Agnico Eagle Mines Ltd (AEM) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle Mines second-quarter 2004 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue for questions. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Thursday, August 5th, 2004 at 11 AM Eastern Time. I will now through the conference over to Mr. Sean Boyd, President and CEO. Please go ahead, sir.

Thank you very much, operator, and good morning everyone and thanks for joining us today for our second-quarter conference call. Our full senior management team is here in Toronto today -- Ebe Scherkus, Dave Garofalo, Barry Landen, Alain Blackburn, and Don Allan. What we'd like to cover today in the conference call is, obviously, operations and financial results. We will talk about our 2004 forecast. We'll also talk about some of our recent exploration results at LaRonde and on Bousquet. We'll talk about our projects, update our the projects and we'll talk a little bit about consolidation in the industry.

Prior to beginning the presentation, I just want to forewarn you that this presentation does contain certain forward-looking statements which involve a number of risks and uncertainties, so just be forewarned on that. As far as the highlights from an operating perspective, the operations continued to perform strongly in the second quarter. We produced over 65,000 ounces of gold at a very low cash cost of $77 an ounce, which was a huge improvement from last year's second quarter where we were producing gold at $258 an ounce. Essentially what we have is much more flexibility now, higher ore volumes generating increased by-product metal production. And higher-than-forecast by-product metal prices have contributed to this much improved operating cost profile. The key profit driver for LaRonde is the ability to mine and process volumes of ore, over 8000 tons a day, with a profit margin on each ton of almost 80%.

On the financial side, we continue to generate solid profits as we are now in a steady operating mode at LaRonde. Our second-quarter earnings were 8.8 million, or $0.11 per share. That compares with a loss in the year-earlier quarter of 3.8 million, or $0.05 a share.

Second-quarter operating cash flow, again, very strong. We generated over 17 million U.S., $0.20 a share. That compares to less than $1 million, or $0.01 per share in the second quarter of 2003.

On the balance sheet side, we reigned in a very strong position -- 99 million in cash, 147 million in working capital. And as we just pointed out, we are generating very strong cash flows and expect to generate positive net free cash flow in 2004, even with the additional expenditures announced on the Lapa project.

We have 85 million shares outstanding, which is at the low end of the produced -- intermediate producer range. As you also noted in the press release, our balance sheet has been strengthened. We've issued an additional 1 million shares to a flowthrough fund, raising $23 million Canadian to fund Lapa and Goldex. This is a unique arrangement for us in terms of the ability for us to raise this type of financing in the industry. As you know, we have significant tax pools available for future deduction against taxable income, amounting to in excess of 600 million U.S.. Therefore, it puts us in a position to be able to raise flowthrough funding. We raised the current flowthrough funding at a stock price 34% above the closing price of yesterday. So it's a way that we can move these projects forward, build our Canadian production base, and do it at a very cost-effective way by issuing our stock at significant premiums to market.

Just a little bit more detail on the operating results. We'll talk about the increased tonnage; we'll also talk about the gold grade and the reasons for a lower gold rate in the second quarter. In terms of tonnage, again, record tonnage, hoisting over 750,000 tons. Over 470,000 tons of those came from the lower mining levels, averaging over 8200 tons a day. Our stockpile increased. We've got a surface stockpile of LaRonde ore or about 75,000 tons. Bousquet ore, over 60,000 tons.

In terms of grade in the second quarter, our gold grade was a bit down. There were two principal reasons for that. One was slightly higher-than-expected dilution in the second quarter, principally along level 194, where our dilution was about 6 to 10% higher than we had expected. And what that dilution was, was that was primary stopes that had been backfilled much earlier in the mining cycle. The backfill was unconsolidated rockfill, so we were getting cemented backfill diluting our ore, principally along the 194 level. We don't foresee this as an ongoing issue, because as we move out into the ore body, the backfill is much more competent -- put in much later than the earlier backfill, so we don't see that as an issue going for.

