Agnico Eagle Mines Ltd (AEM) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle first-quarter 2011 results webcast conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session with instructions provided. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Friday, April 29, 2011, at 8.30 AM Eastern time.

I will now turn the conference over to Sean Boyd, Vice-Chairman and Chief Executive Officer; Ebe Scherkus, President and Chief Operating Officer; Ammar Al-Joundi, Senior Vice President of Finance and CFO; and the rest of the senior management team.

Thank you, operator, and good morning, everyone, and thanks for joining us on our first-quarter 2011 conference call. It's a big day for us today. We have our annual meeting later this morning. What I'd like to do today is move through the front end of the slides fairly quickly so that we can get to a discussion of operations. But also talk a bit about the exploration results that we announced yesterday in a separate press release. This is an important next phase for us, now that the mines are built, and up and running, to accelerate infrastructure, increase our drill programs at our newly-built mines so we can convert more resource into reserve and hopefully translate that into future growth in production.

In general, when we look at the quarter we saw some continued improvements at Pinos Altos in Mexico, some good improvements at Kittila on the recovery side, some steady results coming out of our Abitibi mine. There's still some work to do on the cost side at Kittila and there's still some work to do at Meadowbank. As you know, we had a fire in the kitchen facility at Meadowbank. I think from our perspective what was important was the quick reaction and response of the team in the middle of the night who reacted quite quickly to isolate the fire to the kitchen facilities, and the team worked extremely hard to get the mine up and running in short order with portable kitchen facilities.

Another important aspect of their response was the fact that we are not going to see a delay in the installation of the secondary crushing unit that we expect to be ready for the second half of this year. That is important to note. Although production was lower because of harsh winter conditions and the fire at Meadowbank, as we move through to the second half of this year, we should see about a 20% increase in output in the second half versus first half, which is going to drive production, cash flow, and also lower unit cost because of increased production. That is the backdrop for the quarter.

I will move through slides relatively quickly here, so that we can get into the exploration and an update from Ebe on the production side. There is no change in our strategy, it remains focused on growing the current asset base, looking for selected acquisitions, ramping up exploration at the existing operations to convert that reserve to resource. All of that should drive per share growth in production, and also in reserves because we are not going to be required to issue stock in order to maximize the assets that have been newly built.

When you look at the actual financial results, on a normalized basis, earnings about $0.45. Important to note is the cash flow that was generated in the quarter, even with 250,000 ounces of production, we generated $1 per share in cash flow over $170 million. Our expectation is that, as we move forward with increased output which will drive unit costs down, we should see increases in cash flow as we move through the balance of the year.

In terms of actual forecast going forward, no change from the update after the Meadowbank fire in terms of production or costs. There is a potential to see lower unit cost because of the significant impact that a higher silver price has on our results. As most of you know, we were budgeting silver prices in the low $20 an ounce range, we are seeing silver prices in the high-$40 range, so that could have a significant impact on lowering our unit cost on the back of increased gold output in the second half of the year. We are looking for a strong second half, as we get the additional crushing capacity installed at Meadowbank.

Our financial position remains strong. We have a credit facility of $1.2 billion that we can draw on, along with the increasing cash flow. So we are sitting here now with a much broader technical skill set, given that we've built all of these mines, and a vastly increased financial capacity with the increased cash flow coming from the new mines.

On the reserve side, our year-end target is 22 million ounces of reserves. We expect that we can do that, hopefully we will do more. We are spending $145 million on exploration. The exploration press release yesterday saw very strong results coming out of Goldex, Kittila, Meliadine, and Lapa. So with those early results, early in the year, we are in a really strong position to meet or exceed our reserve target of 22 million ounces by the end of the year.

On a per-share basis, this growth phase and an acquisition phase has put us in a -- among the industry leaders in terms of reserves per share. Our production growth over the next several years, we'll see production growing about 50% from the 2010 level. That again, puts us among the industry leaders in terms of production per share. We are up in the top end of the industry, along with Barrick and Newmont, in terms of production per share and reserves per share through this transformational phase.

