Agnico Eagle Mines Ltd (AEM) 2009 Q3 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Agnico-Eagle Mines third quarter 2009 results webcast and 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 today October 29, 2009 at 11 a.m. Eastern Time. I will now turn the conference over to Sean Boyd, Vice Chairman and CEO. Please go ahead.

Thank you operator and good morning everyone and thanks for dialing in to our Q3 2009 conference call. We have a series of slides; we'll move through some of them in the middle of the body of the presentation quite quickly so that we can get to each of the individual projects. But what we'd like to accomplish in the next hour or so is go through the Q3, which from a results point of view was disappointing, not from an efforts point of view, but we did run into some challenges in starting up these mines. We'll go through those issues. We'll hopefully give you a sense of where we are with respect to those issues as we move through Q4, and also give you a sense of how we're positioned for next year and beyond next year as we complete the building of these mines, the commissioning of them and then start working on optimization and expansion of these mines.

And before the question and answer session, Ebe would like to give you his sort of impression of where we are particularly on Kittila, Lapa and Pinos Altos. But in terms of dealing with them in consecutive order, we'll deal with the third quarter. Our earnings and cash flow were below our expectations, simply because we produced about 30,000 ounces less than we had expected to produce and that lower output really came from slower tonnage ramp-up at Kittila, which averaged about 2,000 tons a day. We had recoveries averaging about 64%. We're now, for the last week and a half or so at 3,000 tons a day or better, with recoveries approaching the 80% level. So we'll get into more details on those issues at Kittila as we move forward.

We had more dilution than anticipated at Lapa in August. We averaged almost 1,200 tons a day versus the design capacity of 1,500 tons a day, but we made some improvements in our mining methods and blasting techniques underground; we've seen about a 10% improvement in dilution, but we'll also get in and discuss that issue in more detail.

And at Pinos Altos we're in the very early stages of commissioning that plant. A slower ramp-up in terms of our ability to get tonnage through the plant and that was due to difficulties in the filtered tailing system, which is not unusual when you're starting up a filtered tailing system of this size. Those issues have been experienced at properties like El Segal in the past. We'll be able to fix those and we'll also get into some of the details around that.

Also, we had a bit lower grade than we expected at Goldex. Where we are now with Goldex, we're in the central zone, so we're mining at reserve grade now, which was higher than the grade that we extracted from the Eastern zone in the third quarter. So we're seeing major improvements. These issues are temporary. So as we move into Q4 we see about a 50,000 ounce improvement in our Q4 output.

As we move into 2010, we'll get into some of the details of each of the individual projects but we decided to take a contingency next year on our 2010 production, largely around the startup at Meadowbank. Internally we're using exactly the same budget of production numbers that we've had there for the last year or so. There's no change in the internal estimates and Ebe will go through those numbers and give you a better sense of some of the cushions that we've built into those numbers. So if we have an uneventful startup at Meadowbank, then we should certainly exceed the upper end of the new guidance that we put out last night.

So that gives you sort of an overall sense of how we're positioned as we move forward and what I'll do is I'll move through the slides, but I'll move through the front part of the presentation quite quickly, as we want to get to the property descriptions.

Just moving on to strategy; really no change in the strategy at Agnico. It's still optimize and expand the existing projects that will allow us to continue to grow the output out through 2014-2015. So essentially no change in the overall strategy as we move the company forward.

As far as operating results, we talked about that at the start; short about 30,000 ounces in Q3 output but looking for about a 50,000 ounce improvement in Q4 over the Q3 number. As we look out on total 2009, we're estimating our guidance of about 500,000 ounces, which would mean in the fourth quarter 170,000 ounces. So as we go through the projects you'll see how we're positioned to achieve that number.

Looking out into 2010 as we said, we reduced our guidance from 1.2 million ounces to 1 million to 1.1 million ounces. And in that number for next year, we're assuming the following production from the various mines. We're assuming at LaRonde 180,000 ounces; at Goldex 160,000 ounces; at Lapa 120,000 ounces; at Kittila 150,000 ounces; at Pinos Altos 190,000 ounces; and at Meadowbank 380,000 ounces. Now that totals 1,180,000 ounces, which is the number that we have been using for the last little while and we felt it was prudent, given that Meadowbank is the largest portion of that number that we should take a contingency in our public guidance in the event that we have some issues in startup.

Just dealing with Meadowbank quickly, giving you a general overview of where we are. We anticipate having 600,000 tons of ore stockpiled before the plant starts up, which we expect to startup in January. So it's not an issue of having tonnage available to us; it is a straightforward situation with respect to metallurgy so we don't anticipate issues with metallurgy, but really why we decided to take a contingency on our public guidance is we're starting a large plant up in the middle of the Canadian Arctic in January. So really we're making allowances if we run into mechanical issues; pumps, pipes, etc. freezing conditions and that's why we decided to take the lower public guidance. But again, as we said, we've made no changes to our internal numbers for budgeting purpose.

