly unpredictable. I don't blame you for not understanding it. But with the effective IFRS effective tax rate method, it's going to be highly volatile quarter to quarter. But overall for the full year we still reiterated our guidance at 40% to 45% overall but apologies that it's quite unpredictable during the year. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [67] -------------------------------------------------------------------------------- Yeah. But maybe just what happens if that gain in the quarter -- ? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [68] -------------------------------------------------------------------------------- There's a variety. The tax rate, the effective tax rate is applied asset by asset and then with the expiration expense and so on, just the way the effective tax rate work out, there's this huge recovery this quarter and it's just literally applying the IFRS methodology. It is literally as simple as that. But it does effectively reverse through the full year if you have a gain like that which is unusual. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [69] -------------------------------------------------------------------------------- But it's not treated as an unusual item? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [70] -------------------------------------------------------------------------------- No. I guess there's no avoiding the volatility unfortunately and it averages out. If you want to get into the details -- -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [71] -------------------------------------------------------------------------------- We could take it offline. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [72] -------------------------------------------------------------------------------- Give me a call and we'll get the tax guide out. It's really quite complicated. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [73] -------------------------------------------------------------------------------- You'll need to book a lunch. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [74] -------------------------------------------------------------------------------- All right. Thank you, guys. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- (Operator Instructions) Anita Soni. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [76] -------------------------------------------------------------------------------- Good morning, guys. I mostly just continued with my questions just to see how my name would be pronounced. But you did okay. My question I guess, the one that remains is with regards to Goldex and the grade that you have. It seems like you had a pretty good quarter with some good grades coming out of the end zone. How do you expect that to pan out over the next quarter and into the next year? -------------------------------------------------------------------------------- Tim Haldane, Agnico Eagle Mines - SVP, Operations, USA & Latin America [77] -------------------------------------------------------------------------------- I think the production profile for Q4 will be quite similar to the production profile in Q3, continuing to get better than expected reconciliation in the end zone because of a greater proportion of free gold in that area. We've also had in some areas some better reconciliation in the zones so it's at this stage maybe a block model, mainly for the end zone is a little bit conservative. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [78] -------------------------------------------------------------------------------- Okay. A similar question with LaRonde. I think you were pulling a little bit more -- sorry, I'm a little bit tired here. But the underground area. I'm sorry. I forget what that's called now, the deeper zone at LaRonde. Is that going to continue for the next little while? Or do you anticipate going back up to the higher areas? -------------------------------------------------------------------------------- Tim Haldane, Agnico Eagle Mines - SVP, Operations, USA & Latin America [79] -------------------------------------------------------------------------------- I think the production profile for Q3 and Q4 will be quite similar at LaRonde. As we move into 2016, '17, we'll continue to increase the level of numbers of stops in that as we move to the West and we'll get into the reserve grade after '18 essentially. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [80] -------------------------------------------------------------------------------- Thank you very much. Congratulations on a good quarter. -------------------------------------------------------------------------------- Operator [81] -------------------------------------------------------------------------------- (inaudible) -------------------------------------------------------------------------------- Unidentified Participant [82] -------------------------------------------------------------------------------- Hi, everyone. Just a couple of questions from me. First on Kittila, if all goes well and the zone extends closer to the ramp there, conceptually when do you see potentially increased maybe in the mining rate and tonnage there to fill that 20% extra capacity you have at the mill? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [83] -------------------------------------------------------------------------------- I think we're focused at this stage on improving the overall economics. There was an earlier question to the same effect. We're working on a life of mine number for improvement programs down the road that would see a larger throughput rate to match the current capacity. The timing for all of that is probably '17, '18 onwards which is basically the timing for the production to begin in Rimpi, Parallel Zone, we need to better understand in the next year. We could possibly see some production at the 800 theater level coming into production, perhaps '19, '20, down the road. -------------------------------------------------------------------------------- Unidentified Participant [84] -------------------------------------------------------------------------------- Okay. And how does it maybe impact your thinking about the shaft there near the zone? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [85] -------------------------------------------------------------------------------- I think for the next three or four years we continue to mine, the mine plan is focusing on reserves above the 600 level. And as we start mining at a greater depth down the road, perhaps 2020, the shaft will become both strategic for operation costs and it will be both strategic for exploration purposes. So, that's all part of our capital allocation process that we're looking into now and we'll provide a little more color on that in 2016. -------------------------------------------------------------------------------- Unidentified Participant [86] -------------------------------------------------------------------------------- Great. And just a quick follow up. In Q2 you increased your CapEx for the year and then you cut it by $50 million in Q3. Maybe if you could provide a bit of detail. Where is this CapEx coming out from? -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [87] -------------------------------------------------------------------------------- It wasn't really a cut. It's about $35 million of the $50 million is FX driven, the change in the currency. And about $15 million was a deferral into next year, largely from Mexico. That's the Southern business. -------------------------------------------------------------------------------- Unidentified Participant [88] -------------------------------------------------------------------------------- Great. Thank you so much. -------------------------------------------------------------------------------- Operator [89] -------------------------------------------------------------------------------- Don Maclean. -------------------------------------------------------------------------------- Don Maclean, Paradigm Capital - Analyst [90] -------------------------------------------------------------------------------- Hey, guys. I have a four part question on taxes. Just kidding, Dave. Slightly more exciting. Only slightly. It was actually about G&A, maybe about the Nunavut platform, Sean. If you look at the G&A cost burden as a percentage of your costs currently for the Meadowbank operations, could you give us a sense of what percentage they are now? And if you look forward to that larger platform, what might happen to those? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [91] -------------------------------------------------------------------------------- We'll let Yvon talk about the costs and then I'll come back and talk about some of the initiatives we're working on. -------------------------------------------------------------------------------- Yvon?Sylvestre Agnico Eagle Mines - SVP, Operations, Canada & Europe [92] -------------------------------------------------------------------------------- For G&A costs, I don't have the exact number. But they're roughly one-third of our OpEx number. And the other part of dealing with our reality with other projects down the road because the cost of bringing in materials, people, and so on is higher. I think it's going to be quite similar to what we're seeing in relative terms to what we're seeing now at Meliadine. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [93] -------------------------------------------------------------------------------- In the bigger picture, I think what we haven't fully realized is the synergies with the Quebec logistical support base and skill set there and the sort of emerging platform in Nunavut. We do have one senior manager assigned to the task of the joint services or the shared services and trying to understand ways that we can provide those services to the Nunavut platform in a more cost effective way and utilizing the experience that we have in Quebec both from a skill point of view but largely from a planning and logistics point of view. So, with two projects, those costs can get spread out and we'll have more opportunities for shared services. So, that's still a work in process. I guess sort of made those people reassignments over the last few months or so in conjunction with establishing a new team for the Nunavut strategy and Nunavut business. And so we certainly expect to be able to get some costs out of what we're currently seeing now that are being born by Meadowbank. -------------------------------------------------------------------------------- Don Maclean, Paradigm Capital - Analyst [94] -------------------------------------------------------------------------------- Sean, when you talk about Meliadine as being more conceptually like a 15% rate of return hurdle, are you bringing that into account, the synergies on the G&A? -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [95] -------------------------------------------------------------------------------- No. Because up until now it's been done in isolation. So, we haven't gotten to the stage where we understand all of those synergies to be able to incorporate them in and we won't expect to have that done before the first quarter of next year. This is more of a multi quarter process to identify and unlock those synergies. And part of it is can we do more from the South. Can we do more from our Quebec base to support the operation or the emerging platform in Nunavut because one of the biggest costs is transportation of people and housing people in the North. So, we're relooking at all of that now in conjunction with a potentially larger platform in Nunavut. -------------------------------------------------------------------------------- Dave Smith, Agnico Eagle Mines - CFO [96] -------------------------------------------------------------------------------- We can see the benefits though just from exploration. The fact that we're able to tag on the exploration support on to the Meadowbank infrastructure. That's why our costs to drill and meter in Nunavut are $300 a meter where a junior would probably be paying triple right now. So, it's a matter of coordination and planning and logistics. The better you're able to plan and the more effective that plan is, the lower your costs are. I think we had to figure that to move a pound of equipment or material by barge it's under $0.10 a pound. To fly it in, it's close to $9. So, a lot of that thinking still needs to be done as we try to see how those things come together. -------------------------------------------------------------------------------- Don Maclean, Paradigm Capital - Analyst [97] -------------------------------------------------------------------------------- Perfect. Thank you. -------------------------------------------------------------------------------- Operator [98] -------------------------------------------------------------------------------- There are no further questions. Please, continue, Mr. Boyd. -------------------------------------------------------------------------------- Sean Boyd, Agnico Eagle Mines - CEO [99] -------------------------------------------------------------------------------- Thank you, Operator. Thank you, everyone. I know it's a busy day. So, thanks for your attention to our conference call. -------------------------------------------------------------------------------- Operator [100] -------------------------------------------------------------------------------- Ladies and gentlemen, this conclude 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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