Just a summary, we have a slide that summarizes our acquisitions over the last several years. With four acquisitions that we collectively paid about $1.4 billion for, those deposits currently host a reserve and resource of 24 million ounces. We added almost 11 million ounces through exploration. So we almost doubled the reserve and resource position on these four acquisitions since they were acquired. These deposits are wide open, and we've seen some of the recent drill results yesterday that suggest that those mines that have been recently built and acquired over the last several years, have a lot of upside to go. We are looking forward to continuing to update the market on a quarterly basis, given the amount of drilling that we are doing on these projects.

One great example of how the deposits have grown is Kittila. We've put up a long section there. When we actually made our first investment in Kittila back in 2004, we put in $14 million for 14%. The asset had 1.4 million ounces. It is currently sitting at almost 7 million ounces and still growing.

So I think that is a testament to the team's ability to identify these things early-stage and then build them through consistent and focused exploration. That is still big part of our strategy. It's getting a lot more difficult to find these early-stage opportunities, but that's where a lot of our energy is now focused, and we have expanded our evaluations group so we can do a more thorough job on looking at more things that are coming our way, given the fact that we have now built a much larger production base.

Our operations, there is still work to do on the cost side. Several of them are below the industry average. We think that we can continue to lower our unit cost as we increase output. We will start to see that as we move through the second quarter and into the second half of this year.

The way the business is structured now, if we look at Meliadine and a potential expansion at Kittila, and our sustaining CapEx, we could see spending about $0.5 billion over the next several years to continue to grow output beyond 2014 and 2015. But during that period, using a gold price of $13.50, our EBITDA would average about $1.2 billion. So we've built a business that is sustainable, we can continue to grow it from existing financial resources, and we still have a lot of financial room to either increase the dividend or build another project. So there is still some upside in terms of what our financial capacity will allow us to do moving forward, without dilution.

I will close now with another slide, which ties into our ability to grow reserves per share and production per share, and really ultimately drives cash flow per share. We are among the industry leaders along with Newmont and Barrick in terms of being able to generate cash flow per share.

I will turn it over to Ebe, but just prior to going into the operating section, I just want to remind people that we have a mine tour to Finland next weekend. We have one to Pinos Altos in mid-May, and we have one to Meadowbank at the end of June. It's a great opportunity if you have the time to get out and see these assets, see how we've made some good progress at them, see where the upside is on exploration. The best way to do that is get to these places if you can to see everything firsthand.

I will turn it over to Ebe now.

Good morning, everyone. I would just like to discuss briefly our operations, and then really focus on the exploration highlights, which were highlighted in our exploration press release yesterday. First off, LaRonde, LaRonde is our anchor, our steady-state producer. Tonnage was down a bit because we were in the process of developing more zinc-rich, silver-rich mining blocks in the upper part of the mine. Those blocks are smaller than what we are traditionally used to at LaRonde, but having said that, progress has been excellent and tonnage is back to normal levels so far in the second quarter. The second quarter and the third quarter will be a transitional period for LaRonde, as LaRonde extension, the construction gets completed. So far it is on schedule and on budget, and we expect to have our first production from the LaRonde extension, from the new internal shaft in the fourth quarter of this year.

But as far as exploration is concerned, we were off to a bit of a slow start at LaRonde. We have gone through our third drill contractor in a little over a year, however presently we are back to our original contractor, and drilling underground has resumed at LaRonde. Our main focus will be to the west towards Busca. We have open-ended intersections to the exploration drive on a level 215. So we will be testing that particular target.

Also we have two machines testing the extension of the Iamgold's Westwood zone onto Ellison, as that is ongoing. Unfortunately, we lost one hole, so we had to start again. These are deep holes and they do take time and they do take a lot of work and they aren't cheap.

