Agnico Eagle Mines Ltd (AEM) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle Mines' third 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, October 30, 2008, at 11:00 a.m. Eastern Time. Sitting on the call today are Mr. Sean Boyd; Mr. David Garofalo; as well as Mr. Ebe Scherkus. I will now turn the conference over to Mr. Sean Boyd, Vice Chairman and CEO of Agnico-Eagle. Please go ahead, Sir.

Thank you, operator, and good morning, everyone. We have our full team on the line here. In Toronto we have our financial group and our technical team is currently in Mexico on the line. So, in questions and answers we hope to coordinate back and forth between the two. But again, welcome to the call. There's a lot going on. What we'd like to cover is certainly talk a bit about gold in the context of the financial markets, talk about the impact on Agnico, talk about our strategy and our focus going forward and also talk about the projects. So, we encourage you at the end of the formal part of the presentation to ask your detailed questions, and as we said, we've got the full team on line, so we'd be happy to provide you with any more detail.

As far as gold goes, I think all of us that sort of follow the industry have asked ourselves one question quite a few times in the last year. And the question is, why hasn't gold lived up to its expectations in the face of the worst financial crisis in decades? And I think what's happened in the last little while is it's always been a bit slow getting out of the gate. It seems to be stalled and I think in this case it's simply a function of gold getting caught up in a massive sell off of liquid instruments and more specifically, in commodities. But from the perspective of stores of value, gold still remains the ultimate store of value.

And even in a deflationary environment, if that's what we're in, a hard currency such as gold will benefit. In fact, it will be one of the few safe havens to preserve capital and it will really do well in a negative real interest rate environment. So the fight to restore normalcy in the financial markets is far from over, in our view. It will take a lot more interest rate cuts and more bailouts. It will take the continued printing of money and ultimately this will undermine the US dollar, which will be very good for the gold price.

In terms of the gold equities, we're seeing very low valuations, in fact, when you go back to early 2005 when gold was $400 to $425, that's where the gold index is currently trading. So these stocks are not factoring in the current gold prices or even higher prices, they're factoring in a much lower gold price.

In the industry, the all-in cash costs or total costs are approaching $750. That's going to continue to decline or result in declining mine supply, which again, will be good for gold. And when money starts to look at this sector, as we all know, the market cap of gold companies is almost half of what it was back even in March and is still a very small fraction of the overall investment pie and when money starts to look at this sector, I think we can not only see dramatic moves in the gold price, but also dramatic moves in the gold equities.

As far as the credit crisis as it's unfolded, what is the impact in terms of some of our key variables at Agnico-Eagle? Certainly we've seen a dramatic change in both our revenue and cost inputs in the last several months. On the revenue side, the zinc price has fallen to levels we have not seen in years. And on the cost side, we've seen declines in the oil price. We've seen weakening in the foreign exchange, where we're building and operating our mines. Those have moved in our favor.

We are currently working, as you know, through our budgeting process and our life of mine process to determine the impact of all of these inputs on Agnico and we'll be providing a full update to the market in December. As part of that exercise, we are looking at ways to reduce cost, to defer CapEx, to conserve cash in this uncertain financial environment.

But our focus remains on the completion of our projects in the pipeline. As you know, this drives a significant increase in our gold production over the next two years. As you also know, we've identified four additional growth opportunities at our existing projects. We continue to evaluate those. We will have more information on those four additional growth opportunities in the next six months. We have not incorporated any of those opportunities in our financial model and given the uncertain nature of the financial markets, it's unlikely that we would move forward in the near future on any of these four additional growth opportunities.

The question is always being asked about M&A and certainly in this environment we've seen a lot of opportunities get much, much cheaper. This is not a primary focus of ours. We are focused, as we indicated, on building the existing pipeline and in fact, as we look at opportunities that are available to us, the best growth opportunities that we have over and above our existing pipeline is at four of the existing projects. So we will certainly want to move those out of the gate first, as conditions improve.

