Agnico Eagle Mines Ltd (AEM) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Agnico-Eagle Mines year end 2005 financial results conference call. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Thursday, February 23, 2006 at 11 a.m. ET. I'll now turn the conference over to Sean Boyd, Chief Executive Officer. Mr. Boyd, please go ahead.

Thank you, Operator. And good morning, everyone. And thank you for tuning in to our 2005 year-end conference call. We have our full team with us here in Toronto, so at the conclusion of the formal part of the presentation we would be happy to respond to your questions. Just to start off, our press release for this year-end was done in metric. We converted from Imperial to metric. Our miners have been asking us to do that for many, many years because they do everything in metric, and we have had them convert it to Imperial. So it has caused a bit of confusion in the market because of the metric, and it was not picked up in some of the research and it has caused some concern about actual throughput and it has caused some concern about cost guidance. But just to be clear off the top, LaRonde has consistently performed at 8,000 short tonnes per day for eight consecutive quarters and the cost per short tonne has averaged over that two-year period, $49 per tonne, which is right on our target. So no change in the guidance going forward in 2006 that we put out in December. So just to be clear on that.

As we go through the presentation for those of you that are on the internet looking at it, we have changed the format. We have slides that will be driven here. So as I go through the presentation I will be driving the slides forward. So it's a change from last time. Just to start off, just to go through the Safe Harbor statement, I'm putting that up on the screen now. There's cautionary language to be read; this presentation. What I would like to do is start off with the strategy. We have been busy this year doing acquisitions, making construction decisions, building our pipeline. But I just wanted to spend a little bit of time off the top just to review our strategy. What we have done and where we're headed. Our strategy is really to build value for our shareholders by increasing our production and building our reserve base With the projects that we have brought in to the projects that we had at the start of the year, those projects give us the potential to triple our goal production by 2009. And we'll talk a bit about that later in the presentation. Also in a strong reserve position, we have been able to grow our reserves, which is unusual in this market. Our position in proven and probable goal reserves is now over 10 million ounces, and we also have a solid gold resource in excess of 5 million ounces.

As we move these projects forward, we're certainly mindful of our shares outstanding number being one of the lowest in the business, and so we're going to move our projects forward by minimizing our dilution and we're in a much improved financial position going forward giving the increasing cash flows at LaRonde, and the cash flows that we expect to be driven from LaRonde will be a major source of funding for our gold growth projects as we move forward. One of the things we have always done is maintain a low political risk profile. This Company, even with the projects we have added this year has one of the lowest political risk profiles of any gold company in the business. Our low-cost structure at LaRonde, extremely low cost, puts us in a good sort of defensive position in the event that we get lower gold prices going forward. Even though we're quite bullish on the gold price. We have got a very conservative and strong balance sheet. In fact, our financial position has improved dramatically in the last year. We have got much higher projected cash flows at LaRonde. We've got a larger cash position at the end of 2005. We have got an expanded bank facility and for the first time in several years we have no long-term debt. And also part of our strategy is we have never ever sold away the upside to gold prices and our policy is never to do that. So we're perfectly positioned to take advantage of higher gold prices.

In terms of the highlights for the year, another year of record performance for Agnico. We have got record gold reserves at 10.4 million ounces, with over 5 million ounces at LaRonde, 2.8 million ounces at the other projects in the Abitibi, Goldex and Lapa, and the Suuuri project which was acquired in 2005, now has reserves of 2.3 million ounces. So a 32% increase in reserves year-over-year, which is going against the grain of the industry. The industry is having -- is challenged to replace reserves and we're in a position where we have increased them 32% and we see more growth ahead. As we've said, we have got 5 million ounces of resource and those resources are calculated using the same economic parameters as we calculate our reserves. So we're looking forward to increasing our reserve position as we now prove up existing resources at our projects. We have a record-low total cash costs for the Company in 2005 of $43 per ounce and for the quarter was minus $22 per ounce. So cost containment is an issue in the industry. And we're certainly facing the same sort of input price increases that our competitors have. The reality is we have a special mind for LaRonde that has significant byproduct credit, that's helping to keep our cost per ounce down.

But as we said at the start, for the last two years we've maintained our cost structure on a per tonne basis, which is not impacted by exchange or byproduct metal prices at C$49 per tonne. So in Quebec we have synergies, we're in a proven mining region, cheap source of power, all of those things help us keep our costs down. So we're in a good position moving forward to keep our cost production down. We had record cash flow in 2005 of $83 million. In the quarter almost $25 million. We have moved Goldex forward. There is 60 employees from LaRonde now at Goldex. So the development teams are LaRonde teams and the development is ahead of schedule there, and we'll talk about that. And as we said, we acquired two new gold projects, Suurikuusikko and Pinos Altos, and we have been able to build our business by buying these projects and making these acquisitions in a very disciplined manner. And what that has done, is that has not loaded up our balance sheet with an excessive amount of goodwill going forward. So that should be beneficial to earnings as we build these projects.

