Agnico Eagle Mines Ltd (AEM) 2008 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 2008 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 up for questions. (Operator Instructions).

I would like to remind everyone that this conference call is being recorded on Thursday, July 24, 2008, at 11 AM Eastern time and will now turn the conference over to Mr. Sean Boyd, Vice Chairman and CEO. Please go ahead, Sir.

Thank you, operator, and good morning, everyone. With us here we have all of our senior management team and what I would like to do today is we do have slides posted on the Web site. They are downloadable. I don't propose to go through them individually.

What we would like to do is as we would like to deal with your questions so we will leave some time for that, but I wanted to just cover off some key topics without going through the individual slides. But certainly as you go through them and you have some questions, please call us after the call and we can deal with them.

What I would like to talk about is talk about the operating results, talk about the production scheduling and the timing of the production coming on; talk about the CapEx; talk about the exploration focus; talk about the internal opportunities that we see developing through that exploration at our existing projects; and then talk about the strategy and the news flow going forward as we see it. Hopefully that will cover everything but then we can get right into the question-and-answer session.

As far as the operating results and earnings in the cash flow, a lot of that big change year-over-year was driven by the decline in the zinc price where the zinc price realized was less than around half of what we realized a year ago. And that really accounted for the big swing in earnings where we had that lower byproduct revenue largely from zinc settlement losses as well.

It is always hard to get a handle on those until after the quarter ends, but we had concentrate booked at the end of the first quarter. We settled that at much lower prices in the second quarter as the zinc price fell and that certainly hurt the earnings.

On the plus side if you look at the LaRonde operation, it is actually operating slightly ahead of plan. Where we were producing in the first six months more gold than we had expected under the budget and we also produced that gold in terms of cost per ton at a rate of about $66 which was slightly better than the budget. So continued very good solid production coming from the LaRonde operation.

So going forward as we bring these new gold mines into production, the zinc is becoming much, much less important for our overall operating results. In terms of production scheduling and timing, our forecast for 2008 production is a range of 300,000 to 320,000 ounces. We'd break that down with LaRonde no change at 220,000 ounces at Goldex.

We are looking at 60,000 to 70,000 ounces down from 90,000 ounces and at Kittila we are projecting 20,000 to 30,000 ounces which is down from an estimate of about 50,000 ounces, giving us a new range of 300,000 to 320,000 ounces. So the two changes there was Goldex.

Now Goldex, that was simply the result of a longer and planned commissioning process for the [hoist] system and this is a friction hoist unlike the drum hoist that we are used to at Agnico. And that process took us longer to commission that hoist than we had anticipated.

Currently operating that hoist at over 4,000 tons a day, we are moving towards the mid 6,000 ton per day level as we move through September into October. But we have got lots of broken or underground over 130,000 tons. We've got drilled off tonnage of about 1.4 million tons.

So that is just a timing issue. No issues with respect to the mill or the mine, just a longer commissioning phase than we had anticipated at the Goldex project.

At Kittila, we had always had a cushion in there of about two months. We ate through that cushion, that scheduling cushion as we were working to complete the construction of the plant. There is no issue with respect to mining or stockpiling ore or in the pit, we are blasting, we are moving ore.

It is simply a delay in the startup of the plant. Largely due to a combination of late delivery on the key piping for the autoclave, and a bit slower on the mechanical, electrical installations in the plant. So we are looking for -- certainly we expect to be producing concentrate this quarter, but we won't be able to start up the autoclave until our expectation is early in the fourth quarter of this year.

As far as CapEx, we had always talked in the last six months of CapEx pressures likely leading to about a 25 to 30% increase in our three-year CapEx from '08, '09, 2010. We normally update those numbers as part of our budgeting process in November/December. However we did have internal numbers that were circulating internally here as we started to get some quotes on some of the projects and some of the services.

And as a result of having those numbers and the direction those numbers were pointing us to, it was prudent to bring those numbers forward to the market now. So we are forecasting an increase in our CapEx of about 40%. Almost half of that is related to the stronger Canadian dollar than we had put in our forecast and the stronger Euro.

The balance of that is due to fuel, steel, and increases in contract services. As you know, our [Meadowbank] project is highly reliant on fuel -- particularly not just in the operations side of things, but also in the building of that mine from a logistical point of view. As we are shipping material up, we are trucking that material to the site from the town of Baker Lake. So fuel certainly has an impact on our CapEx costs.

On terms of the balance sheet and the financial side, we noted in the press release that we are discussing an increase in our bank facility with our banks. We hope to finalize that at some point this quarter, so that would give us some cushion in terms of doing what we need to do as far as expenditures for the current growth plan. And we feel from with a combination of our cash, our cash flow and an increased bank facility that we have what we need to get the current projects built under the current growth plan.

As far as exploration focus, we are still compiling the results from several of our key projects. We expect that we will be able to provide the updates on those projects and the exploration on those projects within the next three months. The focus has been as we talked about in the past on Kittila at depth, below the [main surrey] zone.

We have been actively drilling an area between about 700 meters below surface down to about 1100 meters below surface. And so we have -- we've been drilling there for several months and we haven't had an update in a while. So we look to put that information out shortly.

At Pinos Altos we are really focused on two main areas there. One is West of the main Santo Nino pit towards the [Sarro], Colorado deposit. And we've got two or three drills going there at any one time? So we will be providing an update on that shortly as well as at Mascota, which is something we view as a potential stand-alone operation. That is the subject of a scoping study right now, but in the third quarter we will put out more results on both Kittila and Pinos Altos.