In terms of the capital required over the next 27 months, which takes us to the end of 2010, our CapEx program calls for approximately $720 million in additional spend over the next 27 months to complete the existing pipeline. To finance this we have $400 million in cash, in credit facilities and we'll finance the balance of those capital expenditures through cash flow from the operations. In the next 27 months we expect to produce approximately 2 million ounces of gold during that period, at very good cash cost. That will give us the cash flow to complete the construction of the projects that are in the pipeline.

Let's move forward and talk a little bit about the strategy as we move forward and also talk about the financial results and give you detail on the projects and on the exploration. On the strategy side, there's no change in the strategy. There's no change in the framework that we've been using over the last several years to build the company. We are still focused on building the existing production pipeline. That's going to allow us to produce more gold. As you know, our gold production will increase over five-fold from what it was last year, through to 2010. We've talked about the additional growth opportunities. They are there when we're in a position to move forward on them.

Reserves continue to grow. The deposits continue to expand. We will have a full update on the reserves and the resources in February 2009, when we put out our year-end results.

As far as acquisitions, we were in the market in the second quarter and purchased an investment which was subsequently done and taken over. We have booked the profit on that in this quarter. And we have another small investment in Comaplex. There's no need to move forward on those types of opportunities in this environment.

On the cost side, we continue to perform very well at LaRonde and we are looking at ways where we can do a better job on the cost side with our existing projects.

In terms of the financial position, in the quarter we moved on expanding our credit facility. It is now $600 million and also subsequent to the quarter we are in a unique position at this company to take advantage of the flow-through share market in Canada and we secured $55 million in financing subsequent to the quarter end at a share price of $70 Canadian, which was a significant premium to the market and required us to issue about 780,000 shares, which again, strengthened our financial position.

As far as operating results, we're starting to see the beginning of the ramp-up in production. It's a bit slower than we had hoped, in Finland, but we did produce 23% more gold in the quarter at almost 69,000 ounces. LaRonde continues to perform well. Its cost per tonne for the first nine months was $68 a tonne, which was slightly higher than budget, but is consistent with the guidance that Ebe provided on the last conference call.

In terms of full-year forecast, we're looking for about 300,000 ounces in full-year 2008. Again, we've seen a little bit of a slower ramp-up in Finland and we'll talk about that certainly in the presentation and a bit more in the question and answer session.

As far as earnings and cash flow, the big change in both earnings and cash flow and revenues was simply the zinc price. And just to quantify the impact of the zinc price, zinc revenue in Q3 2008 was down about $28 million from the period a year earlier and for nine months zinc revenue was down about $70 million from the nine month period earlier as well. So that basically makes up essentially for the drop in earnings and cash flow. It was simply related to the zinc price.

We saw some other moving parts in the quarter. We saw a foreign exchange gain of $0.13 and we saw investment loss of about $0.07. So, that is a bit of a mixed earnings bag, but $0.10 per share. In terms of nine-month cash flow, still strong at $165 million. And as we start to ramp-up gold production, we certainly anticipate generating more cash flow that we'll use to finance the growth in gold projects.

In terms of financial position, $112 million in cash at September the 30th. We did the flow-through issuance after that, so that would add about 780,000 shares to the shares outstanding, so we're still less than 150 million shares outstanding after the flow-through financing, which still puts us working within the framework that we outlined several years ago, which would take us to plus-1 million ounces in output, around 20 million ounces in reserves and do that with less than 160 million shares outstanding. So it's still in a very good position to move the growth projects forward and do that in a very non-dilutive fashion.

In terms of the growth, three mines operating, three more to go. The first of those will be Lapa, middle of next year, then Pinos Altos in Q3 2009 and then Meadowbank in Q1 2010. In terms of what we have to spend, from 2008 to 2010, our estimate last July was $1.4 billion. We spent about $680 million, so we've got $720 million or so to spend between now and the end of 2010. And of that remaining amount to spend there is about 70% that's committed under those projects.

In gold reserves, as we mentioned, our update will be in February of 2009, where we'll update both reserves and resource. We continue to drill outside of the known reserve and resource outline. We expect the resource to continue to grow. We expect the reserves to increase and we'll put out in February a revised target for reserves for the end of 2009. And I think the nice position for Agnico is the fact that we continue to own very strong, robust gold deposits in the right parts of the world that continue to get bigger. And as we indicated, there are opportunities to expand production further and we'll have more information on that over the next six months.

