Agnico Eagle Mines Ltd (AEM) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Agnico-Eagle 2002 conference call. At this time, all participants are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. This conference is being recorded and we'll now turn the conference over to

Mr. Sean Boyd, President and Chief Executive Officer.

Thank you, operator, and good morning, everyone and welcome to Agnico-Eagle's 2002 3Q conference call. Our full team is with us here to today in Toronto. Ebe Scherkus, Executive Vice President and Chief Operating Officer; David Garafalo, Vice President, Finance and Chief Financial Officer; Barry Landon, Vice President and Corporate Secretary; Don Allan; Anton Adamcik, Vice President Exploration and Environment; Alain Blackburn, Manager Corporate Development; and Marc Legault, Chief Geologist.

Before we give you the details of the quarter and continue with the presentation, we as usual are obliged to outline the standard safe harbor statement, which states as follows. This press release and this presentation contain certain forward-looking statements that involve a number of risks and uncertainties.

Let's get right into the operating side of the third quarter. Naturally we are disappointed in the third quarter results from the standpoint of gold production. Essentially in the third quarter, we did not have access to as many gold ore mining blocks at depth as we had expected, and although we did not meet or operating expectations for the third quarter, we were successful in moving LaRonde forward to 7,000 tons per day. In fact, since the changeover to 7,000 tons per day in early October, the processing facility has treated an average of 7500 tons of ore per day with daily payable gold production averaging a little over 1100 ounces. In the third quarter, as you know, we reported a net loss of 600,000 U.S. or 1 cent a share, which compared to a net loss in the prior year's third quarter of 5.6 million, or 8 cents per share. The cash flow from operations in the third quarter was 2.3 million U.S. or three cents a share. That was up from 900,000 U.S. or 1 cent per share in the third quarter of 2001. For the nine months, our net earnings were 3.2 million or 5 cents a share, and our operating cash flow was 14.9 million or 22 cents per share. Gold production as we said was lower than planned, at

50,000 ounces, as we produced more Zinc rich ore from areas that were already previously developed. As a result, the cash cost to produce an ounce of gold rose to $208 per ounce in the quarter. I think a better measure of the efficiency of the operations in the third quarter was reflected in our cost to mine and process a ton of ore. These costs for the third quarter and for the first nine months were right on budget and they average Canadian $51 per ton. The mill in the third quarter processed average daily tonnage of almost 5,000 tons a day and the mining conditions continue to be excellent with dilution remaining slightly below our target levels.

Gold production in the fourth quarter of 2002 is forecast to reach 100,000 ounces, and the cash costs excluding the El Coco royalty are expected to be about $110 per ounce. With the El Coco royalty, we would need to add $50 per ounce to our cash costs in the fourth quarter.

A little bit more specifically, as we mentioned earlier, due to the delays in accessing the higher grade gold mining blocks at depth, we placed more emphasis on getting at production in the upper part of zone 20 north, which had lower gold rates. The activity of our development crews was curtailed in the quarter by ventilation capacity at depth as well as because of record-high temperatures experienced during the summer. Improvements in the ventilation system and the cooler faller temperatures have resulted in a significant improvement in development performance. In addition, at depth, we are now skipping less waste, much more focused on development, productivity has significantly improved, as we said, there's much let

interference from construction crews, constructing infrastructure underground, and the hoisting system has improved so that we are no longer muckbound as we were in the summer. The changeover from 5,000 tons a day to 7,000 tons per day took place in the mill in early October. The commissioning of the expanded plant went very well as the new capacity of 7,000 tons per day was reached within 48 hours of start-up. Since the mill has been commissioned, our ore throughput has been better, peak daily rates of 7900 tons a day, and daily payable gold production in excess of 1100 ounces. Currently the mine and mill are operating at the newly expanded production rates with gold ore from the lower levels of the mine providing approximately 35% of the mill feed. To date, mining from the lowest levels has seen targets achieved for both dilution and grade, and approximately 85% of the ore processed next year is expected to be sourced from the lower levels of the mine, resulting in higher gold production in 2003. Therefore, the LaRonde low cost production growth story is essentially unchanged with the LaRonde mine now operating at the expanded rate of 7,000 tons per day, we expect steady growth in earnings and cash flow.

As far as our financial goes, at the end of September our cash position stood at $17.7 million U.S. We had working capital of over $36 million U.S., and we had 95 million of undrawn bank lines available under our bank facility. For the three months ended September 30th , extensive construction and development at LaRonde related to the expansion program resulted in capital expenditure s of 21.5 million U.S. For the full year, capital expenditures at the LaRonde mine are expected to be 55 million, approximately 10 million above budget due to overruns associated with delays in underground development, the replacement of the electrical drive system in the [sog] mill, the addition of an underground spot cooling system, and the acceleration of tailings dam construction.

On the exploration front, still our primary strategy to create value continues to be a program of aggressive exploration on LaRonde and east of LaRonde on the large land package. The success of the exploration program in the corridor continues to demonstrate the potential to discover more gold at LaRonde. In addition to the drilling on LaRonde, we also have an exploration program on the Lapa property approximately 12 kilometers east of LaRonde. We'll address that in a minute.