We have also been active at Meadowbank. The focus right now, we have actually changed the scheduling of what was the original exploration plan for 2008. We've left the drills in the area between [Goose Island] and [Goose South] where it appears that the deposit has some depth potential.

And we need to follow that up. That may have some implications for future expansion potential in addition to the open pit ore. So we are working actively on that as well.

As far as internal growth opportunities, we have always talked about being in the unique position of owning several 5 million ounce deposits. I think our drilling results continued to show that, but what that does is owning those types of deposits means that we may not have the optimal production rate plan for each of those projects.

And we are currently working on scoping studies, now, whether it is at Kittila, at Meadowbank, at Pinos Altos. And even Goldex has room to process more tons based on the mine plan and based on what we see at that project. So as these deposits get larger, there will be internal growth opportunity generated here.

And we think that will take us to the next level of growth beyond 2010, but we need to do more work. We certainly have to do more drilling, but we will provide an update on that drilling in the next three months. And as we go through the next three to six months, we hope to complete feasibilities on most of those opportunities so we can share our views on those opportunities with the market.

But if you look at that from a historical perspective, as a company, we have a history of pursuing internal growth opportunities quite aggressively. And you can see that in the fact that LaRonde was expanded five times since it went into production. So we don't anticipate taking any different approach on these new opportunities as we did when we moved forward on LaRonde.

These would be higher rated return investments and rather than go out into the market and take on the risk of buying something large, we had rather work our own internal growth opportunities as we move forward.

Having said that, we have taken a couple of strategic investments lately. That is also consistent with our strategy. As you know we took a $50 million investment in Gold Eagle in the form of shares and warrants. We also got a board seat on Gold Eagle which is not unlike what we've done in the past. We like to do that. It allows us to understand the opportunity.

But it also allows as input and allows us to create value given our skill set. And we've put as you know Ebe Scherkus on the Gold Eagle Board and he has a long history in the Red Light Camp and some very definite ideas of help this project should move forward. And we look forward to contributing on that project.

We also took a $46 million investment in [Comaplex]. Comaplex is 25 kilometers north of [Rankin Inlet]. We have to fly into Rankin Inlet inlet when we go to Meadowbank so we view that one is being in our backyard. It is one that we think has some upside potential so this allows us to get a little bit closer to it and understand it.

But there is a general theme here. Both of these situations are underground deposits. They are both in Canada. They are both high-grade and they are both wide open. And as we said we will continue and hopefully be able to use our experience to add value to both of these investments.

In terms of the overall strategy of how we grow the Company and how we build value, nothing has really changed. We are still working with the same framework that we -- for growth -- that we established four years ago which is look for early stage opportunities where we can add value without significant dilution to our shareholders. And that has been the key to our success over 10 years is keeping our shares outstanding low and taking early stage opportunities growing them, building them and continuing to explore them.

So our focus will certainly on build the current projects; that will take us to a production level of about 1.3 million ounces. The focus continues to be on expanding the reserve base through exploration and selected acquisitions.

We will continue to do that, exploit internal growth opportunities. The key to [let] Goldex at Pinos Altos and Meadowbank. We think that will drive the next stage of growth as we said, beyond 2010, without increasing our political risk profile.

So as far as news flow, what we are anticipating is exploration updates in Q3 on Kittila, on Pinos Altos and on Meadowbank. And we should anticipate in Q4, and possibly into Q1, results of our scoping study work on Kittila, Pinos Altos, Meadowbank and Goldex. As we go into February expect a reserve and resource update on all of these projects which will incorporate all of the recent drilling we have done through 2008.

So for Agnico, it continues to be all about owning several long-life world-class deposits that are located in the right parts of the world from our perspective that still need to be optimized to generate more value for our shareholders. So we will continue to move the Company forward in a measured and a disciplined manner with a continued emphasis on growing our per-share value.

So that is the formal part of our presentation and we have our full team available to answer any questions. So, operator, if we can open the lines to questions we would be happy to answer them now.

(Operator Instructions). Steven Butler of Canaccord Adams.

Question for you guys with respect to Goldex room to process more tons. Obviously the mill capacity -- or the mill is planning to go to 6900 tons per day by late in the fourth quarter. Where is the bottleneck there? Is it in the mine or the mill and how easily would it be to expand the capacity? And what are you thinking of roughly speaking of Goldex's capacity expansion?

We'll let Ebe, he's got some thoughts on that, handle that one.

The increase in capacity appears to be some minor blockages with respect to grinding in the mill. However, the main restriction is more bureaucratic and permitting. In the province of Quebec to exceed 7000 tons per day we have to have public hearings.

So our strategy is to the able to operate the mine under the 7,000 ton threshold and then go through the permitting process and have it amended to be able to run over 7,000 tons per day. The mine itself is capable of anywhere close to 9,000 tons a day. And so we make these modifications in the mill. That is sort of a target figure that we will be shooting for.

Okay, thanks. Second question is with respect to -- I assume that when you are talking about the CapEx creep, if you want to label it that, on the projects, the biggest project of course is Meadowbank. And the other project where you haven't probably spent the most amount of capital on yet would be Pinos Altos.

I think, Sean, you mentioned fuel was the biggest sensitivity on the noncurrency side of things at Meadowbank. What would be your next most important item in terms of cost sensitivity for that project and as well for Pinos Altos?

