Agnico Eagle Mines Ltd (AEM) 2004 Q3 法說會逐字稿

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  • Operator

  • Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Agnico-Eagle Mines third quarter 2004 results conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct question and answer session. Instructions will be provided at the time you queue up for questions.

  • [OPERATOR INSTRUCTIONS].

  • I would like to remind everyone that this conference call is being recorded under 28 October 2004 at 11 a.m. Eastern Standard Time. I will now turn the conference over to Mr. Sean Boyd, the President and Chief Executive Officer. Please go ahead, sir. Thank you.

  • Sean Boyd - President and CEO

  • Thank you, operator, and good morning, everyone and welcome to our third quarter conference call. We have our full team here either in Toronto or on the line, and we'd be happy once we complete the formal part of the presentation to answer your questions.

  • Prior to beginning our presentation just like to remind you that this presentation contains certain forward-looking statements that involve a number of risks and uncertainties. And there can be no assurance that such statements will prove to be accurate or accurate actual results and future events could differ materially. Please refer to risks and uncertainties as disclosed in our regulatory filings both in Canada and in the U.S.

  • Just like to highlight the quarter for you from an operational standpoint. Our operations continue to perform strongly. We produced over 67,000 ounces of gold at a cash cost of $77 an ounce versus production last year at third quarter of a little over 50,000 ounces with costs over $300 an ounce.

  • Essentially, higher ore volumes continue to generate increased by-product metal production and also higher than forecast by-product prices contributed to our much improved operating costs. The key profit driver for us is the ability of LaRonde to mine and process high volumes of ore, currently at over 8,000 tons a day, with a profit margin on each ton of about 80%, which amounts to about Can $38 per ton for each ton mined and processed.

  • Financial results are very much improved. Third quarter earnings of over $10 million U.S. or $0.12 a share, which compares to a loss of last year's quarter of almost $12 million or $0.14 a share. In the third quarter our operating cash flow was almost $19 million U.S. or $0.22 per share compared to a deficit of $6 million or $0.8 a share in Q3 of 2003.

  • On a 9-month basis, we have record earnings of over $32 million U.S. or $0.38 a share and record cash flow of almost $57 million U.S. or $0.67 a share. Our financial position is strong and continues to get stronger. With this strong cash flow improving that financial position we closed the quarter with $120 million in cash. We have $172 million in working capital. Our shares outstanding about 86 million put us at the low end of the intermediate producer range.

  • In the press release we mentioned that we have renewed our shelf prospectus. This shelf prospectus was initially filed two years ago to cover the potential exercise of warrants under a unit offering that was done about two years ago, as we said. Essentially we view it as a good business decision. We've already spent the money from a legal perspective to prepare those documents. So it was simply a renewal of our shelf prospectus.

  • The way we do our situation on the financial side is we are keeping all of our options open and those options include flow-through financing. They also include bank financing. As you know we have a bank facility of over $100 million U.S., which is totally undrawn.

  • So not only do we have strong cash flow and a very strong financial position, but we have all of our options open in terms of growing this company.

  • More specifically on the operating side, the mine continues to run at very high tonnage and very low cost in an underground context. We hoisted over 720,000 tons. Of that, 470,000 tons were brought up from the lower mining levels. That's despite not hoisting from there for about five days while we made some repairs late in the quarter to ventilation fans and the service hoist.

  • We averaged almost 8,000 tons a day from the mine in the third quarter. Our surface stockpiles continue to provide us with a cushion. We've got LaRonde surface stockpile of 84,000 tons, Bousquet surface stockpile of 60,000 tons.

  • We had slightly higher than expected dilution in the third quarter, which negatively impacted our gold grade. The dilution averaged five to 10% higher due to two factors. One being backfill from primary stopes and those were the initial primary stopes as we opened up the mine. Unconsolidated rockfill and backfill coming into the secondary stopes as we mined.

  • This situation will improve itself as we move into areas with much more competent backfill. The other situation we were dealing with was a very schistose hanging wall on zone 20 north in some parts of the lower mine. And that was about 5% of that dilution.

  • Our development is ahead of schedule. Both lateral and vertical development continues ahead of plan. And I think that just goes to show you we're able to operate this mine at 8,000 tons a day. Our development is ahead of schedule. Our people have reacted very well to the conditions. And the mine is generating record profits and record cash flows.