On capital costs, we made reference to it in the press release, our estimate in our budgets has been $250 million. What we've seen since those estimates were derived, we've seen about a 15% strengthening in the euro and Canadian dollar, roughly, so on a US dollar basis those numbers will go up based on the strengthening of currencies. We're also looking at potential additional expansion capital at Meadowbank as we have that study nearing completion and we may move forward some of the life of mine capital on a couple of the underground situations as we look to advance the underground development of a couple of our mines. So that's what we're referring to in terms of CapEx in the press release.

In terms of the financial numbers, the earnings were largely hit by the stronger Canadian dollar where we had a foreign exchange translation loss and the fact that we produced less ounces than we had expected. From a working capital cash flow perspective we had a build in working capital in the quarter of over $50 million as we build up inventory for the startup of the new mines.

In terms of financial position and where we are standing currently, we spent for the first nine months about $483 million in capital; we have about $120 million to spend in the fourth quarter; and we closed the third quarter with $239 million in cash, so we're in a strong financial position to complete the bulk of our construction expenditures as we move forward.

Looking at growth reserves; we'll have an exploration update just by way of note, between now and the middle of December and that update will largely come from Kittila, where we continue to do deeper drilling from surface. We'll have some updates at Meadowbank and likely some updates at Pinos Altos and we'll have our full reserves and resource update available in February.

I'll just move through some of these benchmarks. The production slide is showing the revised guidance. There's been no change to our guidance from 2011 to 2014, so all we've done is built in contingencies for next year based on the startup at Meadowbank.

Just moving along through the slides as we get to the operations, starting with LaRonde. LaRonde continues to be a very steady performer for us in terms of tonnage. We had a little bit lower tonnage this quarter than we normally have. We did some maintenance on our hoisting facility which was normal scheduled maintenance but from a cost per tonne perspective, we continue to have good results. Our nine-month cost per tonne was CAD73 which is almost bang on where we are in terms of our budget number, but we continue to get good results here. We've had very good results on our deeper construction where our shaft is essentially complete and we shortly begin changeover and start developing the underground ramp and orebody as we move into next year.

We're also doing more drilling at LaRonde at depth, in fact we're mobilizing a drill on surface to drill the boundary between our property and Westwood. In fact, we've been informed by IM Gold that part of their zone does cross at depth into our Ellison property, so we've mobilized a drill and we'll be drilling a deep hole along that boundary to see what we have on that side of LaRonde. So there's still exploration potential as we move forward on LaRonde.

From Goldex perspective in Q3 we're seeing throughput there above rated capacity. We averaged about 7,300 tons a day. Our rated capacity is 6,900 tons a day, so again, good performance at Goldex. Our cost per tonne below budget at $22 a tonne, so steady tonnage, steady cost per tonne. Our development is ahead of schedule, but our ounce production was down in the third quarter as we were mining exclusively in the lower grade Eastern part of the project. In October we've moved into the Central zone, which is higher grade than the Eastern zone and we're currently mining grades that are around the reserve grade.

We've got a large blast set for January in the Western part of the orebody which is higher than reserve grade, so that bodes well as we move into 2010. So good steady performance from Goldex and also good exploration upside there as we really start to drill it after being more focused on getting it into production, working out some bugs and announcing an expansion program which we did in July. So that mine continues to perform extremely well.

Moving to Lapa; we had lower production than expected and that's simply because we've got a weaker hanging wall than expected or certainly weaker than what we had predicted with our rock mechanics model. The solution for this is relatively straightforward; it's simply to reduce the mining cycle time and we've instituted several measures to do that, in fact, the LaRonde team who are some of the best guys around from a rock mechanics perspective, have been working and helping the Lapa team with this issue.

We've moved, just to give you a sense, there's about 750 mining blocks to be extracted at Lapa; we've mined about 16 and we decided after the first 16 that we should move to a similar blasting method as the one used at LaRonde, so going to one-shot blasting, changing to electronic detonation. We've ordered bigger scoops; 6-yard scoops to get in and get the ore out quicker. We've got new bolting equipment that's arrived on site.

So we expect as we continue to push our underground development which is going well and as we open up more mining headings, we expect that we can move from around 1,200 tons a day to a 1,500 tonne a day rate by the end of the year and continue to improve our dilution based on the changes in the blasting method and the new mining equipment that allow us to reduce the cycle time. Also in Lapa we've seen a steady improvement in recovery, so this bodes well going forward. In Q2 we had recoveries of 71%. In Q3 we had 75%. In September we had 79% and we're now currently about 81%. So we're seeing steady improvements in the recovery there which was an issue earlier in the year.