And when you are talking about your percentage up to 40% overage, if you will beyond the original numbers using a lower currency, I assume we are also including in there (inaudible) were spent in the first six months of 2008 because you've exceeded some of our estimates there as well?

I will let Ebe go through answering those series of questions.

I think with respect to other sensitivities, over and above fuel, some of them are labor. We faced that pressure in the Kittila. We have found that with everyone has been having issues with labor, so the contract prices to be able to attract people, they have come in higher.

The third item would be steel. Fabrication, equipment. A lot of those especially with respect to processing risk being higher. So that is, I would say those are probably two of the main areas. And then behind that, of course, electrical installations, the price of copper. So these are the areas where we have seen bids come in significantly higher.

With respect to this scheduling of the capital expenditures, overall so far at the midpoint of the year, we are on budget. There have been some adjustments with respect to what we spent or didn't spend in 2007 and 2008. So this increase in CapEx or creep is mostly forward-looking, what we see.

It's Dave. I might add in the first six months of the year, the only unbudgeted item we had in there was the settlement on the landowner in Mexico which was not in previous guidance. And we had some creep with relation to foreign currency. We had used three-year averages in our previous guidance and, obviously, the Canadian dollar has been closer to parity. We used 115 and we used 129 on the Euro and it has been closer to 150 on average year-to-date.

And so we have had creep on currency, but not on the baseline expenditures as you have indicated. They are essentially on budget year-to-date.

Can you quantify the Pinos Altos settlement?

It is about $38 million. Half of which is in advance royalty.

And then, lastly, I meant to ask this and I will get off the phone -- present completion or percent of capital spent at Meadowbank. Do you have a number there that's handy are not?

We have a number that's roughly 50%.

50%. Thank you very much.

Anita Soni of Credit Suisse.

Just two questions. First one, a follow-up to Steve's question with a CapEx. So am I to understand that I think you spent about $400 million to date in 2008. The 40% increase would only be for second half 2008, 2009, 2010?

It is actually over the entire -- it is actually a four-year period that we are looking at which is '08 through 2011. So it includes a lot of (inaudible) LaRonde extension expansion. And now we are looking at essentially 1.4 billion versus original guidance of 1 billion.

(multiple speakers). And then you would subtract from that what you spent to date so far?

Yes. Yes.

Then the second question on the operating, actually still on the CapEx, is that kind of just you know a smear across the board? You know -- is there an apportionment for increases at one project more than any other or is it just increases relatively across the board?

No. I think obviously with the exposure we have at Meadowbank there is a larger increase at Meadowbank and the second one with some of the prices of the installation and contract we've had creep at Kittila. All the rest so far I would say they are -- it's still early days and they are pretty much as planned.

And at Meadowbank when you are talking about exposure are you talking about oil prices or are you talking -- or fuel or --?

I think part of the exposure will be obviously logistics year 2. Next year shipping season we've already incorporated the increases in this year's shipping season and fuel prices in our forecast.

And the exposure will also be mechanical electrical construction installation. We have started to pour concrete there. The foundations of the process plant and powerplant are going up while we haven't received some of the main installation packages yet. So there is some potential exposure there.

And then on the operating costs, you indicated that those were likely to increase as well. Any type of guidance in terms of percentages, you know, percentage type increases that we could see from all of these assets?

We are working on that right now. There will be some increases. Even at LaRonde with some of our supply contractors with respect to steel, with respect to cyanide, even with respect to fuel, we are getting significant revisions. Naturally they are all upward and so we are working.

There are other ways where we can mitigate them, but we foresee an increase. And so I think this will be part of our budget process which we will have -- which we are in the process of going through right now. So the numbers really aren't definitive. But they will go up.

Yes. But I mean, you know any kind of framework around that? You know are we looking at 50% or (multiple speakers)

Well, maybe I can give you an example of what we are forecasting at LaRonde. Currently we are looking at $66 a ton average for the year based on some of the revisions that we've encountered. We will be seeing a $2 per ton increase up to $268 per ton based on those Consumable increases.

Victor Flores of HSBC.

Sorry to come back on this issue of the capital cost, but I guess I'm just trying to get a sense for exactly what the increase in capital is for some of the projects that still need completion.

And I'm looking at the slide in the presentation and it seems to me that slide actually has the old numbers doesn't it?

That's correct.

Okay. I thought I was losing my mind there, but okay. Those are the old capital numbers. Could you give us a sense of how that chart would change given the new ones?

The biggest increase come really from the projects that have the most spent in front of them obviously -- and Meadowbank is a prime example -- we haven't -- we are not providing breakdown at this stage because we are still refining the numbers. But it is definitely skewed towards projects like Meadowbank. Lake Kittila, which has had its difficulties in terms of delays, but -- and obviously on the foreign exchange slide it's really across the board for the Canadian projects and Kittila.

And I could add to that as far as additional exposure when you look at LaRonde that's extension and [Lapa]. Those are essentially labor contracts, development contracts, [sap sinking] and development, so the potential exposure there is if we have an increase in consumables, explosives, if there is a sudden increase in contract rates, etc.

That would -- but as far as having the contracts and signed and having a defined unit cost, we have them. But there is very little projection or protection, say, two years from now or one year from now.

Fair enough. I realize you are trying to as Sean said sort of give us a heads up so that when you have final numbers we are not all surprised. But it would seem to me that for 2008 you've already spent half your money because we are in June or in July.