  • On the processing side, our operating time was reduced in the quarter at the mill to about 90% from 96% in the second quarter due to repairs to the course ore bin and the filter presses. We processed over 8,100 tons a day despite 5-day planned shutdown.

  • In July we processed a monthly record of over 8,400 tons a day. And subsequent to the quarter end, we've hit a daily record in the mill of over 9,600 tons per day.

  • Recoveries for gold improved over the second quarter. They're about 92% in the quarter. Recoveries for the other metals or at or exceeding plan and track the silver recoveries in the quarter jumped to over 88% from 85.9 in the second quarter, our zinc recoveries 84.7% up from 83.4 in the second quarter, our copper roughly about the same.

  • Our by-product metal production was very strong, producing over 48 million pounds of zinc, million and a half ounces of silver, and almost 6 million pounds of copper. This represents the best quarter in the company's history in terms of metal production. The very strong by-product metal production drove our cash costs down to $77 per ounce, which tied our previous record. And it was based on metal prices of silver, $6.45, copper $1.29, and zinc of $0.44.

  • Our mining and processing costs were Can $50 a ton in the quarter. A bit higher than expected due to the unanticipated repairs referred to earlier in the course ore bin in the filter press and on Level 122 in the pumping station.

  • On a total, all-in costs basis, when you add up operating, exploration, depreciation, amortization, G&A, interest, and taxes, our all-in total costs per ounce in the quarter was $244 an ounce U.S., giving us a net profit margin in the quarter of $165 an ounce, which is currently one of the best net profit margins in the gold business.

  • On the exploration side, the deposit remains open for expansion. LaRonde, as you know, has reserves of 5 million ounces and a resource of 3.2 million ounces. Drilling principally focused to the west, looking to extend 20 north. And within the reserve, resource outline, looking to define the extent of the higher grade mineralized core, and the developing higher-grade polymetallic lens at the bottom of the mine.

  • As we've indicated in the press release, the deep drilling continues to encounter massive sulfide mineralization with higher silver, copper, and zinc values. We followed up on some previously announced drill results at depth. We've got a new drill hole, 321595D, which continued to encounter higher-grade massive sulfide mineralization. This result assayed .22 ounces of gold cut to 1.5 ounces per ton, 1.6 ounces of silver, half a percent copper, and over 6% zinc over 40 feet. The hole is located approximately 9,300 feet below surface and approximately 3,700 feet best to the Penna Shaft.

  • Like the earlier results, which we previously announced, this interception contained visible gold with one of the quartz being sectioned assaying 2.5 ounces per ton over 2.1 feet. With this result, the high-grade polymetallic zone has now been traced over an approximate area of 1,500 feet long, 500 feet high. We've got three drills working this area now below Level 215.

  • On our regional development activities, LaRonde II, feasibility work continues, expected completion by the end of this year. In order to complete this we need to determine the extent of the reserve, resource at depth, particularly the new and developing higher-grade polymetallic zone. The Level 215 drift is the exploration platform, which allows us to do this drilling. We've extended this drift now into the Bousquet property. It's about 200 feet west of the LaRonde/Bousquet property.

  • In our feasibility work we're currently evaluating four different options to access this deeper material. One option is to deepen the Bousquet shaft to Level 215, combined with a wins to Level 302. The second option is keep the existing Bousquet shaft and put a longer wins down to Level 302. Third option is a new shaft from surface.

  • Fourth option, just for comparative purposes, would be the Penna Shaft combined with a wins, which is obviously not a preferred option because we don't want to interrupt the mining of 8,000 tons that ate up the Penna Shaft.

  • We expect to have this work completed by the end of the year. But depending on the option we select, obviously more detail engineering will be required before a production decision is made on this. And we anticipate that that production decision could come later in 2005.

  • At Goldex our reserves stand at 1.7 million ounces. As you know, to increase the confidence level with respect to the grade of Goldex, we have an underground program that is now underway raising and drilling is in progress. We've got 2,000 feet of raising plan. We've completed almost 400 feet. We've got 4,700 tons of material stockpiled out of an anticipated 20,000 tons.