The other reason for the lower gold grade in the second quarter was simply the fact that we were mining in the mining sequence on the eastern margin of the deposit, which was more biased to higher zinc grades. And also not in the budget, but we decided to mine this particular area, is on that part of the deposit there are principally two zones -- a gold zone and a zinc zone. And because of higher zinc prices, and we had the development out there, we decided to extract those additional tons on the eastern limit. And as you can see, our zinc production was up significantly in the second quarter because we were taking those tons. And if you put it all into perspective, our job now is that we know that it costs us below $50 a ton to mine and process a ton of rock. Our average revenue per ton in the second quarter was $84. So that's a good business. And if we can get those tons, it we can access them easily and get them up to shaft and put them through our mill, then that's how we can maximize our profit for our shareholders.

In terms of the processing, where our operating time continued to improve in the mill, we averaged almost 96% operating time in the second quarter, processing over 750,000 tons, or over 8200 tons a day. Our recoveries for gold were slightly lower than expected. They were a little bit below 92%, due principally to the lower gold grades. However, the recoveries for the other metals are at or exceeding plan. Our silver recoveries were almost 86%; zinc recoveries, over 83%; copper recoveries, about 79%. As we said earlier, our by-product metal production is very strong, over 37 million pounds of zinc produced in the quarter. About a million and a half ounces of silver, and about 5 million pounds of copper. That drove record cash costs, as we said, of $77 per ounce, based on realized prices of 622 for silver, $1.26 for copper, and $0.47 for zinc.

Our total all-in cost, on a per-ounce basis -- which includes operating, exploration, depreciation and amortization, G&A, interest, taxes -- would be a little bit more than $2.60 an ounce, so a profit margin of better than $130 an ounce on all-in costs in the quarter, which would be one of the best in the business at this point.

From an exploration point of view, we'll focus on a few areas. One, principally on LaRonde, as we continue to drill off to the west at depth in the sort of LaRonde II area. What we continue to find there, is we continue to intersect high-grade massive sulfite mineralization. If you recall, late last year in the fourth quarter, we announced a massive sulfite result at depth. In the first quarter, we tried to follow that up with a hole much further to the west, over 1000 feet further west that hit an alterations zone, not economic.

In the second quarter, we put a hole in between those two holes, and 500 feet to the left of our previously-good hole in the fourth quarter, we encountered 0.26 ounces of gold, almost 2 ounces of silver, 0.37% copper, and almost 10% zinc -- over 12 heaped feet, which is the highest grade drill hole encountered so far at depth at LaRonde. If we do not cut -- I use a cutting factor of 1.5 ounces per ton -- the uncut gold grade is 0.59 ounces per ton. So, we're not sure ultimately what that may mean. What it means is we should do much more drilling in that area, because there certainly is the potential to outline a high-grade polymetallic massive sulfite lens at depth at LaRonde.

What we are also seeing with our drilling in the second quarter is we begin to extend previously-drilled holes that were drilled into 20 North. And we extended a hole into the 20 South Horizon. We encountered 10 feet of 0.26 ounces of gold and half a percent copper within a much broader zone of 26 feet of mineralization. This is the deepest and highest grade intersection of 20 South to date. What we have to do now is systematically extend the earlier 20 North drill holes into the 20 South Horizon at depth to see whether we can outline and economic pocket of Zone 20 South mineralization.

You need to know this information because, as you know, we're currently working on our feasibility study for LaRonde II. And anything that we hit and can outline in terms of higher-grade 20 South or an additional high-grade massive sulfites lens, it would certainly enhance the economics of the LaRonde II project. We still expect to complete our work on that feasibility later, by the end of this year. And we're currently focused on hired experts in rock mechanics and ventilation, and they are currently working on those particular areas as part of the overall feasibility study.

On the Bousquet-Ellison property, essentially focused on three particular areas -- the first area is drilling from the 3-1 ramp, which was an area that Barrett (ph) had mined. We're testing for the extension of the 3-1 zone. There's no significant results to report on that. However, what we have found is that we were confirming, as we drill out in that area, that the felcic (ph) dome that we experienced at LaRonde is much larger than we expected out on Bousquet.