So you probably have a reasonable handle on what you are going to spend the rest of the year and probably a lot of that stuff has already been contracted. So is it fair to say that the bigger bump will come next year and the year after?

In percentage terms, that's correct. I think this year we might be 30% plus [above] what we previously guided and including currency and cost escalation. And then the bigger percentage bump will come really in 2009 and probably 2010 as well.

Then, just one final question. These changes in operating costs and capital costs, are they leading you to modify in any way how you are going about developing these projects in terms of timetables, scope or other changes that you might be thinking of making?

No. I think the obvious -- one of the solutions is the divisor. The unit cost per ton. How can we maintain our unit cost per ton or potentially even lower it?

And I will give Goldex as an example with a minor CapEx in the mill. And we know when we built the mine we had some headroom in there. So if there are cost pressures, can we process more ore? And so these are the type of situations that we are currently looking at.

Similarly at Kittila, as Sean mentioned, it is a long-life asset and in the current mining plan it has a life of anywhere between 20 to 25 years. Is that the optimal rate? So can we increase the tonnage there and use a larger divisor?

So these we have -- we also know at Meadowbank, with the truck fleet that we have, that we can process or we can mine 10,000 tons a day in comparison to our plan of 8500 tons per day. We have that headroom there.

So it is a matter of what do we have to do to the process plant to get it up to that tonnage rate. But it's things like that that we are looking at.

And then, of course, at LaRonde we have been able to -- we have demonstrated excellent cost control by tweaking. And even at Goldex as these projects grow, we've had our headaches with commissioning the hoist. But as the LaRonde example has demonstrated, once we really get into it there will be potential savings and we'll optimize those operations.

Okay. Thank you very much. If I could just ask one final follow-up. How is the buildup of the underground production at Goldex going? It sounds like the holdup has been on the hoist, but as far as the mining sequence that is going as you planned?

As far as the mining sequence we are ahead of plan. When we looked at our drilled-off tonnage, we are at around 1.4 million tons. We are at about 180 -- 108% of plan.

So when we look at the big picture, yes, we are discouraged about the hoist, but we know the mill works. We know the mine works. We've already got broken ore and what was supposed to take four days electrically to commission a hoist has taken in excess of three weeks to a month.

So it's not pleasant, but we do know that the mine works and it's ready. The shaft works and the mill works.

Right. Thank you so much.

[Laura Gilcrest] with McGraw-Hill.

I would like you to elaborate if you could, on how exactly your zinc business managed to hurt earnings by that much. And if you could also expand on how zinc going forward will be a less important part of your business.

Dave? Do you want to do that?

Yes. That's fine. Zinc is an important byproduct of our production at LaRonde. We produce four accountable metals at LaRonde. Gold, copper, silver and zinc. And what we are finding as we get deeper in the mine, we are enjoying higher gold and copper rates but lower zinc rates. Our production volume of zinc is decreasing and the zinc price underwent a fairly severe correction over the last year as Sean alluded to at the beginning of the conference call. A realized price for zinc was less than half of what it was last year and that's just a function of where the market for the zinc price currently is.

Going forward, we are optimistic on zinc, the zinc price in that production for zinc is likely to continue to decrease over the next couple of years because of the price pressure.

And I'm sorry, I'm not sure if I answered all of your questions there, but does that cover it or did I miss something?

What will you do with your current -- you said it is now a less important part of your business now.

Yes. It's becoming less so because all of the new production coming onstream from our new deposits are all either pure gold or some silver as well (inaudible) precious metal. So we don't have any zinc production, new zinc production coming online from any of our new projects.

So (multiple speakers) overall revenue zinc is going to become significantly less important.

Okay and what percentage was it that managed to take that much of a -- managed to cause your earnings to take that much of a hit? What percentage was it of your business before?

Well, last year, for example you know in 2007, base metals most importantly zinc was about 44% of our overall revenues. And this year in the first six months it is only 32% and that's really largely a function of the depreciating zinc price and our declining volumes.

Going forward, we expect base metals to be less than 10% of our overall revenues, once all these new projects are up and running.

Then I guess, finally, you know they are predicting that zinc will go back into deficit maybe around 2011, let's say. That seems to be the general accepted wisdom out there.

So would you see yourself expanding once again to take advantage of this in the future?

No? In fact most of our zinc production, most of our zinc reserves will be largely exhausted by that point at LaRonde and we will be mining the deeper reserves at LaRonde which are gold, copper rich.

So we did expect our zinc production to naturally decline regardless of what the price was by that period, by 2011, 2012.

Thank you very much.

[David Haughton] of BMO Capital Markets.

Good morning. Thank you for the gold guidance. I wonder if you could provide us with some guidance for what your base metal production would be for 2008?

Yes. We are looking at zinc production of about 68,000 tons this year for the full year. Silver production of about 4.2 million ounces and copper production of about 7300 tons. That's all payable numbers.

All right. I notice that you've been quite acquisitive with stakes in Gold Eagle and also Comaplex. I presume that the funding for that would be debt funding?

Yes, in fact, in Q2, we drew $75 million into our bank facility subsequent to the second quarter. When we closed the Comaplex deal, we drew another $75 million. So we do expect to draw further on our facility than we had anticipated because of those two investments.

Now the facility available to you, can you remind me what that is?

It's a $300 million five-year facility. So right now as of today, we've drawn half of it. And we do expect to -- we are looking at increasing it beyond $300 million with our existing syndicate over the next few months.