  • We expect to process the bulk sample beginning in January and to complete that bulk sample test at an outside milling facility in February and then follow up with a completed feasibility study in the second quarter of 2005 on Goldex. On Lapa, the gold reserve is 1.2 million ounces. The deposit remains open at depth. We have an uncut reserve, resource in all categories of 1.7 million ounces.

  • As you know, we are in the midst of a $30 million underground development mining in metallurgical program basically to test the continuity, test the ground conditions, and validate the grade. The validation of the grade is important due to the high frequency of visible gold encountered in drilling up to this point and some very high multi-ounce gold values that we've also encountered.

  • The shaft has been collared. We're down about to 70 feet. And recent drilling at Lapa has extended the deposit at depth. We've traced the reserve, resource envelope another 1,100 feet below the planned infrastructure and reserve, resource envelope.

  • Our regional development strategy continues to outline buildable ounces. Current reserve, resource in the region is almost 13 million ounces. So we're moving forward on that and that's moving us closer to our goal of building a multi-mine platform in the region.

  • Our other investments, as you know, we have a 14% interest in Riddarhyttan Resources trading on the Swedish Stockholm Stock Exchange in Sweden. We have two Board seats. Ebe Scherkus and Alain Blackburn are on the Board. They've commenced a drilling program. They've got 5 drills currently going. The plan is to complete about 65,000 feet of drilling in the next 2 to 3 months.

  • They've recently put out a press release, Riddarhyttan has announcing encouraging drill results below the current resource outline. Riddayhyttan has outlined a 2 million ounce gold resource and they have encountered wider and better grade gold mineralization below the bottom of this resource and drilling continues.

  • Our 2004 mine plan is obviously benefiting from the ability to mine and process 8,000 tons a day. And also benefiting from higher by-product metal production and higher silver, zinc, and copper prices. We've revised our full year forecast for 2004 calling for production of approximately 280,000 ounces of gold, about 5.5 million ounces silver, over 22 million pounds of copper, and over 160 million pounds of zinc.

  • Our full year cash costs are expected to be between $75 and $80 an ounce using the following fourth quarter price assumptions for by-products. Silver, $5.75, zinc of $0.45, copper $1.20, and the exchange rate Canadian U.S. dollar $1.30.

  • Just to put the revised production estimates in perspective, from our initial budget we were initially estimating when we began the year a gold production level of 300,000 ounces. Our revised number is down about 6 to 7% from that number or about 20,000 ounces. But our silver production estimate from the initial estimate earlier this year is up over a million ounces. On a net revenue basis, there's really no difference in the precious metals revenue stream here at Agnico.

  • In effect, the declining gold production estimate is almost entirely offset by the increase in our silver production. The bonus is really the zinc. We are now estimating over 40 million pounds more zinc than originally budgeted. And I would call that maximizing the ore body. Our job is to maximize the asset and we are now generating record earnings, record cash flow, record low cost per ounce, record metal production, simply because we are now able to mine and process 8,000 tons a day at a cost of less than Can $50 a ton.

  • I would call this a remarkable turnaround. And our employees have done a tremendous job and we at the company and our Board are extremely proud of the efforts they've put in to turn the operation around and generate the results we're now generating.

  • On that, we'd be happy, operator, to open the lines for questions.

  • Operator

  • One moment please.

  • [OPERATOR INSTRUCTIONS].

  • Our first question is from Tony Lesiak from UBS. Please go ahead. Thank you.

  • Tony Lesiak - Analyst

  • Good morning. I guess my first question for Ebe. Can you comment on what you're doing to minimize dilution going forward in the lower levels of the mine?

  • Ebe Scherkus - EVP and COO

  • What we have done is we've increased our capable link in the hanging wall. Once again, as far as dilution is concerned, the schistose are higher, schistose areas are localized. So during this quarter some of our primary stopes were in the areas that were more schistose. This isn't a factor for the whole ore body.

  • With respect to the additional dilution from backfill, the main issue that we had was the stopes, as Sean mentioned, early last year. Those were the stopes that where we had poor productivity. This was in the area of the ground fall where we had end wall failure. So the quality of fill, or we weren't really able to totally fill some of those void areas. So in extracting the secondaries that fail came into the stopes.