The second drill on the Bousquet property is out on the ninth level on the western limit of the property. Drilling onto the Ellison property, testing the southern sedimentary contact. Again, nothing significant to report on that drilling. What we've decided to do is relocate that particular drill and focus that drill on the 3-4 resource, due to a recent high-grade gold intersection. And that intersection was drilled below the known resource on the 3-4 Zone. We had previously redid some calculations and outlined a resource of 2.2 million tons. That straddles the Bousquet and Ellison boundary, grading 0.32 ounces per ton, so over 700,000 ounces of gold. Our objective with our drilling program out there was to improve the confidence factor on this resource. The latest result of 0.36 ounces per ton over 10 feet is encouraging, because it's in a largely-untested area of the 3-4 Zone, outside of the resource calculation. What is encouraging there is that there would be decent access to this area by extension of the ramp that exists on the Bousquet deposit. So we are currently looking at that. We have two drills on it now, as we've said, having moved one off of the western edge of the ninth level. So we hope to have more news on that as we move through the balance of the year.

In terms of the other projects -- Goldex currently working underground as you know. We have de-watered, we have rehabbed the underground workings. We are set up now to begin the Alamack (ph) raising. The raising process will take several months. We'll have -- our expectation is to have the final work done in the first quarter of 2005, which would include bulk sample work on the bulk sample and metallurgical work. We've also begun a diamond drilling program underground with two drills. So that program is moving along on schedule, and we hope to have answers on the ultimate grade of that deposit by the end of the first quarter of 2005.

On Lapa, we announced the beginning of an underground program. This site is undergoing a site clearing now. It is a $30 million underground development mining and metallurgical program to test the continuity of the mineralization, to test ground conditions, to validate the grade. The validation of the grade is important, obviously, due to the high frequency of visible gold and high-grade gold values here at this deposit. We've currently outlined a reserve of 1.2 million ounces, using a cut grade of about one-quarter ounce. Using an uncut -- not using a cutting factor -- would give us a reserve resource in all categories of over 1.7 million ounces. So it's important for us to get underground to determine whether we are closer to the cut grade or the uncut grade.

Our regional development strategy -- this is all part of the regional development strategy, which is focused on outlining buildable ounces in that region close to LaRonde so we can work towards our goal of building a multi-mine platform in the region.

Just an update on one of our other investments, Riddarhyttan, which we announced last quarter. Drills are on-site. They are beginning a $3 million U.S. drill program. We should have five drills operational by early September. The drill footage is about 65,000 feet. So it's the start of a program which we feel has the potential to increase the overall resource on that property, which has been calculated by the management of Riddarhyttan at about 2 million ounces.

In terms of overall corporate activity in the sector, we're not currently involved in any of the current M&A activity out in the public market at the moment. However, we continue to look at ways that we can broaden and strengthen our production base.

Just finish off here with the 2004 forecast. It's obviously benefiting from our ability to mine and process higher volumes than we had originally planned, giving us much higher by-product metal production and much lower cash costs than we had anticipated when we put the budget together towards the end of 2003. The full-year 2004 forecast now calls for gold production of approximately 293,000 ounces, about 5.5 million ounces of silver, over 23 million pounds of copper, and about 155 million pounds of zinc. That will give us cash costs of between 70 and $80 an ounce. Using the following pricing assumptions on by-products and exchange rate for the second half, silver of $6.00, zinc of $0.45, copper at $1.20, and a Canadian/U.S. dollar exchange rate of $1.30.

That is an overview. Operator, we would like to open it up for questions.

(OPERATOR INSTRUCTIONS). John Bridges, J.P. Morgan.

I just wonder, with respect to this thousand-foot stepout whole -- there may not be an answer to this, but the alteration that you see there, is that in line with what you expect (indiscernible) from payable mineralization or something that would be closer?

The alteration is what we expected. We had the sericitization. We also had the stringer pyrite. We also had some solicification. What we didn't expect, if we used our historical LaRonde model, was zinc mineralization, especially zinc mineralization that far to the west. Because normally on the Zone 20 North, we were getting zinc mineralization and values and zoning way off along the western limit and all the up to the upper part of 20 North. So they get 10% zinc. Once again, that far to the west is a bit of a surprise. So we are currently rethinking the shape of their particular felcic dome. It may be wrapped around or there may be some other structure in there, so we've got a lot of work to do. And we've got a Ph.D. doctoral student currently working on this project.

With respect to the lower gold grade, to what extent is that related to pay limits? Obviously, the zinc one is related to that, but are you being forced to open up your stope sizes because of your profitability now?