In the quarter, our drilling highlights were as follows. Delineation drilling continued to confirm the transition of zone 20 north from zinc silver to gold copper, also outlined several additional higher grade gold mining blocks in zone 27. This drilling also continued to encounter the high grade quarts vein zone first reported in the second quarter.

Our definition drilling between 191 and 215 in the heart of the zone 20 north gold reserve confirmed higher grade gold and thick mineralization as our definition drilling program moved off to the west on zone 20 north.

Our deep drilling along the western limits of zone 20 north returned higher gold grades expected with a greater than estimated strike length. On our Lapa property, high grade gold results have led us to undertake a follow-up drill program in the fourth quarter of this year.

I just want a focus a little bit on the deep drilling program. We completed one hole along the western limit of zone 20 north at a depth of 9900 feet below surface on the known mineral resource limit.

Drill hole 3215-22F encountered two gold bearing zones in a broad zone of alteration and gold mineralization up to 200 feet thick.

The southern-most intercept of almost 17 feet grading .22 ounces of gold per ton appears to correlate with zone 20 north. This intercept is the deepest and western-most value on zone 20 north, and the value lies on the current western limit of our known resource, suggesting that the strike length may be greater than presently indicated. The northern-most intercept grading .29 ounces of gold per ton over nine feet may be the indication of a new pair parallel zone.

The two intercepts are separated by about 100 feet of all altered [faltered] volcanics, and previous deep drilling in this area has encountered similar mineralization to this northern intercept, and we had originally interpreted these values to be isolated values, but now we're rethinking this based on this latest result.

Currently, there are three drills testing zone 20 north at depth, two drills are testing at along both the eastern and western resource limit at about a depth of 7800 feet below surface while the third drill is testing the zone along the western resource margin at a depth of 8800 feet below surface. This work will also follow up on the potential new gold zone at depth. On the expansion front, work continues on evaluating various options to access the large and growing resource below the bottom of the Penna shaft. We've initiated several studies on the quarter, using outside experts to provide input on such things as deep access alternatives, deep mining methods and geomechanical issues. Our technical group has recently returned from South Africa, where they have evaluated large hoisting installations and underground cooling systems, and we expect to have completed a feasibility study on the potential of the deep mine at LaRonde before the middle of next year.

On the corporate development front, we were actively reviewing several opportunities to strengthen our company. Our focus is on both development stage and producing assets. We are not looking to add marginal assets but we're looking to add assets where we can add value using our mine value and operating skills.

Essentially, disappointing quarter from a production standpoint, however, in the areas important for us going forward, we have had positive results. Ore is now being sourced from both the upper and lower levels of the mine, grades and recoveries are as expected, mining conditions in the ore are as expected, the processing facilities are now running at or above the rate of capacity of 7,000 tons per day, and the posit continues to grow with the potential new gold zone at depth.

That's a quick rundown of the quarter and the current state of our operations. We'd like to use the rest of the call to deal with any specific questions or issues. We have a full team here available to assist us in answering your questions, so I'd just like to ask the operator now to please open up the line for questions.

Thank you, Mr. Boyd. One moment, please.

Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Your questions will be polled in the order they are received. If you would like to decline from the polling process, please press star 2. Please ensure you lift the hand set before pressing any keys. One moment for your first question.

Your first question comes from David Christian from CSFB.

Good morning, everyone. Lots of conference calls today.

Hi, David.

Relatively broad question, actually.

Or specific as the case may be. In this case, it's gold X. In Denver, you dug up an older project which you've been working on for years. Could you get us an idea what you plan to be spending at gold X this year and next? And how might this project have changed in terms of your thought process over the last self years since you last really spent a lot of time working on it?

I'll deal with the first part of that, David, then I can turn it over to Ebe. All we've done now with gold X given some improvements that we see in technology and the possibility of available infrastructure in the area to maybe lower the capital, we are basically going to rethink that using our technical team to take another look at it. At this point, we don't have any budget outline for that project at all. All we are now is in the initial stages of revisiting that, and using improvements in technology and some other thoughts we have about situations locally that may make that project more feasible. But I'll let Ebe give you some input on more of the technical side.

I think, David, with respect to the technical side, we're currently operating at 4-1 hoisting factor at LaRonde. That had the impact of reducing our capital cost with respect to hoist installation. We hope to be able to apply that at gold X. Also, we happen to have the original 16-foot production hoist from the Penn arks shaft. We happen to have that stockpiled it at the gold excite. We also have various infrastructure available from shaft number 1. That could be used at gold ex-. Also in terms of production equipment, scoop equipment, there have been improvements.

Also I think probably the most important factor is that we now have about two years of operating history and experience under our belt at 5,000 tons per day, which we really didn't have when we first evaluated gold ex, so we'd like to take a look at it, look at our unit cost, look at our development, et cetera, and apply that to gold ex. And then also I think, as Sean referred to, in the region, there are perhaps other opportunities and maybe some synergies that could be negotiated with other mining companies, so we're exploring that as well.

Your next question comes from Victor Florres from HSBC. Please go ahead.