In terms of the gold production growth profile, we'll provide a full update on that in December, so within a few weeks, as part of the regular budgeting and mine planning process. But as we indicated, we're seeing the start of the production ramp-up this quarter and we'll see production moving in 2010 to above 1.2 million ounces. So, that's the most dramatic gold growth profile currently in the business.

And on a per share basis, we continue to provide very good leverage to gold with this growth profile in production and what that does is put us close to the industry lead in terms of ounce production per thousand shares. So that's a big part of our growth program going forward, not just to increase the overall output, but to do it on a per share basis.

LaRonde has been working extremely well, steady production, very good cost performance. Shaft sinking is well advanced for the extension. We're looking for start of production from the extension in 2011, so again, that's the flagship asset that's generating the cash flow that we're using to develop the gold pipeline.

At Goldex, what we're seeing there is a transition as we ramp-up production. The grades are proving up, the reserves are in tact, the recoveries are improving as we ramp up the tonnage. We produced about 15,000 ounces after commercial production on August 1st. Cash costs were a little bit high, but we're still ramping up, because we've only averaged during that two-month period about 4,700 tonnes a day. We're moving to 6,900 tonnes a day by the end of the quarter.

Mill recoveries up 'till now were about 85%. We expect them to move up to the 93% level. Average production here should be about 175,000 ounces. And as part of the four growth opportunities, we're examining options to increase the throughput at Goldex.

At Finland, one of the big challenges here remains the lack of skilled labor. As we've indicated in the past, we have to import labor from outside the country, because there's a lot of activity now that wasn't ongoing a year ago in Finnish Lapland. So it's hard to get skilled workers and that has been probably our biggest challenge as we move forward. We expect to have the autoclave operational in November. We've been producing concentrate since September. We're anticipating about 20,000 ounces of production in the fourth quarter. We've got almost 200,000 tonnes of ore stockpiled at September the 30th.

The deposit continues to grow. We added a million ounces in September. We've continued to drill outside of the outline. We're getting ore grade intercepts over mineable width, so we certainly expect that deposit to continue to grow. And again, that's one of the options that we're looking at in terms of increasing the throughput there. The current reserve and resource is suggesting a mine life of over 40 years, which is certainly not optimal. We will be looking at way to increase throughput there, over time, when we're ready.

In terms of exploration, as we indicated, the deposit continues to grow. We just want to mention at this point that on November the 17th to the 19th, we have an Analyst Site Tour in Finland at the Kittila project and we'll be in a position there for those that are able to come, to outline not only the ramp-up in production, but certainly give you a better sense of the exploration potential in Finland.

Lapa, that's the next mine to go into production, middle of 2009. It's going well. Exploration within the deposit is also going well. We're anticipating average production of about 125,000 ounces a year. We continue to explore at depth, but at this point nothing significant. We started to stockpile ore there, so we're moving forward for startup in the middle of 2009.

Pinos Altos in Mexico, our technical team is down there. We were all down there yesterday looking at the tremendous progress that that team has made in a very short period of time. So they're on track for production to begin in the third quarter of 2009. We're looking at an annual production rate of about 190,000 ounces of gold and almost 3 million ounces of silver. Open pit mining has commenced. That activity is going extremely well. Underground ramping is going well and will put us in a position to access the underground tonnes in 2010. We continue to drill and explore there. That's probably next to Finland, one of our hottest exploration areas. And we're completing, based on that exploration, a scoping study for a small standalone operation very near the main Pinos Altos structure.

As far as exploration, we see a cross-section on the slide, for those of you who are following on the slides. On this main mine horizon there's five drills working; three surface and two underground. We certainly see potential to the west of Santo Nino in the Cerro Colorado area to expand production. And again, Creston/Mascota we're seeing about 400,000 ounces. That's about 10 kilometers away from here. And in fact, our exploration there recently is really opening up that entire area over in the Creston/Mascota region for additional growth in ounces.