Let's just spend a bit of time on reserves here, I think this is important as we said in this industry. We, our focus drilling program at Suurikuusikko since we got full control of the project in the fall of 2005 has resulted in an increase in the proven and probable to 2.3 million ounces. There's significant resource there. We'll talk about that later. We're expecting additional reserve convergent at LaRonde, at Pinos Altos, at Suurikuusikko in 2006 and even into 2007. So this 10.4 million ounce figure we expect to continue to grow. But I think most importantly, if you look at our reserve position compared to our mid tier competitors, it's significantly higher than the average of our mid tier competitors. We took 10 competitors yesterday and calculated the average of those competitors to proven and probable reserves and the average for those 10 competitors was 4.7 million ounces of proven and probable. And we're sitting at over 10 million ounces with the potential to go to 14 to 15 million ounces. So we'll talk about that in some of the projects.

Just talking about LaRonde over the next few slides on the operating performance, the average tonnage for the fourth quarter, about 8,000 short tonnes, or 7300 tonnes metric. And despite the rising input prices that we talked about for steel and for energy and fuel, et cetera, our cost control has been quite effective. Our cash per tonne cost was $51 per short tonne in the quarter, or $56 per tonne metric, that was within 2% of budget for the quarter. Our profit per tonne on a metric basis is about $50 per tonne. So it's an extremely good business with profit margins at close to 100%. The mine in the fourth quarter generated a cash profit of US$38 million. So LaRonde is an extremely profitable mine. The gold output was slightly lower than planned in the fourth quarter due to less ore than planned recovered from the lower-level stokes and a bit more lower-grade ore from the hanging wall, which is economic in this higher zinc price environment. So all-in-all a good quarter from a cash flow point of view and a cost point of view where we had cash costs of minus $22 an ounce.

In terms of the earnings, we had earnings of 11.7 million or $0.13 a share. We had some parts moving within the earnings. The zinc hedge cost us about $0.06 a share in lower earnings, however, that was offset by higher byproduct prices, which boosted earnings by $0.06, so almost a straight offset between the hedge and the higher byproduct production. The lower gold production hurt our earnings by about $0.04 per share, but we had a tax benefit offsetting that by about $0.04 per share. We did have higher exploration costs because we were expensing Suurikuusikko and Pinos Altos costs in the quarter. So that also depressed earnings a bit. Cash flow was a record at almost $25 million, so the mines are generating extremely good cash flow. Our cash position at the end of the quarter was $121 million, we'll talk about that in a minute. But going forward, the zinc position is half of what it was, I think hedge position in the fourth quarter. We actually closed down half of that position. So going forward we expect minimal impact. We're simply delivering into that hedge. The hedge is 26 million pounds and it's evenly distributed throughout the year 2006.

For the full year, our overall tonnage was on budget at 2.7 million tonnes metric. Right on target for our cash cost per tonne, which was C$50 Imperial tonnes or C$55 on a metric tonne basis, so right on target. Full year cash profit at the mine, $114 million. We realized byproduct prices of $8 silver, $0.69 zinc, and close to $2 copper due to favorable settlement terms on the copper. But as you can see we only realized $0.69 zinc in full year 2005. So going forward, assuming higher zinc prices, this mine is going to generate significantly more cash flow. I just wanted to stop and congratulate our employees at LaRonde. They have had 11 consecutive months without a loss time accident. This is a big mine, 8,000 tonnes a day, a lot of moving equipment. So it's an extremely safe mine. Our team also just won the mine rescue competition in Quebec, so our congratulations go out to our employees at LaRonde for their safety record and certainly their performance at LaRonde and mining 8,000 tonnes a day and keeping costs down.

Our earnings for the full year, 37 million, $0.42 per share. We had record cash flow of $83 million. In fact, we have net free cash flow which resulted in us being able to increase our cash position from 106 million in '04 to 121 million at the end of 2005. In fact, the financial position is much stronger. We have no debt. We have 150 million undrawn bank facility, so we have got much more financial flexibility than we had a year ago. In terms of the performance of LaRonde on the tonnage, we have got our metric on the next slide. The metric tonnage, 7250 tonnes metric averaged over the last eight quarters or 8,000 tonnes a day Imperial, which was on target, and the last two years we've averaged C$50 a tonne short tonne or $55 metric tonnes. So, again, right on target. And on a cash-cost basis per ounce over the last two years we averaged $50 per ounce in cash cost. So one of the lowest-cost producers in the business. And just wrapping up on LaRonde, the next two slides on reserves, LaRonde, solid reserve position, over 5 million ounces. We have been able to increase our reserve position year-over-year as we've drilled and converted more resource into reserve. LaRonde also contains 1.4 million ounces of gold resource and we also -- it also contains on a proven and probable basis over 50 million ounces of silver, 270 million pounds of copper, and 1.8 billion pounds of zinc. So a very, very large deposit that is working extremely well for us.