Moving to Kittila. Kittila, the number one issue at Kittila has been recoveries. We've made steady improvements in the recoveries. We also, as we started to get steady tonnage or more tonnage into the plant we've had issues with our SAG mill liners which needed to be replaced due to excessive wear because of the intermittent production going into the plant or to the SAG mill, but we've got our recoveries now around the 80% level. We've been mining over the last week and a half or so, our processing in excess of 3,000 tonnes a day for about a week and a half and we've got a 225,000 tonne stockpile at the end of the third quarter.

So people have been asking us how did we get to the point where our recoveries improved dramatically in the last six months from sort of the low to mid 30s up to the 80% level. Well, there were several reasons for that. We've got improved recoveries in the carbon floatation. We've reduced our retention time for our concentrate in the autoclave. We've got better oxygen distribution in the autoclave, less oxygen at the front-end, more oxygen at the backend. We've completed the installation of the larger pumps in the leaching circuit. Our sulfide flotation recoveries have improved from about 87% to 93% which is the design capacity. And as we said, our SAG mill liners have been replaced. So going forward, we expect improved mill availability and performance, which all bode well for improved output as we move through the fourth quarter and through 2010 in Finland.

We continue, as I mentioned earlier, get good exploration results at Finland at depth and this will be the focus of our next exploration update which we expect to have out in the next several weeks.

We've got a slide up on the Kittila optimization, which is one that we've been updating since the early part of this year, which just shows essentially we're tracking in terms of recoveries where we expected to be on the recovery curve. We've seen steady improvements there.

Moving to Pinos Altos. Because we started the plant in September, the major issue there was in the filtered tailings as we mentioned at the start and this is a large filtered tailing system. One of the other complicating factors there is that the mining was coming from the top bench, so we've got organics there and they tend to plug up the filters and the filter clogs, so we've had some issues there which we've been working through and we've seen steady increases in throughput each and every week as we get more comfortable with the filters. We have expanded capacity in the filtration system with more plates so that bodes well potentially down the road if we look at an expansion.

But when we look at our experience in the mill for really six or seven weeks, we're seeing no concerns on the capacity of the mill. We're seeing no metallurgical issues. We're seeing recoveries that have already hit the feasibility levels of around 90% or so. Underground and open pit operations have been according to plan. So it's really just the filter press issue that we've been dealing with and those issues, as we said, are not uncommon with these types of systems, so we will work through these issues and that certainly bodes well for Pinos Altos as we move forward. And again, we've continued drilling the new discovery at Cubiro; we continue to drill Sinter and those will be part of the exploration update that we should have in the next few weeks.

At Meadowbank, as we indicated at the start, it will be our biggest single producer. It is the biggest single component of our 2010 production forecast. Construction in the plant has gone well. Mining has started in the ore; we see no issues there. So from a mining perspective, a metallurgical perspective we see no issues. The reason we provided the contingency in the public guidance, as we said, is simply because we're starting a large plant in the middle of the Canadian Arctic in the middle of winter and we wanted to provide for that in our public guidance. Again, we continue to do exploration there and that will be part of the update as we move forward.

What I'd like to do now is turn it over to Ebe and he can give you some of his thoughts. He's been at the sites recently and he'll be able to provide you with a bit more detail and color on the projects.

Thanks Sean, good morning everyone. Thanks for listening in. I'll just give a brief overview of all of the projects and then just sum up a bit at the end. Last week we were at LaRonde and as Sean mentioned, this has been a great mine for us and it continued to perform very well during the quarter. We also had the good fortune to go underground. We were underground at almost 2.85 kilometers underground on the LaRonde extension project and that particular project is on time and on budget. And what is really remarkable and bodes well for going forward, that during the sinking of the internal shaft, we only had one minor seismic event and only one shift loss due to excessive heat. There really haven't been any ground control issues whatsoever.

We are very close to completing the shaft and we expect to be starting changeover within the next 10 days to two weeks or so and that should be completed by the end of the year and then we'll start the preproduction development and have the mine ready for the end of 2011.

Goldex - Goldex has been an amazing performer for us as well, in terms of our original feasibility, in terms of tonnage and costs it has done better than the original feasibility and it's ramped up its tonnage faster as well. What we have done over the past quarter or so, we have decided on purpose to slow down production mucking from the Western part, which tended to be a bit higher than reserve grade. And why we did that, there is a cross structure, a dike that tended to burst on us, so we kept that stope full on purpose until we could drill and develop and blast the remaining ore in the Western side of the deposit. So therefore we focused all of our production efforts on the Eastern side, which were below reserve grades, but when we reconciled them, they did fit the reserve model for the Eastern side.