Also what we have been working on is the confirmation of Zone 5 on the original Busca property. So far we know that that particular zone hosts 1.1 million ounces, contained in 19 million tons on an average grade of 2 grams per ton. We believe about 60% of this is open pittable.

On the Goldex property, Goldex is a very steady-state producer; its costs were in line at CAD23 per ton. We currently have over 14.5 million tons of broken ore in the [slope] itself, we have an additional 85,000 tons of crushed material on surface, and this is a case where literally the mine has buried the mill, but not for much longer. We have made some modifications to the mill, and as a result we can see tonnage rates above the design rate in the range of about 8,500 to potentially even 9,000 tons per day.

At Goldex we have had some very favorable exploration results at depth. This is a zone that was first indicated back in 1996. We had a few indications, but we decided in light of the Penna shaft development, not to follow up on it. And I guess in typical Agnico-Eagle fashion, once the mine is built we returned to our original focus, which is exploration. So we started drilling at depth again and so far, the d-zone, or the deep zone which is located immediately below the existing infrastructure, we have been able to delineate 14 million tons that contain about 750,000 ounces of gold.

Now these most recent results have not been incorporated into this resource estimate. There is a lot more drilling to be done. We've just increased our budget at Goldex from $6 million to $8.2 million, and that includes 300 meters of ramp development and an additional 12,000 meters of diamond drilling. This is also very typical of the history of the Val-d'Or Malartic Camp, that once one gets underground and start exploring, that the original mine lifes often get extended. And if you look back at Sigma and Lamaque, they never had more than three or four years of production, of reserves, and yet we're in existence for over -- up to 60 years. So Goldex is off to a great start with these most recent exploration results.

Lapa, that is our mine that is, we call it the little mine that could. This is a mine that has been challenged with ground conditions, it has the smallest reserve position, it has a difficult narrow vein, it has metallurgical issues, and yet on all fronts, when you look at it, Lapa had record production of [12,200] ounces in March. The costs were right on target, or actually CAD4 below our budget at CAD117 per ton.

And we now have started, much as we have done elsewhere on our other properties, we have restarted exploration, and the first focus of our exploration will be a zone immediately to the east, the c-zone. That particular zone so far, and it's still early days, the work that we have done on it has extended Lapa's mine life by an additional seven months. Now that is only a start. We have started these exploration drives to the east and to the west, and especially to the east there are open-ended intersections that we have previously drilled from surface on the Zulapa property, so we will be drilling underneath those intersections from these new exploration drives.

Kittila, we've been involved -- we first looked at Kittila back in 2002 at the [BMO] conference in Florida. And at that time, Kittila hosted 1.6 million ounces of gold. We saw a lot of parallels, a lot of similarities to the Abitibi Camp, to the $illac Busca Camp, and as a result, it was very early-on in the overall program and life of the [suricusico] deposits, so we decided to acquire it and put into production.

Kittila has not been an easy deposit. It's had its challenges, and probably the most difficult challenge has been metallurgy. As a result, it's been a stop-start operation over the past two years, but what we have done is we have a new crew on site, a young crew, a dynamic crew, and we focused all of our efforts at making this mine work. As Sean mentioned, after making it work then we can now put all of our attention and focus on cost control.

When you look at all of the metrics, recovery, we remember when we had this conference call and we had to talk about 28% recoveries, now we are at all-time records over our 83%, at over 86% recovery. We have been able to resolve that issue. We had difficulties processing the tons. Well, we averaged 2,911 tons per day, very close to the design rate of 3,000 tons per day. There have even been days where we have been over 3,300 to 3,400 tons per day.

When we look at the tonnage coming out of the open pit, the development underground, everything is on target and on schedule. So the mine as it presently stands, the mill works, the process works, the underground works, the open pit works. Now we have to focus on cost reduction.