Thank you. Good morning. David stole my question on gold ex so I'll ask you about LaRonde in the fourth quarter, given that you fell a bit behind in the third, you've laid out for yourself a pretty challenging requirement to really get things running, I guess, 100% in the fourth quarter. How confident are you, you know, with almost a month behind us that, you know, you're on track to do what you think you can do this quarter?

Ebe here, Victor. I think we're very confident right now because I don't think it could get much worse than it happened to be this summer. The main area of concern was development, and I think we've made numerous changes with respect to development, number one, we now have major improvements in ventilation, so immediately the human factor, the productivity increases. Also, we've lowered down two mechanical rock bolters from our crew, and we are helping the contractor with ground support at the lower levels. Also we are moving in some of our LaRonde crews on the lower levels to make sure that we get the development done.

Also I think a lot of our bottlenecks such as construction, we still have construction challenges, we still have the load out facility to complete, the crushing plant to install, but we have been able to reduce an awful lot of the traffic on the lower levels of the mine where we are no longer extracting waste and ore out through the shaft. So now we're currently hoisting only ore from the bottom levels of the shaft, and the waste that we do generate gets used as cemented rock fill, and we've been doing this for the last 10 years as a standard procedure.

So we feel with all of these improvements, we will accelerate our development and be able to get the ore. Currently our mine plan for the fourth quarter calls for production of about 2500 tons per day from the lower levels. That is split on two horizons, level 215 and level 194, where we have [stopes] that are currently in production, and also on a more encouraging photo, we also have the [stopes] -- the next [stopes] required for production, so I think that bodes well.

And I think as Sean mentioned, that the mill itself, the fact that it is currently averaging around 7500 tons per day, and the grades -- on a side note, we produced more gold in the first 12 days of operation in October than we produced in all of July. So I think we've turned the corner.

Thank you. Excellent answer. Thank you very much.

Your next question comes from David Melaier from Schosha Capital.

Thank you very much, guys. Just a follow-up with regards to Victor. Ebe, could you just repeat more slowly for me what has to be constructed in the lower refuels levels again?

We have to still build the crushing plant and the conveyorway up to the load-out facility. Very similar to the general arrangement on level 152 that I believe all of you have seen, or most of you have seen. The ore bin, the 5,000-ton ore bin, is already excavated. That is complete. The ramp down to the crusher room, that is complete. We are now in the process of excavating the crusher room itself, so once that gets excavated, that's scheduled to be completed by the end of this year, then we will start the mechanical and electrical installation, the conveyor systems and the crusher itself, and that is expected to be completed by mid April to early May. And once that gets in place, then, of course, that will improve our muck handling efficiencies, and we will not even have to muck the ore out to the station which we are currently doing by using our 30-ton trucks.

So what's the cap ex for 2003 looking like then?

I would say the cap ex -- we're going to be catching up on development, so that will be incremental as far as the capital cost of the crushing plant, et cetera. That is a carryover from 2002. So we're working with probably an increase of about 6 to $7 million, which is a spillover from 2002.

Canadian or U.S.?

U.S..

It will be all around 18 million U.S. next year.

Okay. And back to as David said some propeller head questions. I was wondering with regards to El Coco, what are we looking for with regards to production which is coming out of there for Q4 and perhaps 2003, which we had to pay royalties on?

I would say based on what we have done as development has slowed down on the lower levels, we have accelerated El Coco throughout the year, so for 2003, El Coco will essentially be depleted by the end of next year. Also, the grades will be declining on El Coco, so for the rest of the year, we've got budgeted about another 60 to 70,000 tons that will be coming out of El Coco.

But I think the main thrust, every ton that we get from the bottom of the mine will be displacing a zinc-rich ton and also be replacing an El Coco ton, so there's clearly a transition and progress right now.

This year, we're looking at a quarter ounce out of El Coco, next year we're looking at a couple thousand tons at .15 in terms of what's left over to take out.

Is that going to stay there for a little while?

We will take that out during the year on a quarterly basis. It won't stay there. I think in terms of mining procedure, we just like to close the area down once it's completely mined out then move our resources elsewhere.

Okay. And the gravity circuit, is that supposed to be installed by Q is 1?

It is actually working right now, David. We're working the bugs out of it. I just talked to the mill this morning, and we have a few plugged lines so it's going through a tune-up, but it is operational.

And percentage of gold that you'll be getting out of that?

As much as possible.

I think on the last two, you said perhaps 4%.

15%. I think that is the objective. 4% on the last ore is what we were able to do because we were only processing part of the mill feed that was going through the gravity circuit, but with the expansion to 7,000 tons, all of it will be going through the gravity circuit, and then, of course, with increased gold copper ore from the lower levels, we expect to bump that up to historical levels which is around 15%.

Okay. Thank you.

Mr. Boyd, there are no further questions at this time. Please continue.

Okay. We can wrap it up now. Just want to thank everybody for taking the time. I know it's a busy morning and a busy scening schedule of conference calls, but if there's anything to follow up, please call us here directly and any one of us would be happy to answer any more questions. Again, thanks fortuning in to our third quarter conference call.

Ladies and gentlemen, this concludes the conference call for today. Thank you for

participating, and please disconnect your lines.