That is correct, John. Especially, once again, on the eastern limit of 20 North on level 215. That particular horizon -- there is a gold zone and then there is a hanging wall zinc zone. And there are values in the hanging wall now of anywhere between 4 to 7% zinc, and an ounce or 2 of silver. When we drew up our original mining plan in August, September of last year, we had contemplated only taking the zinc zone. But now, with the development costs, to just drive through and take the extra footage and the extra tons. It made economic sense, otherwise we would have sterilized that particular zinc zone.

So, it is a high-class problem?

It is a good problem to have.

Quickly for Sean -- last one. In your prepared remarks, you spoke about a significant improvement on the basis of the LaRonde II project driven by these better holes. I wonder if you could give us some idea of this envelope of possibilities that you see now based on these holes.

Well, it is still early, and I guess what we're saying is that if we go back a year ago, what we're focused on in terms of LaRonde II was a higher-grade gold zone, which we had been able to, by the end of 2003, outline by 1000-foot high by 1000-feet wide. Since then, in addition to that, we've had the emergence of a potential high-grade polymetallic zone, massive sulfite, high-grade zinc, combined with high gold grades early in the exploration phase, but as Ebe says, we're still trying to figure out the geological model. So that would certainly, if it continues to develop, enhance the economics of LaRonde II.

And in addition, now that we have acquired the additional property to the south, which was part of the Bousquet, which is Terrex, we're not restricted from chasing the 20 South Horizon like we were in the past. Because, as you recall, the whole structure dips steeply to the south. So we were limited, as we moved at depth, by that southern boundary. So now we can simply extend previously-drilled holes that only enter 20 North down to the 20 South Horizon. We did that this quarter, and we hit some high-grade gold, some good copper grades. So we need to continue that work so that we can see whether another satellite, a higher-grade gold zone develops, which would also assist us and enhance, possibly, the LaRonde II economics.

The other thing on LaRonde II now is that -- what role does the Bousquet II shaft play here? If you go back a year or so ago, we were sort of more focused on maybe a new shaft from surface. Now we believe there is a possible second alternative, which would involve the Bosquet II. So that's part of all of our studies right now.

You're talking about 1000-by-1000, what's the size of the resource now?

The resource is about 5 million ounces.

Yes, the --

The reserve is 5 million, the resource is 3.2.

As extended by these latest holes, how big are geological resources now are you looking at?

We have not calculated that. Ebe, would you have --

We haven't calculated that. I think the key with the latest drill hole is that it is in a much larger, broader horizon. And previously 68-A, we had a stringer zone that was also economic. And therefore we had a 46-foot thickness. In this particular drill hole, we have the same stringer zone -- they're visually identical -- but it did not run. So I think before we put a geological resource on it. We'd like to have more drew drill holes in there and know whether the thickness is closer to 45 feet or whether it's closer to 10 to 15 feet. So it's a pretty risky exercise.

I quite understand that. How far outside of the 1000-by-1000 is this latest stepout hole?

I would say -- you're probably looking at at least 1000 feet, if not more.

That's all I needed. Thanks a lot.

Victor Flores, HSBC.

I was hoping you could give us a bit of flavor on where the ore is coming from. So, in the second quarter, which zones of the mine contributed to the tonnage that you processed? And how you see that evolving, say, for the second half or perhaps into 2005?

63% of the ore came from the bottom of the mine, Victor -- 473,000 tons of the total of 753,000 tons. We expect that to continue. However, what may happen is we may have more stopes on the western side, which would tend to be more gold-oriented. But still, the mine is capable of supplying in excess of 5200 metric tons from the lower levels.

Excellent. Thank you. So you don't see that changing a whole lot?

No, but the mix could change.

And how much of that mix from zones changed as a result of the movement in metals prices?

Well, the only change that we have foreseen so far is that -- especially the stopes on the eastern limit, around where we had our cavemen last year. Is that those stopes tend to be thicker and larger in size, anywhere from about 5 to 15 feet thicker. So that would bring some of the thicknesses, rather than 50 to 55 feet thick, to about 70 to 75 feet thick.

Don McClaine(ph), Paradigm Capital.

Well done on another good quarter on the turnaround. Question, just to follow-up from Victor, on the cost per ton. If you could give us a sense of whether there's any difference in the cost per ton from the deeper levels as opposed to the upper levels, Ebe?