  • However, moving forward, as we have moved up higher in the pyramid of mining sequence, a lot of our stopes have been mined out cleanly. There haven't been any end wall failures. As such the, also the quality of our fill has improved. And so we view this as less of an issue moving forward. So for us it was a phase of mining through areas where we first encountered the difficulties early last year.

  • Tony Lesiak - Analyst

  • On a per ton cost basis, I mean could you maybe give us a sense of the impacting that's going forward over the next few quarters? You said it's going to be getting less of an issue. But will there be any issue over the next few quarters?

  • Ebe Scherkus - EVP and COO

  • We don't believe that at all. If you look at our actual mining costs this past quarter was under Can $9 a ton or $8.77. So that is actually versus a budget of $8.50. So we're very, very close to our budgeted figure despite these problems. So we don't see that impacting our costs per ton.

  • Tony Lesiak - Analyst

  • If you look at the full year numbers that you've now revised, that implies I guess you're getting back into the better golds and copper grades in the fourth quarter.

  • Ebe Scherkus - EVP and COO

  • Yes.

  • Tony Lesiak - Analyst

  • I guess that's the plan?

  • Ebe Scherkus - EVP and COO

  • Yes.

  • Tony Lesiak - Analyst

  • Just a quick question on exploration then. I didn't see anything in the press release on Bousquet. Supposedly you were going to be going into 3, 4 zone and trying to extend the good hits you had in the second quarter up to the existing resource, reserve.

  • Was there any drilling done there and can you comment on maybe timing of some results form there?

  • Ebe Scherkus - EVP and COO

  • Yes there was some drilling done, but it was done in the upper part of the Bousquet 3, 4 zone. We did not drill down below our actual hit. We have holes targeted now, presently. They're quite long holes.

  • The drill holes that we hit on the upper part I would say were fair to moderate successes. They confirmed the previous Bousquet drilling, but did not really change the picture significantly in the core. Although the deposit, we had some I would say, some poor hits. So we're in the process of stone drilling with 2 machines, extending the mineralization that we hit at depth the previous quarter. And then, plus defining the original Bousquet 3-4 Zone with a lot more detail.

  • Unidentified Speaker

  • Just a final question on this higher grade polymetallic lens that you found. In terms of the depth here, are we talking 9,500 to maybe 9,000 feet. You said there's about a 500 foot vertical there?

  • Unidentified Speaker

  • That would be correct.

  • Unidentified Speaker

  • Is that a depth that you think realistically you might be able to finance given the expansion that we're on to?

  • Unidentified Speaker

  • We believe that that would be an area that we would definitely focus on because some of the NSR values in there are actually in the neighborhood of 120 to 150 Canadian. And I think with our experience that we have gained over the past two years, even some of the bad experiences, we are now looking very carefully at stope dimensioning, we're looking very carefully at mining sequences and we're also looking at various types of ground support.

  • So these are issues that we have to face head on and in all probability the stopes would probably be smaller size, not as high and they probably wouldn't be as wide either so, because of depth related issues.

  • Unidentified Speaker

  • OK, so the cost per ton, down at 9,000 feet will be what, 10, 20% higher than ...

  • Unidentified Speaker

  • Well, we've sort of estimated it to be at least 25% higher. We're looking at, that would be the, if the mining component, which would be, let's say 9 dollars, that would be a 25% higher, so that would be in the neighborhood of 11 dollars, 11.50.

  • Unidentified Speaker

  • OK, great thanks very much.

  • Operator

  • Your next question comes from John Bridges from JP Morgan, please go ahead.

  • John Bridges - Analyst

  • Morning Sean, everybody.

  • Unidentified Speaker

  • Morning.

  • John Bridges - Analyst

  • Yeah, can you sort of comment on the extent to which the tonnage, the increased tonnage from the upper levels was related to economics and to what extent you had driven to it by the difficulties at depth?

  • Unidentified Speaker

  • OK, thanks John. There really aren't any difficulties at depth, John, because if you look at our total tonnage that we extracted from the lower levels, the tonnage was the same on a per quarter per quarter basis. So I think this is just a phase that we were going through.