Our full year forecast, as we said at the top has not changed, it's coming up on the next slide, looking at 7250 tonnes of metric per day, that's about 8,000 tonnes Imperial, producing 250,000 ounces of gold and strong quantities of byproduct metals. On a gold equivalent basis, this would equate to about 650,000 ounces of gold per year on a gold equivalent basis. So showing again that it's an extremely large mine. So what we have got on our forecast going forward for cost per ounce, we're using conservative pricing assumptions for byproduct metals. We're using $7 silver. We're using about 1400 tonnes metric, I can't quickly convert that into cents per pound, but it's extremely conservative. Using current prices, we would be in a position now where almost all of our silver production and all of our gold production would come free. So we expect this mine to generate significantly more cash profit than we did in 2005 going forward.

Let's talk about the growth projects now. The next slide just shows where we're operating. And I think what is apparent here is that we put together projects that have mining camp potential. All of these projects are well-matched to our technical skill sets, they're all near infrastructure. They're all in locations that are pro-mining with low political risk. The property positions are extremely large. We think there is more potential to find more ounces there. We have got the largest exploration budget in our history working on these projects. The guidance on exploration has been 12 million for 2006, but that does not include the exploration program that we're finalizing now for Pinos Altos. So we'll have the details of that over the next few weeks and that would put us at the largest exploration budget that we have ever had as a company. The budget will be focused on Suuri and Pinos Altos on both reserve conversion and a long strike of both of those deposits.

Just focusing a little bit on Quebec, that is our foundation; that's our base. In this region we have over 8 million ounces of proven and probable gold reserves. It's a very pro-mining region, as you know, favorable geology. We have the dominant land position in this region. What allows us to keep our costs low are the operating synergies we have here. We have tremendous operating flexibility in this region. We're able to move people, we're able to move equipment, and we're able to move infrastructure among these deposits and that helps to keep our costs down. Lapa is 10 km from LaRonde and Goldex is 50 km from LaRonde. So all within a very tight geological, or geographical footprint. Goldex construction is going very well. The ore body lends itself, it's a very simple ore body. It allows us to use existing infrastructure as much as we can there. We're underground now with both underground construction and surface construction underway. A 6800 tonne a day operation being built there. The metallurgy is very simple. Two-thirds of the gold will come out in a gravity circuit. We get operating synergies with LaRonde, particularly on development. LaRonde's development crews are developing this deposit. LaRonde's toss to develop a meter of level development is about $2,000 a meter. So we're taking huge advantage of that, contracting costs in the region are 50% higher than that. That is a big reason why Goldex works and will generate a lot of cash for us as we move forward. The deposit is still open, so it will be the focus of exploration once we get more underground infrastructure in place. The reserves at Goldex are 1.6 million ounces. We've got 200,000 ounces in resource. Our base case of $400 gives us an IRR aftertax of 15%. The capital cost is 135 million. We estimate start-up in the second half of '08 at about 170,000 ounces at $200 an ounce.

The second project in Quebec is Lapa. Lapa has a reserve of 1.2 million ounces, about an average grade of 8.9 grams per tonne, or 0.26 on the Imperial scale. We also have a resource of 0.5 million ounces there that will be drilled. It's -- we're drilling at Lapa underground now, so for the next 12 to 18 months we will certainly look at moving that resource into the reserve category. There is a potential to get a higher grade here, 80% of the drill holes have had visible gold in them. The uncut grade here at Lapa is 12 grams or 0.35 ounces per tonne on the Imperial bases. A shaft sinking is going extremely well. We're averaging about 3 meters per day, over nine feet per day. Now we're currently looking at, or studying the possibility of accelerating the shafts program, keeping the shafts sinking going. Haven't made any decisions on that. That would come around the middle of the year if that was something that we thought made sense to do. But, again, shaft sinking going extremely well. It has the potential to produce 125,000 ounces at $200 an ounce of cash costs. Expect to have the feasibility completed by the end of 2006. Production in late 2008. But as we said, we're looking at ways that we could possibly accelerate that timetable.

On LaRonde II, bankable feasibility study is complete. It's been reviewed by a technical consultant that we have hired. We have now turned it over to an engineering firm to also complete a review of that. We expect details on that in the second quarter of 2006. We envision -- the study envisions production rate of 5 to 6,000 short tonnes a day, which would maximize existing infrastructure. It's a very simple general arrangement. I think that's the beauty of this plan. We use as much of the existing infrastructure including the plant, ventilation, cooling, et cetera, and Penna Shaft to complete the hoisting. So that helps to keep capital down and helps to maximize the IRR. We're looking at steady state gold production over the life of LaRonde II, of about 300,000 ounces, could be higher in the earlier years, given the fact that the gold grades are significantly higher in the deeper mine than they are at the LaRonde I area where we're currently mining.

Moving on to the international projects at Suurikuusikko, we announced reserve of 2.3 million ounces. We're near completion of a feasibility study. That feasibility study contemplates a 3,000 tonne-a-day operation, expected gold recoveries in the 87 to 90% range, estimated CapEx of about $170 million. We have made major steps in terms of hiring qualified people to run that project. We have been -- we're happy to announce we have hired Ingmar Haga, who's our Managing Director of Europe. He's had 30 years of experience in mining, about 20 of those with Outukompu. So very experienced in mining. Very experienced in Finland. And he's moved quickly to build and put a team in place that will manage the growth not only building this mine, but certainly conducting the exploration here where there is a lot of upside. So our third-party review will be complete in the second quarter, so we'll have more details of that on this project in the second quarter. The project is essentially permitted. There is an amendment required to the environmental permit because we have changed the treatment process, as you know, we're using a pressure oxidation process. It was originally permitted using biooxidation. Pressure oxidation is much more environmentally friendly. So we see no issue in getting the amendment to our environmental permit in Finland.