Right. So with the higher capital expected for this year and next year in particular, could we expect something like a 50% increase in it?

In terms of the size of the (multiple speakers) facility?

Yes.

Yes.

And can you provide us any clearer guidance as to what the CapEx might be by project for the balance of 2008?

At this stage, we are still finalizing our numbers. In terms of percentages, they are not dissimilar to what we guided in December, in the percentage of overall capital.

All right. Thank you.

Tony Lesiak of Genuity Capital Markets.

Wanted to talk quickly on Kittila and just where you are in terms of your internal critical mass targets before you look at expanding that mine and mill?

Go ahead, Ebe.

I would say currently we have the open pit. We've got about 80,000 tons of stockpile so that is proceeding well. I think what we have to do is to finalize our resource estimate, look at the timing on the conversion. A lot of the new resource that we are looking at are the areas of interest are below the existing mind.

So our sort of strategic approach to it would be to maintain the existing mine, the 3000 tons a day mine with the open pit operations and the underground operations accessed by ramp, and looking at a totally parallel underground operations 3,000 tons per day or thereabouts -- whenever this study will indicate -- accessed by the shaft from surface. Also with the experience that we've obtained building a process plant, we are looking at essentially (inaudible) the plant twinning it to get it up into that tonnage range.

But I think the key will be to confirm what we think we have below the bottom of the existing reserves to convert some of those, that resource in to reserves and then see what -- we hope to have at least the scoping study or a desktop study done by the end of this year, maybe into the first quarter of next year.

And as well, Tony, we hope to have our resource update on that area between 700 meters and 1100 meters below surface in the exploration update that's coming.

Okay. I guess further on the whole scoping study issue, could you maybe elaborate on the deep Goose Lake potential? Maybe talk about [Crest] and [Miscotta] and maybe contrast the [mill] and [Hepley's] options there?

I would think with respect to the focus of our exploration and reserve resource conversion drilling has been between Goose South and Goose Island. And we have been able to continue to get some intercepts outside of the current pitch shelf.

But what we've also noted is that in the more recent drilling that the zones appear to be way more vertical and we've got some interesting intercepts. So these intercepts are below the pit shale as -- or in the mining plan that we currently have.

Some of these values are in the 200 to 300 plus meter range. So we've done some back-of-the-envelope work already to see whether it would be warranted to go underground. And part of the rationale of going underground as well as with the drilling season that we have up at Meadowbank and the logistics with the ice and the islands, etc., it might be a much better way to explore all of the indicated resource that we have there from underground.

With respect to the options that we have of milling and heat bleaching at Miscotta, I would like to turn that over to Tim Haldane, who is basically spearing the heading and have him give his thoughts on the various options on Miscotta.

Miscotta, we are looking at milling or heat bleaching. The milling really realistically for the grade and tons we have right now would involve trucking or from Miscotta to the existing Pinos Altos mill. So we are looking at that. It is pretty tough right now to justify a stand-alone mill with that grade and tons unless we expand the deposit.

Then we've got test work underway and desktop work underway for heat bleaching option. A stand-alone heat bleach.

I guess that (inaudible) imply that perhaps the potential to pick up the ore zone across the valley has kind of gone off the table here?

No, I don't, not at all. I think, but it's -- what we think we are seeing at Miscotta right now suggests that it's a discrete, fairly easy to mine deposit with other potential around it. But we want to look at that discrete deposit right now and then we are exploring in the area as well.

Just a final question, just on the zinc price. I mean the reserves were calculated at LaRonde at $1.19. I mean we are down sub $0.80 now. Is there potential that you might lose a few tons if it doesn't make sense to mine the skins anymore?

I think we are going to calculate there's going to be two things. There's going to be the three-year moving average by the SEC. We are going to calculate our reserves on that basis.

However, we are talking about using a more conservative price in our actual 2009 budget mining plan.

Haytham Hodaly from Salman Partners.

Just a couple of clarifications. Things of clarifications that I need. We've talked about capital cost. And with regards to the full $1.4 billion, that refers to all of the CapEx from the beginning of 2008 all the way to 2011. Is that correct?

Yes.

And then, also, in the second half of the year, just the primary two products, obviously honestly you've or do you spent more than you budgeted for Kittila. And for Meadowbank you are probably more than half spent of what you wanted.

Just -- those are the only two projects I really would like clarification on for this year because they are probably two of the most important. What would you see the Kittila number going to, now that you have exceeded that estimate?

Actually year-to-date the only reason we are over budget on Kittila was really just currency. The escalation as Ebe mentioned earlier is ahead of us.

So how much would the currency have affected that 88 number initially?

By about 20%.

So in terms of actual full expenditures would you only be expecting to spend another 20, 25% on top of what's actually been spent?

No, I think we are probably looking closer to $160 million for the full year using the current exchange rate.

Fair enough. Then for Meadowbank, I guess a similar question. How much your currency affected and what would that be?

Year-to-date, we've actually probably underspent a little bit on local currency terms. Though I know we are going to catch up over the course of the year and currency would have (inaudible) by about 15% year-to-date because we budget $[115] million and we are more or less at parity for the full year for the first six months.

So the actual full number for the year is probably somewhere closer to Meadowbank somewhere around $200 million sort of thing?

When you include the currency factor it's probably closer to $250 million.

Thank you. Just with regards to the $68 a ton that Ebe mentioned previously. He said the $68 per ton average for LaRonde up from $66 which would imply that the second half of this year would be probably somewhere closer to $69 or $70. Is that a reasonable number to use also in 2009 at this point?