  • If you look at overall, at some of the key statistics, drilling, blasting and mucking, we are ahead of schedule compared to our budget. So with respect to the upper part, the zinc (off mic), of course with current silver prices and an increase in zinc prices, those are very easy tons to get and our 84,000 ton stockpiling surface is mostly zinc and silver where we have stockpiled it.

  • But with respect to our mining plan, we are getting the tonnage and the blocks from the lower part of the mine. The only issue has been, as Sean mentioned, 5 to 10% higher dilution. But also what we have done with respect to the higher silver and zinc prices, some of the stopes in our original mining plan on the eastern limit of zone 20 north above level 215, we did not plan on mining the zinc and the silver in the hanging wall.

  • Now with current prices, all of a sudden, that is presently economic and it would be a shame, as Sean mentioned, we would not be maximizing the ore body by not taking this material when it's fully developed and it would just require production drilling.

  • John Bridges - Analyst

  • OK, fine. And then perhaps a strategic question. You're talking about deciding on the configuration of the shaft system for Leron 2 by year end, but you keep on extending the size of the ore bodies. It's a bit of a moving target. How do you handle something like that? What do you see going on?

  • Unidentified Speaker

  • Well, I think we'll be in the position over the next quarter or two quarters, whereby the exploration drift is now 200 feet over the Bousquet boundary. So we're getting into the position where we will now, for the first time be able to define the western limit. Our current three machines follow the development heading, they're about 1,000 feet behind.

  • So as this development now finally crosses the boundary, we will be in the position that we wanted to be all along where we can put down proper north south holes rather than these angled holes off the west, which we have done so far.

  • John Bridges - Analyst

  • OK, and what sort of configuration are you looking at most likely?

  • Unidentified Speaker

  • Well, our feeling is probably something between Bousquet wins combination or a new shaft. I think the key thing is we don't want to put any additional stress on the Pena (ph) shaft. It's currently running nicely, 8,000 tons per day. And a winds project would put a lot of stress and we're concerned about that. So that would probably be the most unlikely option.

  • With respect to mining sequence, well, obviously we have a polymetallic core that we didn't have before and we also have our higher grade core that we talked about previously. So obviously, we would like to enhance project economics by focusing in or having mining horizons on those two particular levels.

  • Of course we don't see maintaining the same stope sizes because of the ground related issues. We probably see them going down to maybe 75 feet high rather than 100 feet high. We also may see them only going to 35 feet wide or thick rather than the current 50 feet. So those are some of the things that we're looking at. There's studies and progress and I speak.

  • John Bridges - Analyst

  • OK, any sort of broad indications to CapEx, likely CapEx for the shaft system?

  • Unidentified Speaker

  • We will be getting reports back. Currently this has been farmed out to a consulting company and we have not received their report yet. But they are evaluating those four options and it's the same company that evaluated the original options.

  • John Bridges - Analyst

  • OK, great, thanks and congratulations Sean.

  • Unidentified Speaker

  • Thank you.

  • Operator

  • Your next question is from Michael Fowler from Dejardin (ph) Securities, please go ahead.

  • Michael Fowler - Analyst

  • Yeah, I might have missed this but how much are you taking from the deep levels and how much are you taking from the more shallower zinc (off mic) and in the future, are you seeing the ratio to be roughly the same?

  • Unidentified Speaker

  • I would say they would be roughly the same, like our total production on a quarterly basis from the lower levels was 469,000 tons. Our best performance ever was last quarter, 473,000 tons. So with the problems we had with the ventilation fan and the service hoist at the end of the day, had we continued that additional four days or so, we would have had an all time record of ore from the lower levels.

  • Michael Fowler - Analyst

  • OK, thank you, I guess the balance obviously is from the ...

  • Unidentified Speaker

  • From the upper part.

  • Michael Fowler - Analyst

  • Thanks a lot.

  • Operator

  • Ladies and gentlemen, if you do have a question, please press star followed by the one. Your next question is from Mr. Steve Butler from Canacord (ph) Capital, please go ahead.

  • Steve Butler - Analyst

  • Hi guys.

  • Unidentified Speaker

  • Good morning.

  • Steve Butler - Analyst

  • Must have pressed the wrong key. The overall dilution factor in reserves, could you remind us?