On the next slide we talk about the reserve and resource position. The deposit is shear hosted disseminated gold deposit, contains multiple parallel mineralized lenses. The property position is extremely large. We have got over 6500 hectares in the area. The strike length of the mineralization is 15 km. We've only drilled 5 km of that, so the deposit is opened a depth. It's opened along strike. It's only been drilled down to about 800 meters. We have got seven drills going now; five doing in-fill and two drilling along strike. The reserve -- new reserve figure and resource, it was done using more conservative parameters. It was done to 43101 standards and as we announced this week it's at 2.3 million ounces probable reserve, and the combined resource is another 1.2 million ounces. So the drilling will be focused on moving additional resource into reserves and also looking at expanding the overall mineral outline in this region. The reserve is based on over 500 drill holes and over 150,000 meters of drilling.

Our last project [inaudible] Pinos Altos, we announced an updated resource on Pinos Altos, the combined gold resource is 2.1 million ounces, and over 50 million ounces of silver. The deposit is wide open. As we've said earlier in the presentation, we're currently working on putting together the work plan for 2006, which will include an aggressive exploration program here and that will be announced in the next few weeks. So you'll be able to update your budget figures for exploration and get a better sense of the target areas that we're focused on. The transaction closes March the 15th. The total acquisition cost, there is a share component as you know, at current share prices would be about $80 million. We still have two drills working on the property right now and they're focused on seeing whether we can tie-in Cerro Colorado and Santo Nino. We have certainly had good drill results down there that suggest that these two zones may coalesce, but that's the subject of future work and future drilling over the next couple of months. Expect a feasibility study in early 2007. The scoping study to preliminary assessment contemplates about a 3,000 tonne-a-day operation. It's estimated CapEx of about $150 million.

Just the last two slides on the timeline, as you know, we're quite active with our projects and with our existing mine. The news flow over the next little while in March, the Suurikuusikko study goes to third-party review. We will also close the Pinos Altos acquisition and we'll provide some details on the work program. In April, we'll have our first quarter results and also disclose the results of the bankable feasibility work on Suurikuusikko. In May, we'll have the results on the third-party review of LaRonde II. We'll provide those details to the market and we also have our annual meeting on May 12th, where we'll provide a full project update on all the projects. Just in summary, LaRonde continues to generate strong earnings in cash flow. In fact, record cash flows in 2005, and based on current commodity prices were anticipating a much greater mine operating profit from LaRonde in 2006. We have got five gold growth projects, but have the potential to triple the gold production by 2009. Our existing projects provide the potential to increase our gold reserves to 14 to 15 million ounces by 2008 and that will be driven by the exploration, and that budget will be the highest budget in the Company's history, so that we can move that resource into reserve and grow our reserve position to around the 15 million ounce mark. So that's the formal part of the presentation. And Operator, we would be happy to open it up for questions.

[OPERATOR INSTRUCTIONS]. First question comes from John Bridges of JPMorgan. Please go ahead.

Hi, Sean, everybody. Congratulations on the results.

Thank you.

I just wondered on the scheduling of the new projects, Pinos Altos so it looks as if it could be one of the higher return projects. I just wondered whether you would bring that forward or what is the scheduling like at the moment?

Well, that one certainly has the potential to see it moved forward. We haven't really done a lot of work on permitting. We don't expect any issues there. But since we have something like Suurikuusikko, which is basically fully permitted, all of the Quebec projects basically permitted, we just left that timeline a little looser because we're just getting in and getting the team in place and doing the initial work on things like permit. But our experience in that area, certainly the experience of others that have built mines in that vicinity have had very little difficulty getting things permitted. But certainly that one has the potential to be accelerated.

And then LaRonde II, is that really scheduled to slot in after LaRonde I is depleted? Is that their plan?

That is the plan. I think the current feasibility study envisions that one sort of transitioning at about 1,000 tonnes a day as LaRonde I sort of winds down and that one sort of ramps up. We don't want to have a situation where we have to go full start because LaRonde I is out of ore and we have to start to ramp LaRonde II up quickly. We want a two or three-year overlap where we're sort of getting a development in place, and getting in a position to ramp LaRonde II up to 5 to 6,000 tonnes per day.

So what would that overlap time period be, which years?

Ebe?

That would be -- you would be looking at 2010 to 2012.

Okay. And then finally, the low recovery of gold/ore last quarter, could you just detail it a bit?

Okay, basically what it -- we had budgeted 95% of the ore out of each individual block to be able to extract it. What we have been able to do is control our dilution. So what has happened is we have been only able to extract 90% of the reserve or 5% less of that out of each mining block than what we had planned on. So what we have done to correct this is to ensure that we have additional mining blocks on the lower horizon available to make up for that loss of 5%.