Currently we have completed the development, our drilling is in progress on the Western side and we expect to have a large blast sometime early in January. But as I said, we have started mucking in the Central zone and currently we are mucking or extracting ore, processing ore at or above our reserve grade, so it bodes well for the upcoming quarter.

In terms of what we have blasted, in terms of what we have developed, we're approximately 1.5 years ahead of schedule in our production plan with respect to the amount of ore that we have broken.

Lapa - Lapa is still early days. As Sean mentioned, we have a total of 750 stopes planned over the life of mine. So far we have mined over 20 stopes. The initial stopes, as we mentioned, the dilution was in the 65% to 75% range, which was higher than what we had planned. Our reserve calculations we had dilution in the neighborhood of about 35% to 37%. As of the end of September we were able to bring that average down to 57%. And our strategy is to basically decrease the mining cycle time by improved ground support, by improved blasting, quicker blasting and by extracting the ore quicker.

We have reconciled the stopes, so the production to date with the reserve model and incorporating the dilution, we have no issues with respect to reconciliation with the reserve model.

At Meadowbank we expect to start this operation up between January 5th and January 15th. Construction has gone very, very well. We completed our sea-lift this year, two weeks ahead of schedule in comparison to last year. The main items like power plant have been completed, are in the commissioning phase. All of the mechanical equipment and processing equipment has been installed, so the remaining outstanding work is basically piping and electrical. So we are working seven days a week, 24 hours a day and we expect to start commissioning the plant in early January.

And as Sean mentioned, we have had issues of commissioning the Kittila plant, we've had issues commissioning the Pinos Altos plant, so starting a plant up, even though it's a relatively simple plant metallurgically, we thought it would be prudent to give ourselves some contingency, especially since we are starting it a probably the worst weather in the Canadian Arctic during the month of January.

Kittila, we've had great turnaround there. The open pit operations are currently averaging 3,000 tons per day and have done so over the last two months. The underground development is on target and we expect to start test mining on the Roura [Vaara] zone early in the new year. Our main issues have mostly been on the maintenance side and that includes the SAG mill and that has been mostly due to stop-start, not running up to capacity and therefore we've had a lot more wear due to the grinding media hitting the liners. We have since repaired that, changed the liners and we expect our next shutdown to be sometime early on in February. Similarly with the autoclave, stop-start, increasing pressure, decreasing pressure, increasing heat, decreasing heat, that has been very hard on the gaskets so we've had a lot of blown gaskets.

But having said that, since the 14th of October the mill has been running consistently, averaging 3,000 tons per day. Recoveries have been up to 83% and have been averaging around 80%. So we think we've turned this operation around.

At Pinos Altos, as Sean mentioned, the recoveries have been good. We have already hit 90% of our design capacity of 4,000 tons and as Sean mentioned, our main issues have been dry tailings. What has happened; this is a one-off model in the world. When we first acquired this unit it was supposed to be the second unit of its type and all of the bugs were supposed to have been worked out. As it happened, the first project was cancelled and as a result, we now have the first unit of its type in the world. But we have made steady progress. The daily throughput has been increasing on a weekly basis. We're currently averaging around 2,100 tons per day. The recoveries have been improving steadily; we're over 90%. So the open pit has been above and beyond capacity. Underground development has been great.

So just summing it up, when we look at it in 2009 from a risk point of view, we had the startup of the Lapa plant and the Lapa ore is refractory or partially refractory, so it's a difficult ore to process. We had the Kittila plant to resolve its issues. And then we also had the startup of the Pinos Altos plant.

So as we look at 2010, we expect to have the Lapa, Kittila and Pinos Altos plants all running smoothly and we only have one plant to commission and that's the Meadowbank plant at the beginning of the year. And when you look at our track record, whether it be LaRonde, Goldex underground mine development, we have historically resolved all of these technical issues. We haven't always not resolved them as timely as we hoped. And all of these issues that we encountered in the third quarter, none of these issues are fatal and they will be resolved, so as Sean mentioned, when we look at our internal plans and forecast for next year, we have not reduced our internal budgets or forecast and they're still in the neighborhood of 1.2 million ounces. However, with our experience over the past year, we thought it would also be prudent to just be a bit more careful with the startup of our largest producer at Meadowbank.

With that then I'd like to open it up for questions.

(Operator instructions) Our first question is from John Flanagan with Fundamental Equities.

You just said that Meadowbank had simple metallurgy; could you explain to a layman what that involves and what the economics of that are?