At Meadowbank we've also continued to make significant progress on construction. We've had a very good shipping season up in Meadowbank and construction has gone very well. The capital expenditures, they did suffer by higher fuel prices the middle of this year, higher contractor rates as well, and more detailed work required on the dikes. But in terms of construction and scheduling, we're in a position to start that mine in the first quarter of 2010. We're looking at an average annual rate over the life of the mine still of about 360,000 ounces. Construction, as we mentioned, the mill building is being erected as we speak. Exploration continues along the trend. We continue to drill at depth. And we're also working based on that exploration at a scoping study for a potential underground operation on the southern end of the deposit. We continue to drill through the winter, with five drills on that project.

And for those of you following on the slides, you can see a longitudinal section, you can see the main pits; Portage Island and Portage and then the potential underground under Goose Island and Goose South. So still good potential there with an active exploration program.

In terms of the summary of where we sit, we're still generating good earnings and cash flow. Obviously not as strong as we would like, given where the zinc price is currently, but our gold production is beginning to ramp up and over the next 27 months as we indicated, we'll be producing in excess of 2 million ounces. So that will certainly drive cash flows and allow us to fund our gold production growth.

And as we also indicated, the deposits continue to grow and they do present other opportunities for expansion. So those will be high rates of return potential projects a we continue to evaluate them and we'll provide more information on them over the next six months.

So no change in strategy in summary. The framework we've been using to build the company over the last four years does not need to change, even in this environment, although we are looking to defer some CapEx to minimize our expenditures to conserve cash so that we can continue with enough financial flexibility to make sure we build our gold production pipeline.

On that, Operator, I'd like to open the lines for questions.

(OPERATOR INSTRUCTIONS) Steven Butler of Canaccord Adams.

Question for you first on Goldex, would you expect grades to improve in Q4? I think there must have been obviously some lower grades perhaps due to some stockpiled and maybe mining different parts of stopes in the third quarter, I believe. But do you expect grades to improve into the fourth quarter, Sean?

Yes, we do expect the grades to improve. The grades that we had in September from the eastern part of the ore body, upon close examination fit the reserve model. We were blasting trenches and draw points and these were at the bottom of the Goldex extension zone. Currently we did a reconciliation study of what we had mined and we're happy to say that the grades that we have expected so far meet the reserve model and currently in October, the grades are significantly higher.

Okay. Maybe Dave Garofalo or others, of the remaining US $720 million to spend, Dave, do you have a category of the major breakdown of that in terms of maybe the major two contributors to that?

Well, Meadowbank and Pinos are going to be the most intense from a capital perspective over that period. We're going to provide more specific guidance in December, project by project, when we finish our life of mine planning and budgeting.

Okay. And what implicit exchange rate -- are you perhaps still using the same exchange rate that you used, perhaps Dave in the Q2 guidance? I think it was parity on the dollar. I can't remember the euro assumption.

When we provided previous guidance we used parity on the Canadian dollar and an exchange rate of 1.55 on the euro. And we've put some hedging in place on some of our Canadian next year, where we purchased some puts at the 1.13 level and sold some calls at 1.18 on about 35% of our exposure to help mitigate the exchange impact on our capital.

Haytham Hodaly of Salman Partners.

Just a couple of quick questions, maybe for David. David, in terms of the debt, how much do you expect to have drawn down on your credit facilities by the end of this year?

This year it will probably be in the neighborhood of 350 to 400 million drawn.

You were at 366 weren't you, at the end of the third quarter?

I'm sorry, excluding that as a credit and talking about cash draws.

Okay, so in total, your total 600 million debt facility would be at what level you're saying?

So adding in the letters of credit, we're looking at about 410 to 460.

Okay. And then I guess with regards to the 760,000 shares of Goldcorp that you acquired in this quarter, did those fall on the balance sheet under other current assets?

That's right.

Okay. And going back to the debt that was drawn down, just looking and trying to differentiate expense interest versus capitalized interest, obviously most of the interest will be capitalized for projects where debt has been drawn down, etc. What do you expect the ratio of expense versus capitalized interest to be going into 2009?

I expect it will be fully capitalized. Other than the standby fees on the undrawn portion, which we're not permitted to capitalize under GAAP.

Okay. So, everything in 2010?

I would expect that that will be more or less fully capitalized as well, because the facility was put in place to fund construction. And so we're attributing the debt to the construction expenditures.