Sorry, I don't understand. You say you control your dilution, but you're not getting the ore out that you planned?

That's right. And then also we have -- to be able to extract the ore and avoid dilution we leave some of the ore sometimes as a couple thousand tonnes left in the stopes, when we judge that potential caving conditions may result and therefore delay the sequence and cause us other issues with respect to backfill.

Okay, I see. Okay, thanks, Ebe. Thanks, Sean.

Your next question comes from Tony Lesiak of UBS. Please go ahead.

Good morning, Ebe, just a follow-up question to that. Could you comment on the average dilution that you use for your reserves at LaRonde I and perhaps comment on LaRonde II and whether or not the numbers that we see now are the, I guess the expected diluted numbers?

The numbers that we see now are the expected dilution numbers. Just to give you an idea, the bottom of the mine and by that, I mean around level 224, 215, the deepest part of the mine. Over the last quarter we averaged 13% totally in the upper part of the mine. The zinc zone we averaged 6.5%.

Where we are having issues in the center of the mine like level 194, 158 and that is an area where, from a geological point of view, we have got a lot of sericite schist on the hanging wall and the dilution in those areas have averaged around a 30 to 32%. However, going deeper, we get away from the sericite schist so you can see at the level 224 where we are averaging around 12 to 13% currently. What we have used in the reserve calculation is once, again, based on the location, so on the lower part of the mine we have incorporated 15%.

Okay, so this is an isolated event and won't result in a recalculation of your dilution factors in the upper mines?

No, because what we have done even in our 2006 operating plan in our feasibility study, et cetera, we have used real hard numbers of what have we have experienced mining LaRonde I.

Okay. Can you comment, maybe on the potential to fast track Lapa? The late 2008 start date that you have indicated, is that the date that could get moved forward?

Yes, it is. Our -- what we're looking at now, Tony, is we had originally planned to stop shaft sinking at 2700 feet and then start a development program and a diamond drilling program and get into the zone, and then if we had positive results then we would remobilize and continue the shaft down to 4,500 feet. What we're currently evaluating is rather than demobilizing the shaft crew, is there any way that we could go out on some of the levels like level 69, expose the ore earlier than we had expected using the shaft sinking equipment that is presently in sight, and if we're able to do that then we would definitely reduce the time where we would have to demobilize, remobilize and that might cut anywhere between 5 to 7 months off the schedule.

Okay. When were you planning on getting down to your target depth and when might the Board meet to give the go ahead for the second phase?

Well, I think our internal objective right now is to be able to decide on that at the end of the -- at the Board meeting at the end of April of this year.

Great. Thanks, Ebe.

Your next question comes from David Christie of TD Newcrest. Please go ahead.

Hi, guys. I just wanted to ask if you are contemplating any other acquisitions in the near future and what's your sort of timeline there in doing anything else?

We have nothing on the front burner there. We continue to, as a mining company look at things that come in, but there is nothing that's on the front burner right now.

I guess the second to that would be, are your grassroots programs continuing in the U.S. or are you pulling back on those a bit as you develop these other assets?

No, the Reno office budget is a little over US2.5 million, between 2.5 and US3 million out of the Reno office. So we have got some major projects along the Cortez pipeline trend area that have been acquired in the last year or so. So we continue our grassroots program in Nevada.

Okay. Thanks, Sean.

Okay.

Your next question comes from Haytham Hodaly of Salman Partners. Please go ahead.

Morning, gentlemen. Just a couple of quick questions. I guess you have got a fairly impressive portfolio of assets for future growth now. Could you outline your plans just to develop these assets from -- more from a financial prospective rather than a timing prospective?

Just from a financial prospective, I think as we have said in the presentation, we're in a much stronger position now than we were even six months ago to move these things forward in terms of financial flexibility. No debt, so we eliminated our convertible debt. We have a higher cash position than we had in 2004. As you know, we have the ability to fund these through flow-through shares. But I think more importantly is the cash flow generating potential at LaRonde going forward is much higher. And I think that's a really important component of the projects as we move forward.

For example, in 2005, on our projects, we spent about $70 million. We had cash flow of about $83 million, so that's why we're able to add to our cash position. Going forward into 2006 we're forecasting capital of about 120 million and our cash flow could be significantly higher than that going forward. If we sort of assume we're going build them all then there certainly would be [inaudible] and it would make sense to add some equity to the balance sheet, from a financial risk point of view. Because what we don't want to do is create a lot of financial risk and possibly have to stock trade down and then somebody would be able to get something of, sort of 15 million ounce company with extremely low cash costs and good growth in production cheap. So we're going manage our balance sheet on a conservative basis.

But what we also have the ability to do is a project like LaRonde II is over five or six years. So that capital gets spread out over five or six years. If we assume we're building five new mines, on average, there may be a two-year -- there may be a period of one or two years where we're spending around $250 million a year on the projects, plus or minus. And we could see ourselves in a position where at current base metal prices, essentially the silver and the gold at LaRonde is coming free. So that's about 180 to $190 million in cash profit at LaRonde. So our cash flow can go a long way to meeting our financial needs as we drive our projects forward.