Well, in comparison to a polymetallic deposit like LaRonde where we have 4 accountable metals and even at Pinos Altos where we have silver byproduct, at Meadowbank it is strictly gold; there are no other metals. Also as far as the process used, it is straight cyanidation of carbon and pulp, which is probably the most elementary gold process available. Compared to Lapa and also Kittila, those ores are refractory, which means that the gold is encapsulated or enrobed by other sulfides and that material has to be burnt or removed or cracked to be able to expose the gold. So that extra step plus removing the organic material at Kittila, all involve extra steps and extra processing and therefore extra costs and the process is more fragile and complex. Whereas I would say Goldex and Meadowbank are probably the simplest processes, which by that I mean there are less steps required to extract the gold.

So this is a plus for the cash costs for that unit?

From a processing point, yes.

Your next question is from Steven Butler with Canaccord Adams.

Ebe, a question for you. I appreciate all the comments. On the euro cost per tonne at Kittila was EUR78 per tonne in Q3 and I think you guys reported EUR43 per tonne in Q2, so maybe you can give some context around the cost increase. Maybe it's all denominator related, but I'm not sure what's happening there to that trend. Are you throwing everything you can at it, is the question and how quickly would you expect costs to come down back towards your EUR35 to EUR45 per tonne sort of range as we go forward? Thanks.

I can only answer 50% of that, Steve, because I only heard 50% of the question. You broke up. Maybe you could try and repeat that?

I'm sorry. Can you hear me better now?

Yes.

Ebe, the cost per tonne were EUR78 per tonne in Q3 versus EUR43 per tonne in Q2, so can you explain some of that major hike in cost per tonne on a unit basis and what confidence do you have in the guidance of near EUR40 per tonne going forward? Thank you.

Okay, the function is strictly a matter of tons processed through the mill. We had low availability into the quarter; we averaged about 65%. Also what happened was we had quite a bit of contract labor in the open pit which was expensed as well. We were concerned at the middle of the year, based on the performance that we were getting in the open pit at that time that we would start developing a satellite open pit, the Roura Vaara zone and that is what we did. So we had additional contract labor. We also had additional contract production drillers in the main open pit because we were having troubles with the water inflow in the pit and the blasting and we also had maintenance problems with our production drills.

What we have done since, we have changed our production drills. We got 2 new production drills on site. They have been performing exceptionally well, so as a result we've been able to get rid of the contract labor. And then also what we've been able to find is that with the improvements in drilling, in blasting, in engineering, we've also made some supervisory engineering changes that the main pit has been able to hit its targets without necessarily going into the satellite open pit. So contract labor has been leaving the site and that will continue to lower the unit cost. And then of course with steady state operations through the mill, the denominator will improve and the unit cost per tonne will decrease into the fourth quarter and going forward.

Your next question is from Anita Soni with Credit Suisse.

Actually Steve Butler just asked my question. Thanks.

Your next question is from David Haughton with BMO Capital Markets.

I've got a question for you with regard to the guidance, particularly at Meadowbank, is that for production or is that commercial production?

For production. In terms of the ounces produced?

Yes. Are you including any precommercial production in those numbers or is it all once you've declared commercial?

Well I would imagine there would be some preproduction or commissioning ounces in there, but if we start somewhere between the 5th and 15th of January, we'd like to think that within a month's time or so we'd be able to declare commercial production. But in the new guidance we are saying startup will take about three months and we don't think that that will happen.

By that you mean to full production levels?

That's part of our contingency. We think it will take about a month to maybe five weeks to get up to commercial production, assuming we start between the 5th and 15th of January. So those ounces in that period, the first month will be preproduction and then after that, middle of February into the end of the quarter will be commercial.

All right. And earlier on, Sean provided a break of expected production in 2010. Is it possible to give us a view as to where your CapEx might be in 2010?

Well our stated number is 250 million and we're saying that that was based on budgeted exchange rates that have moved about 15% against us, so that would increase that number. The only other additions we're looking for is potentially to move forward some of the underground development on a couple of projects and potentially expansion opportunities at Meadowbank and possibly in Mexico.

All right. So if you were to provide us with a general feeling as to where most of that CapEx would be going, what projects should it be allocated against?

I would say it's pretty well uniform across the board, because if you look at LaRonde, we are accelerating tailings pond construction. And the reason we're doing that is because we've had two very wet summers in the Abitibi, and so we've ended up stockpiling a larger amount of water than we feel comfortable with, so we've moved that construction forward a couple of years in the life of mine. We are doing the same thing at the Kittila. We are accelerating; we're presently building a tailings pond which has been included in the life of mine at Kittila also.