You can see our cost per ton in July was 46.70 Canadian, and the bulk of that tonnage came from the lower levels. So I would say if we focused on the upper levels, that tonnage is already essentially developed and could be lower. So the cost per ton that we are currently seeing is largely a reflection of our performance at depth.

So you would say that the $47 a ton is reflective of your cost at lower (ph) levels.

Yes. Yes.

I'm going back to some -- when we talked about fixed costs for the mine, you said your total costs per ton -- or total costs per quarter stays relatively constant. In the second quarter, the total cost was about $35.5 million -- running the calculation on the previous quarters, they've been running in the 30 to $34 million total. Can you maybe describe what might have caused the extra million or two dollars of cost? Was it all just strictly related --

Additional costs through the mill, Don. That's an additional 11,000 tons in the quarter.

And then, lastly, maybe this one is for Dave. Could you give us a sense of discussions with the banks with respect to your development projects? What stage the discussions are at? Or have you started to entertain some of those discussions since there is a fairly large amount of capital ahead in these growth projects for the company?

Right. As you're probably aware, we do have an existing bank facility for $125 million in aggregate, and it's undrawn. That facility revolves for the balance of this year and starts to amortize if we don't draw on it at the end of this year. So, I'm actually speaking with about four of the banks and our seven members indicate about amending the existing facility to make it a longer-term revolver of similar to maybe slightly smaller size. And it would be available for projects or for requisitions. As projects come on stream, I think we'll look at the appropriate way to capitalize them on a permanent basis. We may look at limited recourse financing; we may look at using this new facility to accommodate the capital on these projects. And certainly flowthrough is available to us, as Sean indicated. You know, we're able to, given our substantial tax pools, able to issue equity at substantial premiums.

That was a pretty significant premium all right. Thanks, Dave.

Haytham Hodaly, Salman Partners?

A few questions, I guess. The first one would probably be for Ebe. Ebe, in order to arrive at the 2.9 million tons that you're going to be processing throughout 2004, I'm getting that you'll have to attain at least 8300 tons a day in the second half. Is this in line with what you're getting for the second half of the year?

Pretty close. We feel we might be able to (indiscernible) even a bit better. We had one particular day in July where we set a new record of just under 9000 tons.

Just putting your forward-looking hat on for a second, what would you see as a reasonable tonnage into 2005? Can you easily say that you'll maintain a level above 8000 tons a day for 2005?

We will be close to that.

The second question, I guess, would be with regards to your zinc recovery. Your zinc recoveries went up in the second quarter from 81.8 to about 83.3. Is this maintainable? Or is your forecast of 155 million pounds a function of higher zinc grades in the second half of the year?

A combination of both, but we feel it is maintainable because, for the first time, we have the luxury with the stockpile on surface and over 400,000 tons broken underground of gold, copper ore, where we can send a constant (technical difficulty) to the mill and blend. Whereas, in previous years, it was basically what we broke, we had to send. So we had our circuits being overworked with wildly fluctuating grades, which is not an issue this year.

So if you do maintain that above-83-percent recoveries, I'm calculating that you will have to -- that your zinc grade will still be well over 4% in the second half of the year in order to retain the average that you --

That is correct.

Okay. Fair enough. And will that flow into 2005, the zinc grades, do you think?

We will be starting our budget exercise this month, but that's probably close.

And the third question, I guess -- in order to meet your copper forecast for the second half, either your recovery increased significantly or your payables have increased, given that your copper effectively remains in line. I'm just curious which one it would be?

We believe we have some extra work to do on our copper circuit, so we think we'll be able to improve on our recoveries.

At LaRonde, I guess the gold grades went down significantly because of the higher zinc zone, I imagine? But you're still looking at 0.11 -- I believe the forecast was -- ounces per ton. Versus 0.09 that you saw in the second quarter. Is that, given that you're still in the zinc zone, is that realistic to say that you're probably going to have to average over 0.11 ounces per ton in the second half of the year in order to meet that --

But we are also expecting higher-grade mining blocks on both level 215 and 194 Horizons. And that will kick it into the fourth quarter, based on the mining sequence.

One question, I guess I'll pass it over to David. Your depreciation guidance on a per-ton milled for the second half? I guess the second quarter probably was about $9.11 a ton milled, and I'm curious if that was up under a dollar from what this first quarter was?