I would say so.

And I guess from that perspective just looking at, you've gone into the gold copper rich areas deeper and come away from the silver zinc probably a little faster. How quickly can you turn that on and off?

For example, if the zinc price spiked back up again. How quickly can you switch back to zinc silver rich ores and vice versa?

Very easily because the whole upper part of the mine is developed, but I think I would like to look at it on a positive note. We have achieved record tonnage from the bottom of the mine. The dilution was according to plan. These are levels down below the bottom of the shaft from ramps?

So I look at seeing we've maintained our costs. We were about 2000 ounces behind budget or under budget in the first quarter. We were able to get those tons. And we were able to get an additional 5000 ounces where we are currently 3000 ounces ahead of plan.

So going forward I view that as a positive especially for LaRonde extension.

So, if I had to look at zinc grades and silver grades, for example, in 2009 and say okay we've -- in the last quarter we were at 60 grams of silver at 2.82%, zinc which was down quite a bit, I guess. Well not so much on silver but more on zinc from the previous quarter.

Are those reasonable indications of the lower end of what you could see in 2009? Or do you see those getting lower as well? Just for silver and zinc, specifically.

I mean not having the mine plan -- detailed mine plan in front of me it's a difficult question to answer.

Yes. I don't think the zinc production really tailed off all that much in 2009. I think we're looking at pretty steady production for at least the next couple of years.

So steady production in terms of actual payable like the 8000 tons you guided? That sort of thing?

Yes. So again without having the mine plan in front of me, my guess is the grade is very similar to what we are realizing this year.

Andrew Mikitchook of Thomas Weisel Partners.

Just a follow-up on this zinc again. The lower grade this quarter in zinc from LaRonde, was that intentional because you are trying to get higher grade gold or --?

Yes, it was. The mine is divided into two sectors. Zinc silver rich which is the upper part of the mine and gold copper which is the lower part of the mine. So when we increase the tonnage from the lower part of the mine then it had the natural effect of diluting the overall zinc grade.

And how flexible are you? Can you stay in the lower part of the mine for an extended period until, say, the shaft -- the internal shaft -- is in place? Or are you going to eventually be forced to come back before the new shaft is in place to the upper areas of the mine and the higher zinc areas?

Our mining plan, we know that we will be depleting the zinc mineralization by 2011 and 2012. Starting 2012, 2013 the internal shaft should be coming on. So you'll see from around 2011 on, a decline in zinc and an increase in gold copper.

So all else being equal at this point, you wouldn't suggest that you are going to come back above 3% zinc?

I would say it could be cyclical and variable on a quarter with respect to mining block availability. But I think our intent as David mentioned, our forecast production for 2009 and 2010 is much the same as this year total zinc pounds.

One other question on a different subject (multiple speakers)

The closest we would get would be about 2.8% and that would be well this year and next year probably around the same grade. 2.8%.

And sorry, no. I'm looking at the wrong number. 3.4%, 3.4%. Excuse me.

It will jump up at least temporarily to 3.4%? Is that what you're saying?

Year-to-date we are 3.3% so we are looking 3.4% for the full year currently on the zinc (inaudible). So it will be similar level next year.

Thank you. Just on the oil again there's been a lot of questions on that. Is there any hedges in place at all? I thought maybe for the Meadowbank, there was some pre hedge for the fuel delivery. Are you -- I guess you might still be exposed on the transport of equipment to site or something like that?

That's correct. There are no hedges.

Okay. So there are no hedges.

No.

Gary Cooper of CIBC.

Good morning. Just wondering when might we get sort of an update on the overall operating costs? Because obviously the CapEx went up by 40%. I don't know whether that is a fair representation for what to expect on the operating costs or not. But clearly you had the same assumptions on [FX] for a lot of the (multiple speakers)

Well, I would think about 60% of our operating costs is labor related and that is usually tied into inflation or at least -- and we indexed to inflation. And of the remaining 40% then yes there was direct energy costs and say for the operation of the fleet. So it will vary from project to project. I think our underground operations, etc., when you look at the total fuel consumption, that increase would probably be a couple of percent. Something like Meadowbank could be higher where we have the pit and then, of course, the power plant and that could potentially also be the issue at Pinos Altos.

But it wouldn't be across the board a flat rate and based on the 40%, because of the 40% the breakdown is roughly 40% escalation say -- I mean 40% currency and 60% escalation. So -- .

Right. Right. But just as -- so just as an example, I believe in the case of Goldex, that quoted figure originally was like CAD17 Canadian a ton. And I realize it's early stage here right now. But I know for myself I've already not bumped that to CAN20, CAN21.

Have you got enough experience at this level to kind of tell us whether or not that's a realistic expectation? At least mine, because clearly I was expecting CAN17 as seeing significant pressure there.

It's early days yet, Barry. Our main focus has been getting this hoist running; and then we can actually have a real number. I think that the CAN17 number is a [life] of mine, an average number. And we are ramping up in our tonnage. So as we ramp up you'll see our mining cost come down.

Right. Yes. Okay. And how about reconciliation of grade there because there was that chance for basically a 10% or a potential for a 10% grade rec -- positive grade reconciliation? Enough work done to suggest that there may be some expectation of that at this point in time, Ebe?