By 2011 once that's all done then they're basically fully expensed, right?

Well, by that point I'm sure we're going to be revolving that facility back in unless we have other projects for which we'll use it.

Okay. And you exploration and corporate development forecast for the remainder of this year?

We're looking at, in terms of expensed exploration, year-to-date we have 26 million expensed. We're expecting to be in a $30 to $35 million range for the full year.

That includes corporate development, is that right?

Yes.

Catherine Gignac of Wellington West Capital Markets.

Nice to see the progress on the projects. We've also seen falls in the oil price in particular, fuel price and perhaps concrete, etc. Maybe this is a question for Ebe on Meadowbank in terms of how things are looking at the site, progress made? You say in the release, generally speaking, you're looking at mill buildings being covered, I guess by year-end. But what about the budget process? I know, Dave, you want to give us a fuller update in December, but maybe you can give a guidance in terms of how the quarter went. Was that what you were expecting to spend for the quarter and do you think there will be some cost overruns included there?

With respect to our progress, the progress was excellent, as Sean mentioned, right on target. The mill building has been erected and has been fully cladded. The service building and the power building have also been erected and the cladding is currently about 50 to 60% complete. We expect to have all of the buildings fully completed and covered by the end of this year, which was our plan, so that as the winter months approach we can go inside. Also the East dike, we were able to complete that dike. We are now currently grouting it. It was our first attempt at building such a dike and actually the progress on the dike was better than we had expected.

Touching on some of the cost overrun issues, [BC last] season, while it was very, very successful due to fuel cost, etc., that was more expensive than we had budgeted last year. Also with respect to grouting of the dikes, sealing the dikes, that bit came in also higher that what we had originally forecast in July. So these are the main issues that have hit the Meadowbank project. Fuel prices, so therefore, logistics, shipping, transportation, the power generation, those have all been issues and then of course, some of the construction issues. But having said that, we are seeing a softening in the fuel prices, so that bodes well for next year. David, I'll turn it back over to you.

Catherine, the CapEx in Q3 was in line with our revised guidance in July. It was by far the most intense quarter capital wise for Meadowbank, but that's just because we were in the midst of the prime shipping season.

Okay. And in your budgeting process you'll probably take this into account as well. One of the things that is kind of difficult to gauge is not only the lower key input prices, oil, etc. going forward, but for example the 500 million plus that you've already got committed going forward to 2010. Do you anticipate much of a reduction in those costs going forward, in terms of what is fixed, steel, etc. and what could be a little bit lighter, for example, EPCI fees, that sort of thing? Have you taken that into account or are you considering that?

Yes, we have taken that into account. We have taken our experiences on dike construction into subsequent dike construction, but the issue still, Catherine, remains that the general consumable market out there is very, very volatile and it becomes difficult to lowball. So what we're trying to do is incorporate our experiences and actual prices, etc., in the current budget exercise. Also in terms of flexibility with what we have spent, what we have completed and what remains outstanding and what we have committed, we're at the 70-75% range. So there is very little flexibility with the remaining 20-25% of things to do. And I think with respect to Meadowbank the progress that we have made, it bodes well for next year. But, it remains a very volatile market.

That's for sure. Well, congratulations on managing the business. Thank you.

Victor Flores of HSBC.

I want to ask a question about the metals price assumptions that you're making over the next, say 27 months to help generate enough cash flow for the capital expenditures?

We do tend to use very conservative metal price assumptions. Historically we were using three-year averages. I think we're going to have to sort of adjust that view, because three-year average zinc prices, for example, are well above where the current spot price is. So we're in the process of defining what our assumptions will be for 2009, but they'll be, I think very close to spot prices for particularly the base metal side of the business, which is quite depressed right now.

One way to look at it maybe, Victor, is to take the gross gold production over that 27-month period, which is sort of the 2 million ounce range and work out an average cash cost, making some reasonable zinc assumption and there's still a very, very healthy margin there times 2 million ounces. So, it's very doable from that perspective.

Great, thank you. The second question just goes to the production figures for this year. It's sort of hard to see from the chart exactly what the number is. I mean, we could probably tweak it a few ounces either way. But maybe you could just tell us what the 2008 assumptions are for LaRonde and Goldex?