Yes, we're still looking for average of about a little over $8 a ton for the year.

So we should see a recovery downwards in the second half.

Yes.

Okay. That's great for now. Thank you.

Onno Rutten, Scotia Capital.

First of all, on those zinc blocks, these were not in your original mine plan, but they're part of the overall reserve?

They are part of the overall reserve.

So there would be no change in the reserve grade, let's say, by (multiple speakers) --

Our zinc reserve was negatively impacted last year by exchange rates.

And on the zinc, could you give us an indication on smelting costs and transport costs and what the impact will be of the new arrangement with Falconbridge later this year?

I would say, all-in in our zinc, we're looking at TCRCs (ph), including transport, of about, say 250 before the Kidd Creek contract kicks in. I would expect that would come down appreciably next year as we deliver more concentrate to the Kidd Creek facility, and predominantly on the transport side. Because in India, Asia, we are paying probably in the neighborhood of $80 a ton of transport charges. I would expect that would drop probably to half that in next year.

Making the zinc even better, great. Quickly, David, while I have you on CapEx. First of all, CapEx year-to-date, is 17 million out of an overall budget of 23. That's the old budget --

No, the old budget was actually 37 million that we published in the February 25th press release. And that included everything, all the projects and whatnot.

You're just talking about LaRonde alone --

Yes, LaRonde, I'm sorry, I should have clarified that.

We're looking -- overall our CapEx should go up to, as we indicated in the press release, to 55 million. And a big chunk of the variance there is the Lapa underground program.

Two questions related to that, though. It still suggests, then, if that new capital is mainly for Lapa, that CapEx levels has to come down very substantially in Q3, Q4.

Yes, that is the case. Because a big chunk of our capital in the first half was the completion of the water treatment plant and the cooling facility on surface, which are now complete. We are going to commence a second stage in the water treatment plant. And we are ramping, also, underneath the existing infrastructure at LaRonde as well in the second half. So there will be additional capital for that of about 4 million. So I would say, of the increase in capital from 37 to 55, which is 18 million -- I would say about 12 or 13 of that is Lapa, and about 4 of that is the ramp, and maybe 2 of that is the second stage of the water treatment plant at LaRonde.

Okay, and the 12 to 13 for Lapa -- that project will extended into '06?

'05, '06, yes.

(multiple speakers) the initial capital outlay.

Yes, we're looking at overall 30 million -- 12 or 13 of it this year.

And then back on Lapa, the infield drilling that is being done today to declare the probable reserve, what density was this infield drilling done?

At this moment, we drill with three (ph) rigs, and we do it only in the last quarter outside of the resources.

And the declared reserve? At what density was that drilled?

We declared a reserve in February with the spacing around every hole between 100, 200 meters. This is the spacing that we drill to (indiscernible) .

And are you intending to file a formal 43-101 (ph) in due course about this project?

Yes.

Any idea when that would be?

When we report the year-end.

By year-end? Okay. Thank you very much.

Steve Butler, Canaccord Capital.

A couple of questions for you, David. If I do the math on 8.8 million in earnings, I get actually 10.4 cents. I don't know if that is correct. And negative price adjustments, I assume, were quite substantial on concentrate sales in the second quarter?

No, in fact we had some positive adjustments because we were fairly conservative in pricing our inventories in the first quarter. We did take some allowances, because by the time we reported the first quarter, we had recognized that the metals prices settled back in the marketplace, so we did provide for that. We actually had probably a couple million dollars of positive adjustments in the quarter. And as far as the earnings go, I don't have the exact shares outstanding -- that should be in the press release -- that should be a little over 8.5 cents, based on the weighted average shares outstanding. You may have used the quarter-end number, as opposed to the weighted average number.

Could have been.

Just to clarify in depreciation, I think somebody had mentioned that depreciation was 9 bucks a ton in the first quarter, it was actually 7.70 in the first quarter. It's right on guidance; we were guiding around 8 bucks a ton for the year. And also, somebody had asked about our throughput in the second half of the year. And we are forecasting actually just a little over 8000 tons a day, not 8200 tons a day in the second half.