Well, I think -- we have what we did to during the first part of July is we did shut down the mill and we did go and sample and we are waiting those assays to see what we have in inventory. We know what our recoveries are. We know what we produced.

We sampled the development [muck], but then again it is always development muck that we process through. I'm -- my personal opinion is I would like to see a couple of months under our belt, with actual production muck or from the [scopes] themselves and then do the exercise.

But our feeling right now is that at least the grade of the stockpile should live up to our expectations.

Good enough. Thanks.

[Clive Ginsberg] of [Platinum Partners].

Just a couple of questions. First could you give us some guidance as to given the steady state of zinc and copper price for the balance of the year, would you still be producing your LaRonde gold, roughly, at $113 announced?

We are actually guiding about $80 announced for the full year using using (multiple speakers).

H2.

Sorry?

For H2? For the second half of '08.

Yes? I mean we are looking for a full year of $80 so whatever it averages out we are at minus $122 for the first six months. So whatever averages it out to $80. I don't have enough fingers here to (multiple speakers).

That's fine? I got it all worked out. And you had mentioned anyway in your release, the cash cost -- at least they didn't see it for Goldex. (multiple speakers) what do you expect for H2 there?

Yes, it's not at commercial levels as of yet.

What do you expect for the second half of the year and then '09?

We are looking at -- '09 we haven't provided any additional guidance other than what was provided in December, but for the full year from Goldex, sorry, I'm digging up the number here. We are looking at cash cost of about $430 an ounce on the commercial production. And Kittila about $330 and LaRonde is minus $85 for the full year.

So that averages out to $80 for the entire production profile.

So then with the Comaflex acquisition which you mentioned earlier was around $46 million, taking down another $75 million, going forward we could be in a scenario at the end of the year where you are sort of in debt by about $200 million. Would that be in line with your numbers?

Probably north of $300 million because we wouldn't run our cash balance down to zero. We would probably always keep $100 million on the balance sheet just for working capital purposes.

And to continue paying the dividend?

Well, that's -- we will revisit that in December, but there are current plans to continue paying our dividend.

I will just talk about that. We paid the dividend here for 26 years. There's tremendous upside in these assets. We will maintain a dividend.

Lastly, looking at the income statement, your general and administrative expenses went down from $20 million in Q1 to $10 million in Q2. What can one expect sort of going forward?

For the latter two quarters I would say Q2 is indicative of what we will see in Q3 and Q4. And the big variance from Q1 to Q2 is the fact that we do our stock option grants typically in January, and we have to book about a quarter of our cost or a quarter of our expense at that time. And then the other three quarters gets amortized over the remaining vesting period of three years.

So there's always a lump in Q1 and it's much lower in Q2, 3 and 4.

And the [expiration] and corporate development number, could we expect steady-state there at $9 million a quarter? Or would that be increased given your internal growth aspirations?

Right now we are looking at roughly the same for the latter two quarters, yes.

So we are looking at about (multiple speakers)

Well, if you double our year to date (multiple speakers)

(inaudible) million a quarter.

Yes, $35 million for the pulled year is a reasonable estimate of what we expect our expense expiration to be.

Therefore cash items in that sort of corporate G&A number, we're looking at about $25 million a quarter? (multiple speakers)

Year-to-date there was about $15 million plus of stock compensation expense, so non-cash. And so our cash G&A was about a little over $14 million.

That's fine. Thanks a lot.

[Martha Krause], private investor.

Yes as you probably know already today a bunch of short sellers are all over the stock. I'm wondering if you have any fear that after all your good and hard work to have just about the best growth profile in the entire center that somebody is going to swoop in and make a hostile takeover offer for you?

No. We don't have any fear of that. We've been here a long time and have heard that we were going to be taken over dozens of times and nothing's ever materialized.

We are just focused on these assets, growing them, drilling them, taking that drill information and looking for more growth. So, no, we are not worried about that.

Anita Soni of Credit Suisse.

Yes could you just go over the H2 numbers that you had for Goldex, Kittila and LaRonde in terms of cash cost? I missed those.

Yes. They were, here, let me just dig them up again. They were -- we are looking at $430 announced for Goldex and $330 for Kittila and minus $85 for LaRonde and that's full year numbers. Sorry. For all three, but obviously for Goldex and Kittila that would be in the second half because you don't have any commercial production in the first.

And that gets you to $80 overall for the year?

Yes.

David Christie of Scotia Capital.

All my questions have been answered. Thank you.

[Borden Putnam] of [Eastbound Capital].

Sean or maybe to David but, first, all you guys thanks for a great discussion and dialogue. You have been really forthcoming with all of the answers.

What I wanted to ask about, Sean, you mentioned that when you were looking at Goldex you had a two-month cushion in there for your production expectations. And I wonder with your revision of your capital outlook, is there a cushion in those numbers? In other words are you working on a trendline of inflation in those numbers or are you taking hard numbers now and using them?

And I'm hoping there's a cushion that we don't face, this having you having to throw yourself under the bus again in another quarter?

The question was in the Kittila schedule and construction scheduling. That got eaten up over the last year or so and more so in the last few months as we faced delivery delays on piping, and delays in the installation, mechanical installation in the plant.

All of the projects have cushions. For example, Goldex has a cushion on the grade. It also has a cushion in the ability to ramp up the tonnage, given the layout of the mining plan. Each cushion in each project is different, based on the nature of the project.

And so how did -- in the revision of your CapEx numbers is there going forward a cushion in there also so that the 40% that you are speaking of now is not likely to be changed materially to the upside?