Thanks, Sean. The next one I want to ask is just to touch on something you indicated, capital spending for 2006, estimating 120 million, what does it look like in 2007 and then if you could just breakdown for 2006 where that is going specifically?

Well, Dave can breakdown the 120 million for '06.

Yes, right now the bulk of it is in Goldex, [82] million of that, and we have about 12 million budgeted for Lapa to complete the original $30 million Phase I program. We have sustaining capital of about 10 million at LaRonde I, and we have a ramp program, a ramp development underneath LaRonde of about $12 million this year as well, and the balance is sundry.

Okay, and then for 2007 [multiple speakers] just what is your -- what is the number looking like?

Well right now, I mean that's continued upon a number of project decisions. We haven't provided any guidance on that and obviously that will change based on what we decide on the second phase of Lapa, on LaRonde II, on Suurikuusikko, and potentially Pinos Altos this year or next year. So it's tough to put a number on that.

We'll have a better sense of that around the middle of the year as we get the feasibility studies reviewed by third-parties to give us additional comfort on all of our work. We've spent, as you know, about three years on LaRonde II. We have looked at a dozen or so different options. I think the advantage of that one is it's simple it's straight forward. We can spread our capital out. It doesn't come front-ended because we're not building a brand new shaft or headframe from surface.

So we have tried to manage these things, so there is as little overlap as possible. There will be overlap, but it's all from what we can see, extremely manageable from a technical point of view. Given the proximity of the projects in Quebec and from a financial point of view given the fact that we have got a good cash position. We have got a strong and increasing cash flows. We have got no debt now. We also have the ability, as you know, to finance about two-thirds of Goldex and Lapa using flow-through funding.

Okay one last question, Sean. Just with regards to a more bigger picture, I guess. Using LaRonde people to develop Goldex, you plan to use LaRonde people, et cetera, to capitalize on their expertise in the future for the future development. Are you having trouble attracting more people for future development? Could the lack of qualified people delay your plans at all at this point?

Ebe here Haytham. Just to give you an example, when we made the transition from gold -- from LaRonde to Goldex in November and December of this year, we were able to replace supervisory staff, technical staff, and the mining staff, and as a result, if you look at the figures in the last quarter, the results were quite seemless, despite having to transfer 10% of the LaRonde work force to Goldex. We have also, from at least the Northwestern Quebec point of view, we have been able to attract a lot of new people. We have got a lot of potential new employees on the sidelines waiting to be hired.

With respect to Finland, as Sean mentioned, we're able to attract some key critical personnel, and I think that there hasn't been a lot of mine development in Finland. So from what we understand talking to various people and the message we get there, that the staff in Finland will also not provide to be a significant issue.

With respect to Mexico, we have already made overtures to a few people who are getting our key operating team together. We have got candidates to fill those voids there, so by all of that will be finalized by the middle of this year. So we're optimistic about being able to staff and manage these projects.

Excellent. Thank you, gentlemen. Thank you very much.

Your next question comes from David Stein of Sprott Securities. Please go ahead.

Hi, good morning, everybody. I have got a quick question and maybe a more detailed question, so first the quick question. Your exploration guidance for next year, 12 million, can you tell us how much of that will be expensed and also what you're going to do with Pinos Altos in that prospective?

Yes, actually the balance -- I'm sorry, the income statement, that's the amount we had budgeted to expense, David. And then Pinos Altos will be over and above that, though we haven't laid that program out yet and we expect to shortly.

So is there a, like I guess a CapEx exploration number in there or is that included in the --?

Well, that would have been incorporated in the $120 million that Haytham had alluded to in the last question. There is an element of exploration expenditures in that CapEx number. Drilling and whatnot on projects are either under construction or in development.

Okay. Great. And my other question is you guys are working -- finishing the feasibility on LaRonde II. I'm wondering can you talk about the rock types that you are expecting to be, I guess supporting the stopes in those lower levels, as compared to some of the comments that you have made on the upper levels with some of the units causing problems. In general, what are we expecting? Because I guess I'm aware that geology can be probably as important or even more important than the depths that you're mining at. So what do you think about that?

Well, I think we're going to be basing a lot of our future thoughts on stope sizing and the sequencing on what we're currently experiencing below the bottom of the Penna Shaft. We're currently mining our third mining block on level 224 and in comparison to some of the issues that we experienced a couple of years ago, those stopes have performed admirably. We have been able to extract the ore and the dilution has been under 10%. And based on our geomechanical modeling, the conditions that we're expecting to encounter below that are very similar to what we're currently encountering on level 224.

And I think what is probably maybe a bit misunderstood is that we are actually mining in rock conditions that have failed and once a rock condition has failed, it doesn't -- then as you get deeper, it will not cause anymore grief or problems. So I think what we have done is when we have simulated the mining sequences, we have looked at multiple pyramids, multiple sources of ore so that we don't get into trouble that we don't get restricted like we were back in 2002, 2003. We don't want to be able to not have the infrastructure in and so we want -- we basically are applying the lessons we have learned from 2001 and 2003.

Okay, that's great. Thanks a lot.