  • Unidentified Speaker

  • We incorporated different dilution factors depending on the zone. On the lower levels, we used I believe it was around 7% and on the upper levels 194, where we have more shistos (ph) material, we use the 20%.

  • Steve Butler - Analyst

  • OK, it's just those in the hanging wall areas, that was actually level 194? Correct?

  • Unidentified Speaker

  • Yes.

  • Steve Butler - Analyst

  • OK, and your use of backfill, is it pace (ph) backfill or cement backfill, I can't remember ...

  • Unidentified Speaker

  • Both.

  • Steve Butler - Analyst

  • Both, OK.

  • Unidentified Speaker

  • Where we're mining through it was mostly rock fill and as you remember, when we have a ground fall issue, there was material unconsolidated material and ore left in those stopes. So when we dumped rock fill on top of that one, naturally there was going to be parts of it that were going to be unconsolidated and that is what's causing part of this issue.

  • Steve Butler - Analyst

  • OK, can you, apart from the fact that it's exactly equal, the gold x (ph) sampling state over the first 300 something feet of raise boring, it gives you a sample grade of .07 feet (ph). Apart from it being equal, can you infer anything from that limited amount of data at this point?

  • Unidentified Speaker

  • Well, it's early days but I would say based on the drilling that we have completed on the channel sampling and muck sampling, we have found nothing to indicate that we won't be able to confirm a grade. What is also, in heartening (ph) is that one of the drill holes that we drilled which is a vertical drill hole, a pilot hole for one of the elimac (ph) raises, it actually confirmed the reserve and resource outline almost within a meter of what we had predicted. So that I find very encouraging.

  • Steve Butler - Analyst

  • Just a question on the leron 2, the fact that this is only the third hole into this new polymetallic zone, how many holes would you guys intend to drill in the fourth quarter and I assume, Sean, you'd like to incorporate this data into reserves resources. So therefore, are we likely to see a Leron 2 project update or feasibility study post reserve resource numbers in February?

  • Unidentified Speaker

  • Go ahead Eb.

  • Unidentified Speaker

  • I would expect that probably to be post reserve resource once we've got a lot, three drills on the level and obviously we will be focusing on that area. So I would guess we would probably be able to get another two to three holes down at that horizon because we also have additional resource above the convert (ph). So these holes are all still about 1,000 to 2,000 foot holes so they're not exactly definition drilling.

  • Steve Butler - Analyst

  • Yeah, and could you remind us Eb the last question, the dimensions of the other high grade zone?

  • Unidentified Speaker

  • The other high grade zone from what I remember off the top of my head, we were looking at a strike length at about, I believe it's around another 1,000 feet, 1,200 feet but the vertical extent is probably something like 1,500 feet to 1,800 feet that we have outlined.

  • Steve Butler - Analyst

  • OK, thanks very much.

  • Operator

  • Your next question is from Chantal Goselin (ph) from Hayward (ph) Securities, please go ahead.

  • Chantal Goselin - Analyst

  • Hi good morning gentlemen.

  • Unidentified Speaker

  • Good morning.

  • Unidentified Speaker

  • Good morning.

  • Chantal Goselin - Analyst

  • Eb, could you please comment on the depth of the ramp below the 215 level, what depth you are and also if you think you'll be able to schedule some stopes, some below the 215 level in 2005?

  • Unidentified Speaker

  • Development has gone better than planned and is even slightly ahead of schedule. We are presently developing, we have one level already partially developed, level 218, the ramp was currently on its way down to 221. So yes, we will be scheduling some mining from that particular area in 2005.

  • Also what is very encouraging, it's early days yet but we walk through the underground workings of where they were developing and there were no heat related issues and the ground conditions appear to be excellent.

  • Chantal Goselin - Analyst

  • And could you give us a sense of the immediate percentages of the overall production that you would think would come from the lower horizon (ph) in 2005?

  • Unidentified Speaker

  • We haven't finalized our budget yet Chantal but I would say that most of the production would come from level 215 and 194. We may be looking at something like five stopes or five mining blocks, so not significant. It's a labor intensive development, intensive year.

  • Chantal Goselin - Analyst

  • OK, and your plan is to bring the rent to what level again?

  • Unidentified Speaker

  • We're planning to take it to 236.