And Pinos Altos, we are accelerating underground development trying to get into some of the higher grade material earlier, faster than planned. And at Meadowbank we're looking at accessing the vault zone load construction up there and also the various dikes in there to try and get them done earlier than we had originally planned. Lapa is about the lowest one, but you could probably divide the capital equally among all of the other projects. LaRonde's expansion is pretty much as planned, anywhere between 10 million or so a month and now with accelerated development that's starting, so they will be still our biggest CapEx use of capital in 2010.

Your next question is from Charles Kant who is a stockholder.

I'm looking at your results here. They're significantly different than the picture that was painted by Sean Boyd when he was on the Kramer show more than two or three different times. CapEx was supposed to be down, production was supposed to be up, dividends were supposed to be starting and these are significantly poorer results than what was expected or the picture that was painted. Stock is down $14 in the last week. I'm looking for some answers.

I'll deal with that. I think we've been dealing with some startup issues that have taken a bit longer than we have anticipated as we've started up three mines in a period of six months. But I think what we've done today as we've gone through each of the projects in detail is clearly identify that these are not individually fatal issues for any of these projects. They're issues that are temporary in nature and that happen with mine building. We've addressed the vast majority of them so that it puts us in a stronger position as we move forward into the fourth quarter. And what we've decided to do as we move into 2010 is simply build a contingency in on the production guidance to allow for a startup at our biggest producer which is Meadowbank. But as we've explained on that project, mining is going well, it's not a complex ore, it's simply going to be starting up a plant in the Arctic in January, so we felt it was necessary to build in a cushion with respect to that.

As we look at our internal numbers, as we said, we haven't changed them. There is potential to still do better at some of these projects next year. At Goldex in terms of tonnage, at Lapa in terms of dilution. So hopefully the way we positioned it is to be in a strong position to beat and exceed the guidance. As far as dividends go, we've paid one for 27 years. There was no expectation that we were going to increase the dividend this year. Based on our forecast for next year we will still be in a position, given the cash flow that's going to be generated on the production base that we've laid out, to increase that dividend, but we'll make that decision when the time comes.

Didn't you guide guidance down by 500,000 ounces?

No, we didn't. The guidance, as we said, the number we've been using internally remains the same. It is 1.18 million ounces or 1.2 million ounces. We're still using that as an internal number and the guidance that we've put out yesterday in the press release was from 1 million to 1.1 million ounces.

Your next question is from Barry Cooper with CIBC.

Probably a couple of questions for Ebe. Ebe, on Goldex, the way I understand it, the grades there should be extremely predictable because basically you're pulling materials that would have been blasted earlier and what not. Can you give us an idea of what the grades will be over the next couple of quarters, because presumably that stuff's already been blasted?

Well, over this present quarter we expect our grade to be about 2.2 to 2.3 grams. We'll be mucking mostly out of the Central area and with also some more coming from the Eastern area. The Eastern area, the average grade is about 1.6 to 1.7 and then when we reconcile that through the mill, we get anywhere about 5% more gold. So we've got positive reconciliation. So next year we are going to be playing catch up because we have a blast of about 1.5 million tons planned in January for the Western side, plus the Eastern side.

So our budget then is in the neighborhood to be able to operate between 2.1 to 2.2, so slightly above reserve grade for the rest of the year. And so we'll be just in the normal mining sequence. We will be accelerating those because we have now extracted more ore than originally planned on the Eastern side and it's been behaving very well, very little dilution, so we just want to balance things out a bit to start mining up the Western side and then finally in the Central part. And as we said, we're about 1.5 years ahead of schedule, so we figure that by the end of 2011 the whole original 23-24 million tonne orebody will have been blasted in its entirety and ready for simple extraction.

On the 5% reconciliation, because it wasn't perfectly clear to me, is that 5% on the Eastern or the total component or are you actually able to kind of differentiate Eastern versus the Central in terms of reconciliation? I realize that there's a whole lot of comingling of the ore and what not, so you may be talking the whole orebody there.

Well, all we can say is for most of the quarter we were running strictly 100% on the Eastern, so that's an easy exercise and when we compare with what our mucks indicated and what was predicted, we compare that with the ore reserve model and then what we extracted in the ore, we got roughly 5%. We also predicted that when we looked at the Central zone that some of those grades were going to be in the 2.4-2.5 range, therefore the blended grade should be in the neighborhood of 2.2 and that is exactly what we're getting. There are days even where we've had mill heads in excess of 3 to 3.5 grams per tonne.

So, I think I agree with you that it's becoming quite predictable and so Goldex over its life of mine will be a situation that will be contingent on a quarter to quarter basis where the ore gets extracted. And sometimes there will be issues with draw points being plugged or large ore or blasts not going off on time, so there will be a variation possible on a quarter to quarter, but yes, it's becoming quite predictable.