Your next question comes from Chantal Gosselin of Haywood Securities. Please go ahead.

Good morning. My first question is Suuri. You give us a split of the reserves in terms of open-pit and underground. Can you give us some color on the strip ratio for the open-pit side and maybe a little bit of cost?

I can't give you any cost guidance, Chantal, because we're in the final stages of preparation. However, with respect to the reserve distribution, what we're looking at is anywhere between 600 to maybe 750,000 ounces from the open-pit and then the remainder would be underground. With respect to strip ratios, we're looking at a ratio of about 8 to 1 and we're also looking at a minimum of two pits and possibly three pits. Our strategy is basically to start at 110% from the open-pit over the first couple of years as we proceed underground with ramp development and then underground we'll be ramped up for over the next two to four years and come on stream, too. And then we will be depleting the pit at perhaps a 1,000, 1500 tonnes a day while the underground ramps up. So that is currently the strategic thinking.

Okay, and your reserve just to find, I guess about 12 years of mine life, and you think the resource is about another five years if you would convert, right? But you do have seven drills right now and I guess you're infilling all the resource. Would you consider to increase the size of the operation there?

Well, I think we would rather walk before we run. With respect to reserve conversion, a lot of those resources are deep. They're, if you look at the longitudinal sections. They're at depths of about 6 to 700 meters. So that means a lot of slow drilling and so our, what we're currently evaluating is to see whether we can start a ramp and get underground very quickly and to be able to put a lot more drill holes over a lot shorter time period within that area, say below 600 meters.

So we're doing this. It's not the most efficient way to be able to convert the resource into reserve, but for the time being, it's the only way. What we would like to be able to do is get underground, start diamond drilling and then, of course, we have all that extra strike length and use those additional machines that we have on surface to go to exploration.

Okay. My second question relates to LaRonde II. I just noticed that the reserve at LaRonde II increased by about 400,000 ounces, but the resource decreased by about 1 million ounce. Could you comment on that? Is it --?

Well, some of that is where we haven't been able to get some of the drill holes in. We have also had some mediocre results, so what we have done is we've removed them from the resource calculation. They are currently inferred and so they are not indicated anymore. So I think what we've also done is we've changed some of the parameters to more conservative parameters when we calculated LaRonde I and LaRonde II reserve and resource. So there is some of the impact on that. And by some of those parameters, we have adjusted specific gravity slightly. We've also adjusted some of the grade factors with respect to angle holes. The historical factor that has been used in the Cadillac-Bousquet belt based on angle holes or drill holes that went across North/South fractures. So some of that resulted from just using more conservative parameters.

Okay, and to what depth is the new resource then?

The depth would be to about the 330, level 330, so 3,300 meters, same as last year.

Okay, it's just more skinny.

Yes.

Okay. Okay, thank you.

Your next question comes from Steve Butler of Canaccord Adams. Please go ahead.

Yes, good morning, guys. A couple of questions. What is the zinc price hedge for '06, Dave?

It's $0.56.

Okay. Also on Pinos Altos, in terms of booking and reserve, I know you guys are completing -- working toward a feasibility study for Q2 of '07. Would there be a pre-feaze completed before that time, guys, and therefore, a booking of a reserve before that time or not?

Well, obviously, we would like to be able to book a reserve earlier, but I think the overall feasibility process is quite, will be seemless. So I think we will get a fairly good idea of the economics. We have already completed a scoping study and actually the scoping study is actually a lot more detailed than your typical scoping study, so we already have a feel for the economics. So if we can -- our objective would be to have some harder numbers by the end of the year in Q1 of next year to be able to book reserves. But as Sean mentioned, we're giving ourselves some time with respect to permitting and other issues, and until we get more information on that, it's difficult to say, but we certainly would like to be able to do that.

Okay, Ebe. And the last question is, at Lapa as you are now, sounds like you're now underground drilling station is set up. So is there going to be any effort to -- is the focus here infill drilling the resources or additional, for reserve expansion on infilling there, the 556,000 ounce resource? That's the first question there.

Where we are actually positioned, were drilling from shaft stations. We have level 69 and level 49, that is 490 meters below surface and 690 meters below surface. That -- those locations do not allow to us to explore at depth to check additional reserves or to find additional resource. So right now the program is focused on validating previous reserve estimates.

Okay. And will you be in a position there, Ebe, or does it -- would it take bulk sampling to verify the potential to improve the grade to the -- towards the uncut numbers?

Well, that is what our objective is and what we're evaluating, whether we can get into the zone earlier than we had planned. And currently we're developing towards the ore zone on level 69 and we hope to be able to expose the ore zone by the end of April and to be able to drift along it, and then we will be able to get some of that type of information based on muck sampling, channel sampling, and compare that with drill hole sampling.

Okay, so sort of May/June timeframe perhaps for bulk?

Well, our objective is to -- by the end of April.

Okay, thanks.

Your next question comes from Barry Cooper of CIBC World Markets. Please go ahead.

Yes, a couple of questions for Dave. Dave, what is the sundry item of, well, more than 2.8 million because obviously you would have had some positive interest there in the fourth quarter?