And Dave, thanks for answering those questions that I didn't ask. In addition, the tax guidance for the second half of 2004, because effectively, there's no effective taxes in Q2, which was a bit of a surprise.

Yes, we are going to guide about 25% in the third and fourth quarters on average. The reason we did not have taxes in the first quarter, even though I guided a tax provision in the second quarter of, I think, around 15%, is because of a reinterpretation on how we treat our FX losses and our debentures for (indiscernible) tax purposes. Our auditors reinterpreted that, and we're able to reverse the gains we had recognized in prior quarters in the second quarter. So that is a nonrecurring item.

And just to clarify on the capital costs, again, as per Ona's questions -- 18 million, I think, year-to-date at LaRonde. What would be the full year for LaRonde, CapEx? And I will follow on with that as to what is the full-year capital costs estimate for Goldex?

Sure. I will give you a breakdown. We're looking at about $55 million of capital this year. 13 of it is Lapa, nearly 5 of it is Goldex. And about 2 million on Bousquet drilling. And then the balance would be LaRonde sustaining, and project work. And of that project work -- you know, that's the water treatment plant, air cooling system, the ramp -- we're probably looking at about 17 million of project work, and the balance would be sustaining. It should be about 16 million.

Anita Soney(ph), UBS Securities.

I have just two questions, several of them have already been answered. You had previously indicated you plan to sustain 300 kilo-ounces per annum production rate with the higher milling rate. Are you now looking for higher gold production? And what gold grade should you be looking for in the next few years?

I think our plans call for stope 300,000 ounces going forward with the higher milling rate. Of course, all of that would be metal-price-driven. With silver prices and zinc prices, we would then want to maximize our ore body. So I think what you have seen so far in 2004 should be representative of the next couple of years.

Can you provide your expected copper, silver, zinc production profiles going out?

Well, I think going out, depending on how far we go out, we would expect -- we thought we had mentioned this publicly that gold production would drop off. And then, of course, silver and zinc production would increase going for it as we deplete the gold reserves.

(OPERATOR INSTRUCTIONS). David Gagliano, Credit Suisse First Boston.

Just a quick question on the stockpile. Obviously, it continues to build. I have two quick questions, actually. Do you have an optimum level or a maximum size, I guess, in mind for the stockpile for the 74,000-ton stockpile? And then the follow-up is just if you could just remind me what the grades are in the stockpile.

Okay, we are pretty close to the optimum level of stockpile, roughly 75,000 tons. What we do find now is that mill performance has improved to where the mind and mill are very close to being in balance. So the stockpile that we do have on surface is mostly zinc bias that has a grade of 1.4 grams, so that would be about 0.3 (ph) gold. It has a grade of almost 2.7 ounces of silver and 0.11% copper and almost 7.2% zinc. That does not take into consideration about another 60,000 tons of open pit gold material, which we have stockpiled from Bosquet II at an average grade of about 0.8 gold.

Perfect. Thank you very much.

Kerry Smith, Haywood Securities.

Sean, could you just answer more of a philosophical question in terms of hedging, generally speaking, outside of gold -- with silver prices fairly high and some of these other metals moving up, like copper -- would you consider any hedging in any of these other commodities or perhaps on the currency itself?

We have done some currency hedging in the past. We have been opportunistic there. We had a portion of our exposure on the foreign exchange side hedged at about 159, so we did well there. In the past, as you know, we have done selective hedging on copper, zinc. And we had done some silver for the bank. So we'll continue to monitor it; we are not adverse to doing it on that metal. We are adverse on the gold side; we don't want to cap the gold price. But if we get a run-on in any of these prices, then we will look opportunistically at that.

Okay. Thank you.

Don McClaine, Paradigm Capital.

Just a couple of questions. How soon will you deplete the existing gold reserves on the 215 and higher levels, (multiple speakers) access with the shaft?

Well, in our overall long-term mine plan, we're looking at depletion around 2009, 2010, but that's quite a gradual tail.

So, at this kind of burn rate, when would we start to see that start to taper off materially -- how many years?

Well, it's all contingent on our ramp project below the bottom of the shaft. Currently it's only slated to go to level 233. So what we may find is, we may go to 246 if its economic and pays for us to do so. And we haven't got a complete answer there. So almost every sublevel has about another million tons. And so, that's a question that we can't answer right now because we haven't completed the study.