  • Chantal Goselin - Analyst

  • So another level?

  • Unidentified Speaker

  • No, you have about another three ...

  • Chantal Goselin - Analyst

  • Three levels.

  • Unidentified Speaker

  • Yeah, 221, 224, 227, 230, it would be 235.

  • Chantal Goselin - Analyst

  • OK, thank you.

  • Operator

  • The next question is from Mr. Barry Cooper from CIBC World Markets, please go ahead.

  • Barry Cooper - Analyst

  • Yeah, a couple things, Eb, just wondering the 50 dollar cost per ton, is that bump up 3.00 versus Q2, is that totally related to the issues you had with respect to some of the downtime and what not. Or were there some other things there as well?

  • Unidentified Speaker

  • No, they were strictly related to that. Cyanide consumption in the mill was one. One issue that was related more to a problem that we had in the copper circuit where we had overflow from the copper and was pumped back. As a result, some of it went into the leeching circuit and when you have higher concentration of copper in the leeching circuit, well, then cyanide costs will skyrocket. But we've got the remedial plans in place for that.

  • Other than that, there's just a lot of one time issues. The course sorbin (ph), it's been around for five years so it's been pounded so the massive sulfide cart is rusting so the chute is rusted out at the bottom of the bin so we replaced them all, it's been in operation for six years. So the gehole (ph) pump has been installed now for seven years so it needed major overhaul. So these are sort of one time issues.

  • Barry Cooper - Analyst

  • Right, the cost for October, how have they been?

  • Unidentified Speaker

  • Well, right now we look forward to a good October and with respect to cost, but we don't really monitor it on a day by day basis. But based on tonnage throughput, based on operating time, I would expect them to be better than $50 per ton. We're returning to sort of more normal operations, no major breakdowns, we haven't had any.

  • Barry Cooper - Analyst

  • Yeah, OK, and then the grade, .1 that you've average so far the year, I think, I'm trying to remember what it was at the start of the year, I think .13 or .135, might have been in that range that you were expecting. Part of that presumably is due to the dilution. Part of that is due to the mix. For next year, what kind of numbers should we be looking at for grade?

  • Unidentified Speaker

  • I think we're probably looking at mirroring 2004.

  • Barry Cooper - Analyst

  • OK, so kind of in the ...

  • Unidentified Speaker

  • It should be very similar production to 2004.

  • Barry Cooper - Analyst

  • Right, and how about the rest of the metals? Similar type ...

  • Unidentified Speaker

  • I would say similar to the overall yearly average to date.

  • Barry Cooper - Analyst

  • OK, thanks a lot.

  • Operator

  • Your next question is from Don Blight (ph) from Paradigm Capital, please go ahead, thank you.

  • Don Blight - Analyst

  • Hi there, looks like Chantal and Barry asked most of my questions already. But on the cost per ton, 50 dollars this quarter, is there a different breakdown between mining and milling?

  • Unidentified Speaker

  • OK, I can give you, this is the David Meloey (ph) question. Definition drilling was $0.37, these are all Canadian, development was 524, mining was 877, underground service is 1,575, milling 1,736, surface services $0.99 and admin was 372.

  • Don Blight - Analyst

  • Great, thanks a lot.

  • Operator

  • Next question is from Tanya Jevesconic (ph) from National Bank Financial, please go ahead.

  • Tanya Jevesconic - Analyst

  • Hi everyone, I think Barry asked my question on the production profile for next year. Just to make sure, Eb, the zinc testing is to be in a similar range as we see this year?

  • Unidentified Speaker

  • Yes.

  • Tanya Jevesconic - Analyst

  • OK, thanks.

  • Operator

  • Next question is from Hayden Holiday (ph) from Solomon Partners, please go ahead.

  • Hayden Holiday - Analyst

  • Good morning guys, just a quick question, Eb, to follow up on the cost per ton question. Could you give us an idea of what your actual full year budgets were compared to the third quarter, just so I refresh my memory here?

  • Unidentified Speaker

  • For the third quarter, the budget, I believe we actually budgeted 4766 and we came in at 4988 for the quarter.

  • Hayden Holiday - Analyst

  • And so next year's numbers are looking to be in what range at this point?