Yes, Sean alluded to the fact that we have cut the size of the zinc hedge book in half. And we had a collar in place before that we purchased back. There was about a $3.5 million hit in there for that and the rest is just interesting comp and other sundry things going the either way.

Right, okay, and then, Dave any, stab at a tax rate for you this year?

Yes, 35 to 40% statutory. And I know I have guided that before for '05 and obviously that didn't materialize, but the auditors found some other unreported tax assets, they required us to book in the fourth quarter. But I made sure the cupboard is bear now. So I think we'll be booking the full statutory rate.

Okay, and then G&A?

G&A is going to be about 13 million. About three of that though will be stock option expense, so non-cash.

Okay. And then, finally, Sean, Ebe went through the list in terms of how you're going to accomplish getting people for the projects and whatnot, but sometimes trouble arises when you don't have enough management in kind of overseeing all of this. What kind of challenges are you seeing and where is the limit? Because from what I see you're basically going from one mine to five over an 18-month period.

Well, we have -- as you know, we've ramped up our head office staff at half the office. You would get the impression that you're at LaRonde. So we have taken -- and that's a good thing. Because we have taken all the skill sets there and the people that successfully ran that and built, whether they're miners, or metallurgists, et cetera, engineers, geologists are now here. And I know Mr. Penna wasn't happy that we've taken the head office staff from 5 to 20 in the last 20 years, but that's the reality of the business.

So, there is a few more things that we need to do. We need to bring an environmental person here and we have the person. They will come from LaRonde. A human resource person, we have an idea who that is. So there is a few of those things we need to do and maybe something else on the project building side. But basically, we've built our head office staff ahead of the growth. We added Corporate Counsel, Greg Lang recently. So we have got a full team here that has a lot of experience and we need to do a little bit more but not much more.

Okay, thanks.

Your next question comes from Mark Smith of Dundee Securities. Please go ahead.

Yes, good afternoon, gentlemen. I would just like to go back to an earlier question, just about the transitioning between LaRonde I and LaRonde II. Now, I gather there is going to be a three-year overlap. But can we just get an impression as to where we go down from 8,000 tonnes per day and gradually move down towards 6,000 tonnes a day or 5,000 tonnes a day, short tonnes?

That would be toward the end of the life of LaRonde II, which would be somewhere around 2013 -- LaRonde I, sorry.

Okay, so we sort of stick around the --?

Well, it will be a transition, Mark, because we can wind down LaRonde and then it becomes a matter of balancing gold output versus zinc output. Because during the latter stages of LaRonde I, well, we will end up being a zinc mine, so we're obviously going to try and push LaRonde II harder and try and get more gold ounces from the bottom and as a result, slow down LaRonde I.

Okay, but we would be sort of looking at during that period, about 8,000 tonnes per day; is that correct?

Yes, we'll be able to maintain it and then the moment that LaRonde II is solo, by itself, after LaRonde I is depleted, then it will be between 5 to 6.

Okay. All right. Thank you very much.

Your next question comes from [Niwika Krakoviac] of HSBC. Please go ahead.

Yes, good morning. I just wondered whether we can return for a minute back to Finland and just talk a bit about the change in the processing to pressure oxidation, what kind of benefits are you getting out of that? And also if you could talk a bit about the CapEx of 170 million. What are you assuming for the mine, the processing plant, does that include contingencies, working capitals, just if we can get a little more detail, that would be great? Thank you.

We can't really comment on the distribution of capital. All we can say is that a good part of that will be the processing plant and the change to pressure oxidation. With respect to discussing the benefits and pros and cons of pressure oxidation and biooxidation, I will turn you over to Jean Robitaille, who is basically spearheading the study. Jean is our Vice President of Metallurgy and Marketing.

[Inaudible] with the pressure oxidation instead of the biooxidation. It will be more friendly and environmentally. You have a very lower [sericite] consumption. And will come -- the consumption -- [sericite] consumption will be 10 times lower than the biooxidation, as well as we expect to have a better recovery with pressure oxidation. It is a proven technology. Essentially it's a big [hammer] that will just dissolve all of the sulfide natural gas to will extract the gold.

Great, thank you.

Your next question comes from Michael Fowler of Desjardins Securities. Please go ahead.

Yes. Just showing -- I'm just trying to understand why you're doing flow-through financing for the Lapa and Goldex when your taxable this year?

We're not taxable this year, Michael. We're deferred taxable. So it's an accounting tax provision. But we have $700 million of tax pools, so I don't expect to see taxable for many years. So we're giving up some [inaudible] at the back end, but when you net present value that, we're really not getting up much per share.

Okay, that answers that. Thanks.

[OPERATOR INSTRUCTIONS]. Gentlemen, there are no further questions at this time. Please continue.

Thanks, Operator. And thanks, everyone for tuning in to our 2005 year-end conference call. We're hoping to have some site visits this year to Pinos Altos, Suurikuusikko and up to the Abitibi. So stay tuned for that. We're just trying to coordinate that logistically, but we want to get everybody a chance to get up and see the property and see the potential and see what we feel we can do there. So, again, thanks and we'll talk to you over the next few months.

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