The deposits are so prolific, you seem to becoming up with material all over the place. Is there something that you've noticed that might allow you to defer making a decision on LaRonde II, or tackling it with much lower capital and saving the quite-a-bit-deeper material for a later date?

Well, that would be something that -- as Sean mentioned, the Bousquet II shaft, we haven't really delineated our polymetallic higher grade core yet. However, if there's a significant amount of material along with the 1000-by-1000 higher grade core, we have to look at the Bosquet II shaft wins combination, because some of these values now are way off to the West, a lot closer to Bosquet II than when we first started this whole exercise. So that will be part of the valuation that we hope to draw some conclusions on late this year.

How much deeper is that material than the existing Bosquet facilities?

Well, the Bosquet facilities, the bottom of the Bosquet II shaft is at 4400 feet. And this material is between -- so far that we know of, between 9 and 10,000 feet.

So it is still a fair amount deeper.

Yes.

And how many working areas do have now?

Total working areas, I'd have to really scratch my head, but I believe we have something like more like 45, 50 working areas active, like including development, including production areas, including backfill, including ramp development below the bottom of the shaft.

A change from last year. And maybe just on the broader scheme of time, timing for major pieces of news -- if you could just summarize that, you or Sean, what we should be expecting -- it sounds like the next 3 to 6 months is going to be a flow of a lot of news.

Yes, in terms of the projects, LaRonde II by the end of the year, in terms of the study update. Goldex in the first quarter of 2005. Lapa, starting the underground programs, so relatively quiet on there, except for a couple of drills. Just getting back to Goldex, there will be two drills as well. So not only will it be bulk sample information, but also drilling information. LaRonde, drilling information, and I think the three key areas there will be the reemergence of 20 South at depth, this high-grade polymetallic lens at depth off to the west and the high-gold-grade 3-4 resource that straddles the Bousquet and Ellison property. All underactive drilling right now, so I would expect that we would get continued drilling results from there.

As a side note, Don, our current level 215 exploration drift is at the Bosquet-LaRonde, or the former Bosquet-LaRonde boundary. So our intent is to push that ahead a bit further, so that will then facilitate drilling on this western polymetallic zone.

Excellent. Well, good hunting guys.

Steve Butler, Canaccord Capital.

Ebe, you had mentioned at one point in the call metric tons per day from the lower levels at 5100 tons per day or 5600 in (indiscernible) tons. That is, at 8300 tons per day, implying about 68% of tonnage from the lower levels -- 68 to 70%. I know from the outset this year the original targets were based on 75% of throughput from the lower levels. Have you slackened that back a little bit, then, it sounds like?

It depends on the tonnage rate. That was based on 7000 tons per day.

That's a good point. The other question was the Bosquet-Ellison, the resource in the 3-4 area, Sean, that you quoted the 700,000 tons. Was that in your official resources at year-end? I guess it was.

Yes, it was.

Haytham Hodaly, Salman Partners.

Just a question to follow up on your answer to my question previously on the tonnage in the second half of the year. You said it's just over 8000 tons a day. Is that after assuming 94, 95% efficiency?

Well, it's based on an average over the calendar days. And so, what's behind that efficiency rate -- (technical difficulty) It is based on our operating time of around 94%, and we have a bit of contingency in there. We were close to 97% in the second quarter.

So that 8000 tons, or roughly over 8000, is after applying the 97% availability there?

There's also another factor (indiscernible) contingent on the grades. Sometimes when we do get a slug of copper from the bottom of the mine, like anywhere between 0.6 to 0.8%, our present circuit is unable to process high tonnages at those types of copper grades. So, we've also put a little bit of contingency in for that.

(OPERATOR INSTRUCTIONS). John Bridges, J.P. Morgan.

I thought I used up my allowance to begin with, but I thought I'd have another shot. Is there any particular reason why you throttle back the mill in the second half? Are you just being conservative?

Yes.

Just being conservative.

Okay. That's all I needed. Well done, guys.

Mr. Boyd, there no further questions. Please continue, sir.

Thank you, operator. And thanks for all of your attention and your interest and your good questions. And I just want to wish everybody a good rest of the summer. And we will see you likely in September at the different conferences. Thank you very much.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and please disconnect your lines.