  • Unidentified Speaker

  • Well, at this point we're probably looking somewhere in the 48, 49 dollar range, there are certain things that are out of our control with respect to fuel prices. We're also looking at steel, we use a lot of ground support. So that has gone up. So these are things that we've incorporated into our figures so far.

  • Hayden Holiday - Analyst

  • And do you think you'll ever get down back to maybe the 46, 45 range?

  • Unidentified Speaker

  • We'll try, but once again, we're also faced with increases in cyanide and as I mentioned, ground support items, bits of steel, those costs have gone up significantly.

  • Hayden Holiday - Analyst

  • Great, thank you.

  • Operator

  • Your next question is from Bill Barosky (ph), private investor. Please go ahead.

  • Bill Barosky

  • Good morning gentlemen.

  • Unidentified Speaker

  • Good morning.

  • Bill Barosky

  • I'm just a shareholder, my question is, are you going to withhold any bullion from the market rather than retain everything in a cash position?

  • Unidentified Speaker

  • We have no plans to withhold bullion from the market. Even though we're bullish on gold, our view there is that we've maintained this position over many, many years, is never sell away the upside. So we're going to continue to try to outline more goals and give you more exposure to higher gold prices through outlining more buildable ounces in the region.

  • Bill Barosky

  • My second question is, in your investment in Sweden, is there any barriers from you from increasing that position?

  • Unidentified Speaker

  • No there isn't. We initially took this investment, that was the opportunity that was presented to us, to buy that amount. And we thought that made sense because we did get board representation, and we are able through that board representation to give our influence and thoughts on how the exploration should be conducted going forward.

  • The plan that's currently in place there, that they're drilling now, was really a plan that was designed by Ebe Scherkus and Elaine Blackburn. And the first in their early results from that plan have been positive. Agnico, when we get a project, we like to drill deeper. This project was not drilled deep in the past, for whatever reason, and the first initial two holes that have been announced so far were well below the existing resource outline. Both hit better gold grades and wider metallization. So, it's off to a good start and we'll continue to monitor it as we go along.

  • Bill Barosky

  • Well, congratulations on the results and hopefully all this continues to pan out for us.

  • Sean Boyd - President and CEO

  • Thanks for your support.

  • Ebe Scherkus - EVP and COO

  • Thank you.

  • Operator

  • The next question is from Steve Parsons from GMP. Please go ahead.

  • Steve Parsons - Analyst

  • Hi, guys. Great quarter.

  • Sean Boyd - President and CEO

  • Thank you.

  • Steve Parsons - Analyst

  • Quick question on effective tax rates. It looks to me like in Q3 it was about 8%, something like that. And I believe guidance was 25%. How does it look for Q4?

  • David Garofalo - CFO, VP Finance

  • For Q4 - it's David here, Steve - Q4 is looking like about 15-20% on average. And the reason it's lower than what I previously guided is because we filed our tax returns in June and our deferred tax assets were greater than we thought they were. And so, we're setting up larger assets. Going forward, I would assume 30-35% deferred, but these are deferred tax rates. We're not going to be paying cash (ph) taxes for quite a few years. We have $700 million in tax pools.

  • Steve Parsons - Analyst

  • OK. That's great. Thanks a lot.

  • David Garofalo - CFO, VP Finance

  • Thank you.

  • Operator

  • The next question is from Mr. Steve Butler from Canaccord Capital. Please go ahead.

  • Steve Butler - Analyst

  • Yes. Just a follow-up, maybe David for you, on - you alluded to the increases in steel and fuel costs, but do you have a sensitivity for a $10 change in oil or, let's say, fuel. How sensitive it is to fuel costs at the site?

  • Ebe Scherkus - EVP and COO

  • I would say, probably, I'm guessing here, Steve, 5% would probably result in 25%. But I can dig into that and give you a more detailed number.

  • Steve Butler - Analyst

  • OK. Thanks.

  • Operator

  • [OPERATOR INSRUCTIONS].

  • Gentlemen, there are no further questions at this time. Please continue. Thank you.

  • Sean Boyd - President and CEO

  • Thank you, operator, and we'd just like to thank everyone for participating in our conference call this morning, and enjoy the rest of your day. Thank you.

  • Operator

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