Roughly about 220 for LaRonde, using round numbers, about 60 for Goldex and about 20 for Kittila. That's how we derived the 300 number.

Anita Soni of Credit Suisse.

David answered my question with regards to the breakdown in terms of production, but I also have another question with regards to the four projects you outlined as things that you might be looking to produce CapEx on and not going ahead with spending, given the current environment. Could you just detail those four particular projects?

Well, we haven't really laid those out. Those are ones that we're currently doing scoping study work on. The one that we'll have information on first will be Creston/Mascota. We're working on Goldex right now. That one is relatively straight forward. The most complex two are obviously an underground ramp at Meadowbank. We still need to do more drilling there. And then Finland would obviously be the biggest project and that would entail, from what our team is saying, a large production shaft and an increase in the throughput in the neighborhood of roughly a doubling of the throughput.

So we still need to do work on those in the next six months and those are things that we have in our back pocket. They're not going anywhere. They have the highest rates of return in terms of what would be available outside if we were to go to look for something. So our best opportunities to grow are still within the company.

Okay, but from your budgeting standpoint right now, you are not adding that into your--?

They're not in any of the numbers.

And there's no plans to add them with the 2009 forecasting you're going to do in December?

There's no plans to add them in this current environment.

Okay. And just a question for Dave. With respect to the write-down in the investments and then also the gain, can you just outline what both of those things were, the 25 million and the 35 million?

The 25 million was just Gold Eagle. The 35 was almost entirely [Sternley].

(OPERATOR INSTRUCTIONS) Greg Barnes of TD Newcrest.

Sean, are there any other capital projects that you're looking at deferring, because I think Dave did mention that in the presentation?

We're currently going through the budgeting process and we've always had a very active exploration program and we budgeted for 2008 around 65 million and should spend all of that. And we've had some really big success in Nevada at West Pequop, we've had some really big success in Mexico at Creston/Mascota. But that's certainly an area that we could trim back going into 2009. So those are certainly things we're looking at. And there's potential to possibly defer some of the CapEx at some of the projects later on into the build-out phase, so that will certainly be all part of the exercise over the next six weeks.

And maybe this is unfair at this point, but if we assume metal prices on the base metal side stay down where they are, would you see it necessary to perhaps slow down Meadowbank?

No, I wouldn't think so. I think there is enough room -- I think we would look at things like the dividend before we would look at stopping one of the core projects within the portfolio. And as you know, on the dividend side we've paid one for 26 years, but we could certainly reduce that and that frees up some cash as well. So we would look at certainly doing those things before we cut into the bone on the existing projects.

John Bridges of JP Morgan.

It's probably a dumb question, but the Mexican project as the latest one along, would it be possible just to push that one out and give yourself some capital flexibility that way?

Well, that one is also nearing completion, so we're in heavy construction there right now. I think the one that's furthest out is actually the LaRonde extension, because that is not anticipated to come into production in smaller amounts until 2011. So obviously we're looking at all of the projects, but certainly Mexico will be a big producer. It's our lowest cost producer. It will generate significant cash flow and actually of the four internal growth opportunities which we're studying right now, the one that's the easiest and would have the quickest payback would in fact be Creston/Mascota, 10 kilometers from Pinos Altos. So, that's a cash generator that we want to build, so I wouldn't think that one would be on the table.

Okay, so it's a skinning down of existing projects rather than pushing any one, really.

I would think that's the direction that we're looking at right now.

And then coming back to one of the previous questions, one of the reasons you bumped your capital numbers up was the sharp depreciation of the dollar. Is there potential for some pulling back of that total CapEx number on the changes in the currencies or is it all hedged in now?

In July, as you know, we put out a rough estimate of about a 40% increase in the spend for 2008-2009-2010 and you're quite right, John, that part of that increase was due to foreign exchange assumptions. So obviously we'll be changing the assumptions, but also moving the other way would be zinc, which affects cost per ounce. So there are a lot of moving pieces in there, the fuel price, as Ebe said, but we've paid for some of that fuel for next year, so we still have to work through all of those numbers to see where we are. So we're not changing that 40% number. We'll stick with that 40% number as we move through this exercise.