Yes, sure. Then on that same topic of grade reconciliation, Lapa started off with what looked to be kind of a really good surprise there and obviously dilution can kind of muddy the waters with respect to what is grade reconciliation and what is dilution causing the grade to go down. Are you finding anything at this point in time that would suggest that you're having positive grade reconciliation there, exclusive of the dilution issue?

Barry, I'm sorry, you broke up at the last part. I didn't get the gist of your question there. Could you repeat just the last part?

Yes. Are you experiencing at Lapa, positive grade reconciliation, exclusive of the dilution effect that you're seeing there, i.e. the zones or can you differentiate that? Because at the start of mining you were seeing like 30% positive reconciliation which I don't see that in the numbers at this point in time, but it could be muddied by the dilution factor there.

I agree with you that it is muddied and our numbers indicate that there is a slight improvement in grade, but right now it's pretty hard to predict when some stopes come in at 50% dilutions and we've had some situations where we've had close to 8,500% dilution, so it's a bit of a crap shoot trying to predict that. But you know, on a sheer mathematical model when we extract the dilution from it and we look at the calculated grades, we do get exactly what our reserve model has predicted and then some, but no major upgrades over and above.

Okay. Well thanks a lot for the answers there and good luck.

Your next question is from David Christie with Scotia Capital.

Just quickly here; on the Kittila you were talking to Steve earlier about the cost per tonne. Can you break it down for me what it was on a per tonne, mined, milled and G&A?

Hold on and I'll dig that out.

And the other question maybe is for David. On the warrants that are coming due at some point, do you guys still expect to get some cash from those in Q4 or what's your expectations there?

Well the warrants actually don't mature for another four years.

Yes, but they're quite a bit in the money right now.

They're pretty tightly held and CPP is still the biggest holder of them and I don't think they have any intention of exercising on them because there's quite a bit of time value left on them.

David, I will email you the exact breakdown of the quarter and then also what is planned going forward.

Your next question is from Steven Butler with Canaccord Adams.

Ebe, just on the elaboration of Lapa. Barry, I hope you can still hear me. Lapa, you talked about the cycle time increasing. Maybe you can give us a perspective on what was the result on dilution at LaRonde -- excuse me, decreased the cycle time in the stoping, what was the result at LaRonde and what would you expect for dilution control with that method?

Well, I would say historically at LaRonde, depending on what part of the orebody, but I will take level 215 as sort of a base case. When we originally started on level 215 everyone can remember the rock fall and some of the ground control issues that we experienced when we were getting dilutions. Like in our model, we had I believe at the time around 10% to 15% and we were getting dilutions of 30% to 50% and then some. And we can say now as we went deeper into the mine below level 215, that we're typically getting our dilution, which is in the neighborhood of 12% to 15%.

And when we looked back at what we did, we improved our ground support, we went to the one pass, one shot blasting. We went from 6-yard scoops to 8-yard scoops. So these are all the same things that we are currently doing at Lapa. And the key is, those stopes only stand up for a certain amount of time and we have to get the ore out as quickly -- blast it as quickly as possible. And also what we found with the one-shot blasting well, we don't hammer the weak hanging wall several times, we just gave it a one shot and then extract the ore and that has been very successful for us at LaRonde. And that is exactly what we are applying now at Lapa.

And the ground conditions are very similar of the two mines, Ebe?

I would say they are. Rather than a [serocite] shift at LaRonde, we sort of have a very foliated talcos ultramafic. They feel differently but they certainly react in the same way. Ground conditions are very, very similar to what we had at LaRonde in the early days. And we were able to beat the conditions at LaRonde, or not beat them but able to manage them accordingly, whereby we have been able to mine in excess of 7,000 tons a day at greater depths for the last six years. At Lapa we've only mined 20 stokes of 750. So there's a lot of optimization possibilities still.

Okay. Thank you. And while we are on the Dave Christie/David Malibu call, question on per tonne mine milled and G&A, may be you could send it along to all the analysts or post it on the website or desktop notes. Thanks.

All right.

Our next question comes from Carey Macrury with TD Newcrest.

I just had a quick question on Kittila and I have a follow-up question. In terms of the mill availability you mentioned in the press release that there was an outage for 22 days last quarter, I was just wondering how much downtime has it had this quarter or what the expected downtime is?

I am sorry, I did not understand that question at all. We seem to be having some problems with the line.

My question was with regard to Kittila. So in the press release it refers to the mill was out or shutdown for 22 days in the third quarter and it refers to some time down in October. I'm just wondering what's the expectation this quarter, how many days has it been down and what?

Well, as I mentioned earlier, we had about 10 days downtime in October, spill over from days in September and into October, but we were there, a group of us just after the Canadian Thanksgiving Day holiday, so the plant has been operating consistently from October 14th on and averaging 3,000 tons per day. So on an overall average it will probably be over 70%. Over the last two and a half weeks it will probably be around 94%-95% and the first 10 days zero.