We have cushions in there that there was going to be a range. There is a lower number to that range. We just put the higher number on that range in the press release.

Okay. That's what I was (multiple speakers) .

I can also add to that. When we looked at each individual project, we looked at the exposure or their completion and in the projects where we had the most exposure those were areas where we added larger contingencies.

And so are some of these long lead items? Are you able to fix the prices or the costs for those now or are you still working within this cushion that you just mentioned, Sean or Ebe, that you still don't know exactly where some of these hard costs are going to end up?

We looked at overall committed right now across the board on all our projects. We are 60% committed overall.

And I think things like Kittila, the margin of error there is pretty minor because we are at the tail end of the project. And I think Meadowbank, we will be in much better shape between now and the end of the year. We are encouraged because right now our construction progress has been better than what we had anticipated.

And I think some of our -- we are getting a sense of some of our major components or the equipment within the mill so we are getting more comfort. But once again it's in those areas that we built additional contingencies.

Lastly before I drop off, you mentioned that the dilution in the deep levels at LaRonde was about where it you expected it. Would you mind giving us what that number was, Ebe?

That number is between 8% and 9%.

That's very good. Thanks, guys, really appreciate the disclosure.

Thank you.

Brian MacArthur of UBS Securities.

Good morning. I hate to go back to the capital one more time, but just to be clear, the $1 billion to $1.4 billion and obviously you've sort of talked about it being waited evenly throughout the year on the current CapEx production profile. So [i.e]., you weighted for '08 and '09 heavily, but you've also talked about being able to optimize a lot of these things. We will have more data you know essentially by February next year.

In the $1.4 billion, have we added any capital for optimizing any operations or should I think about it if we are successful going forward there will be more capital spent, probably in 2010? And therefore that four-year profile will go up, but I will get the benefit of all this incremental stuff that you may be able to do to optimize? Or have you built that in already?

No. We haven't built in any optimization capital in the 40% estimate for CapEx increases. That will come once we complete the scoping studies.

So if you are successful you will be able to, in a sense, mitigate this a little bit in a sense, that you can fix the denominator, hopefully, on the unit cost that we are talking about going forward as well?

Exactly. As Ebe indicated the fortunate thing for us is these deposits we've already seen and are drilling this year that they are getting bigger as we anticipated. They are all still wide open, even with the current drilling.

So these will give us opportunities to increase that devisor and allow us to leverage off of the heavy investment up till this point in time. So we will be able to maximize these -- four of these assets. Lapa, we are not seeing any ability to optimize that one in terms of more tonnage, but certainly the Big Four -- Kittila, Goldex, Meadowbank, and Pinos Altos -- all have further optimization to come, based on the fact they are still growing.

And in some cases we are seeing better than reserve grade with some really good tonnage.

I can also add to that, I think. There's optimization and and then there's expansion like at Meadowbank for example. The mining fleet that we have. I mean, that is part of our 8500 ton per day plan, but that fleet can actually mine 10,000 tons without any additional capital. The only additional capital would be required in the process plant.

At Goldex, the existing infrastructure of the mine can probably hoist in excess of 9000 tons so there is an increase from the 7000 ton plan. But there is no additional capital there. There would be minor capital in the process plant at Kittila to go from 3 to 5 to 6.

Well, there that's different. We are looking at a whole new mining operation. So they are different scenarios.

Thank you.

Clive Ginsberg of Platinum Partners.

Just on the grade, the gold grade for LaRonde, and that is that you mined at just over 3 grams a ton, this quarter, versus the reserve grade of 2.2 grams?

Yes.

What does that sort of look like going forward?

Once again, I think it will be the average for the year that we have planned gold of 2.8 grams per ton and what you are seeing is a normal variation of tonnage between the upper and lower part of a mind. And as we've said earlier going forward, we foresee very similar numbers going through -- going into 2009 and 2010.

So the cyclical nature of grade gold -- whenever the gold grade will go up, well, we can predict that the zinc grade will go down and vice versa. So it's a function of our mining sequence on a quarter to quarter basis.

Right and you feel confident that you'll be able to control that (inaudible) into '010.

We can control the gold grade. There's two factors, dilution, and I think we've got an excellent handle on that now and then also the mining sequence how we distribute the tons from upper to lower. We have control over that.

And actually LaRonde gold grade and reserves is actually quite a bit higher than 2.2 grams per ton. It's 4.4 grams per ton.

And that's because of (multiple speakers) LaRonde extension.

Yes. So we are currently mining below the overall reserve grade and the grade will go up with time as we mine the deep extensions zone starting in 2011.

What's the cash cost per ounce expected, once you deplete all your zinc and you go into the LaRonde extension with the higher gold grade?

We are expecting over the remaining mine life, based on what we got in December, about $150 an ounce cash cost. So that includes some of these early years with significantly more zinc, but over the entire mine life about $150.

And Ebe mentioned earlier that he's expecting the mining costs (inaudible) for the second half of this year to get up to [68]. Although I think the release already had it at $68 for this quarter.

No actually it was -- you're right sorry. 68 for the quarter and 66 year-to-date.

Okay, so we are going to maintain the 68 for the rest of the year?

That's right.

Thank you very much.

Gentlemen, we have no further questions at this time. Please continue.

Thank you, Operator. We can conclude the call. Thanks for your attention and we look forward afford to providing you with more updates on our exploration and our construction projects as we look forward. Thanks again.

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