Anita Soni of Credit Suisse.

Just a couple of follow-up questions. On Goldex, the recoveries, what did you start the quarter at and what did you end at? And then I understand you're at about 85% and expect to be about 93 by the end of Q4?

Yes, we're currently at 85%. The main issue there was in our flotation circuit and the concentrate recovery circuit at LaRonde. Currently we've made some changes. We are now at over 90% recovery. We found that we had too little retention time at the Goldex circuit, so we have now increased it by also using the LaRonde circuit. So we are currently on line with our model. In October so far.

Okay. So you're at 90 now.

Yes.

Okay. And then just in terms of the cash costs at Goldex, I'm just having a little bit of trouble reconciling to 620. I get a little bit lower. But could you just let me know what goes into that calculation? I understand the cost was about 8 million for the quarter and then what are you dividing by?

You're dividing by the commercial production ounces. Sorry, let me do that again. What you have to do is you have to reconcile your cost of sales to a production cost and divide by your production ounces. There's a reconciliation actually in the press release, on an aggregate basis, and if you want to get into more detail, I can certainly talk to you a little later.

Okay, we'll follow-up with that after the call. And then also at LaRonde, with the TCR season [stink] smelting, it looks like those costs have come down a little from the last quarter. Can you give us an idea of where you're sitting at now?

Are you talking cost per tonne?

Yes, cost per tonne basis.

Jean Robitaille is on the line. Jean, did you want to talk a little bit about the treatment charge market right now?

I don't have the number of cost per tonne, but I can tell you that as you saw the market fall (inaudible). Presently the product trend is under spots of what it will be coverable on the current market. For the terms of 2008 it was more in line of 300 at 2,500 and what we expect for 2009 is a significant reduction in terms of the smelting charges, based on the different mine closings presently.

Okay, so can you give us an idea of what that would be in absolute numbers?

It's too early, because just in the last two weeks we will have to revise the number that we have already put in the current projections. We have some spot 150 presently.

Okay. So how much is it exposed to spot?

Normally we are fully -- the concentrate is placed with the strike in the [kitree] presently, we have some opportunity. So it's a function of the time of the strike with the kitree, but for us presently it's more as an opportunity than anything else. And we have some contracts that we have open contract essentially that it's our flexibility to add tonnage or to not deliver it.

Andrew Mikitchook of Thomas Weisel Partners.

Just a two-part question on the LaRonde. Can you remind us what zinc price was assumed for the LaRonde expansion and the kind of grades that you guys would be expecting down there, and if we should be thinking about any impacts right now? And number two, what about the zinc grades and gold grades in the current LaRonde mining, how much flexibility do you have in terms of -- you can't do it today or tomorrow, but in months or half a year or two, to change the types of zones you're mining to adjust to the different price environments?

I will just tackle that with respect to LaRonde 2. LaRonde 2, at depths is basically gold base with very little base metal credits, although the grade is double of what we have in the upper levels of the mine, so zinc will have very little or negligible impact with respect to LaRonde 2 at depth.

With respect to flexibility, we use the spot prices on a daily basis and we mine accordingly. What it will mean is we will no longer mine some of the thickness that we had on the lower levels. We will leave the zinc in the hanging wall, because it doesn't make the cut. So, this is an ongoing thing.

With respect to flexibility, we have significant working areas, but we are going deeper into the mine and so we expect to see slightly declining gold grades, but that is more of a function of mining more gold material from the lower part of the mine.

With respect to our price assumptions, David, maybe you can touch on that?

When we made the go ahead decision with the LaRonde extension, our gold price assumption was somewhere around 450. I think the zinc price assumption was in the 50s. Sorry, I'd have to refer back to that press release from 2005. I'm trying to look it up now, but it was somewhere in the 50s, I believe. So as Ebe correctly pointed out, zinc is not a very big contributor on the LaRonde 2 extension.

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

Thank you, Operator and thank you everyone for listening in and attending our Q3 conference call. I think there's a couple of spaces left to go to Finland, for anybody that's interested in doing that. So thanks again and we'll see some of you in a couple of weeks in Finland.

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