And going forward for the rest of the quarter?

Well, we're planning about 92% for next year. That is the plan, operating time. And when we look at all of our other plants, LaRonde is typically averaging around anywhere between 94 to 96 and similarly with Goldex, so that is not an unrealistic target.

Actually, I meant the rest of this quarter, the rest of this year.

Well, as I mentioned, right now we're planning to have the plant operate continuously. Our next shutdown, bearing any maintenance issues, will be in February. So, that's what we are banking on and so far so good.

Our next question comes from Tony Lesiak with Genuity Capital Markets. Go ahead.

Ebe or Sean, could you provide us with a revised byproduct forecast for LaRonde for 2010, or should we still use the last guidance?

The last guidance is fine at this stage. We don't expect any material changes from that.

Okay. And for Q4 for Pinos Altos, can you give us the exact expectations that your forecasts are derived of?

I think we're saying for the quarter we are expecting about 20,000 to 25,000 ounces at the Pinos Altos.

Okay and then silver?

We'd have to look that up. I don't know.

Okay. And when do you expect to hit steady state in terms of your 2010 forecast at Pinos?

Tim, maybe you'd like to update us on that?

Well, if you just draw a trend line through our progress so far, it looks like we would hit commercial production later on in the fourth quarter and should be fairly well on steady state by the first quarter next year, at 100% capacity.

Okay. And just in terms of the general cost inflation you've seen in the industry and I guess some of the changes that you've had to make at Lapa and Kittila, can you give me a sense of where you think you might get to on a per tonne basis? Obviously it looks like its tracking to be a little higher than what the feasibility predicted.

Once again Tony, the second half of your question I didn't get, but I will try and answer what I heard. I think with respect to what we are seeing with respect to labor is somewhere in the neighborhood of 3% cost escalation. Where we are seeing pressures are with respect to professional staff. Mining is starting to gear up in Northwestern Quebec and in Quebec in general. That's what we've budgeted, but we also feel that there will be cost pressures on labor with respect to skilled hourly rates. By that I mean diesel mechanics, welders, journeymen and people of that sort.

There will be pressure, so we've had bids in for various development projects, especially at the LaRonde extension. And some of those contractor rates compared to the actual contractor rates that we are presently experiencing, they have gone up significantly, so we are not the only ones that are experiencing sort of labor cost pressures. From the consumable point of view, we are fairly locked in. At the Meadowbank, etc., we don't expect anything. So I think in terms of overall cost pressures it's coming mostly from the labor side.

Okay. Just more specifically on Lapa and Kittila, do you still expect to achieve feasibility design cost per tonne or should we be budgeting something maybe 10% higher than what you originally were looking for?

I think it would be prudent to budget something 10% higher. It's hard to call right now, when especially an operation like Kittila have been so volatile and we really haven't got into the optimization phase. But we are looking at our budgets like it's still fairly early. We are getting closer to our life of mine cost per tonne. That's what we are planning. At Lapa it will be higher because of the issues that we have experienced.

Tony, to answer to question on the silver at Pinos, it's about 200,000 ounces in the fourth quarter.

Okay.

At Lapa we will be needing more ground support, so the cost will be higher on per tonne basis.

Next question is a follow up question from Anita Soni with Credit Suisse.

I just wanted some clarification on two points. One of them was Goldex, can you tell me the sequence of mining of the ore blocks again? This quarter you did the Central and East zone. Next quarter you're doing--?

Well the ore body at Goldex is about 300 meters long and we are basically mining it in three slices of about 100 meters each. And so from a ground control point of view our plan is to mine the Eastern and Western sides simultaneously and blast most of it and maintain the Central 100 meters as a support or as a rib in the opening. And as both of the Eastern and Western sides go up, there is about another 300 meters vertically, then the last block to be mined will be the Central rib and that will be blasted towards the end of the blasting cycle. So its East first, West following close behind, followed at the end by the Central.

Okay, so you are basically just mining the East-West all the way up. And this quarter Q3 in particular is what I am talking about, you basically had to go and mine the Central zone because you had some issues--?

Well right now three quarters of the material has come from the Eastern block and in our reserve model that is probably the lowest grade block of the mine.

Okay. So West, East, Central, right? Or East, West, Central? Hello?

Sorry, you know, you cut out there at the end.

Our next question comes from David Christie with Scotia Capital. Please go ahead.

Hey guys just a little follow up on Lapa on the dilution that you've had. Will you be incorporating a higher dilution number when we talk about reserves this coming year or what's your thoughts there?

Yes, we will.

Okay. Thank you.

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