Today also we have traced the deposit over a trend of 5 kilometers down to a depth of 1.3 kilometers, and the overall reserve resource has grown from the original 1.6 million to between 7 to 8 million ounces of gold. The most recent deep intersection is at 1.3 kilometers below [Ruravira and Surrey], have not been incorporated into any of these resource calculations. All of this drilling, what it has done has provided us with a much better understanding of the structural controls, so our drilling is much more focused at depth and to the north. What it has also done is, we are now driving an exploration ramp to the north. That exploration ramp could also potentially serve as a production ramp, and could eventually be used to facilitate development of a shaft. Our feasibility is still on schedule, we expect to have it completed towards the end of the third quarter, beginning of the fourth quarter of this year.

Pinos Altos has been a very steady producer. A little over nine months ago we were concerned about the resource, we were concerned about the cost-per-ounce. But Pinos Altos had record production of over 48,000 ounces. Costs were down to just over $315 per ounce this quarter. Pinos Altos also has the benefit of silver production, so we have used a very conservative silver price in our projection. So with increasing silver prices, the cost-per-ounce could even be significantly lower.

Our exploration focus currently, we are looking at [Quiburo], south of the Creston Mascota. We have done some additional work on Creston Mascota, and we believe we can extend the life of that particular project. We are also focusing on Quiburo, some of the results we have are very favorable, and we are looking at an underground program at Quiburo.

Meadowbank, that one has also been a tough one, especially so this quarter. We have been faced with probably one of the harshest winters on record. When you look at some of the press releases coming out from other operations across the north, it's very similar. It has been a very unique winter, with temperatures down to minus-60, and minus-60 is not very equipment-friendly, so we have had our issues there. In our strategic plan, we have had numerous equipment modifications that we've incorporated. We are starting to see the fruits of our labor currently, with respect to the mine plan, we have new equipment on-stream, new shovels, new trucks, but we have also made sure to winterize them because we're never certain that we won't have these conditions again. So our strategy has been to modify, to fix, and ensure that we at least not have a repeat of this next winter.

Things are going significantly better. The mine itself, the open pit, is now mining close to 90,000 tons of rock and ore per day, so that is very close to plan. The mill itself is running -- the availability is up significantly. We are currently without the crusher, averaging in excess of 8,000 tons per day. The crusher itself is on-time and on-budget. We thought we could come in ahead of schedule, but the fire -- all the fire did was delay us about three weeks, and as a result, during your visit at the end of June, you will see a crushing plant that will be in the final stages of commissioning and come on-stream.

We believe the commissioning will go very quickly. It is a clone identical to the crushing plant we have at Goldex, and Goldex was up and running within six days after start-up. So we will have some of the Goldex team up there to help us start that crusher.

With respect to exploration, well, once again with the weather conditions, we will see the issues as well -- at the Meladine, drilling was delayed because of contractor issues, but also because of weather, and as a result we have had some delays. But the focus of our exploration will continue to be the bulk deposit to the northeast of the main zones, and also the extensions of Portage and Goose to the south. We are currently evaluating an underground ramp program to further test, or to look at testing the Portage and Goose mineralization at depth.

Meladine, this has been quite the story. We were intrigued by it when we visited it two years ago, and we were finally able to consummate the deal this year. As a result, not taking anything away from Comaplex, but we have accelerated the drill program. We currently have -- it is our largest program, $65 million, almost 45% of our total budget of $145 million; over 90,000 meters of drilling has been planned. We know there are six deposits that have been located already, but we also know we have numerous other showings. So when we look at this 90,000-meter program, it is divided into 70,000 meters on the known zones, and 20,000 meters on exploration, wildcat-type drilling.

Since we acquired the property in July of this year, the deposit has grown from an initial 5 million ounces to 8 million ounces, not incorporating the latest drilling. [Westmeg] has been the focus of our drilling to date. It was actually found by condemnation drilling.

We have a program as part of our feasibility study to drill the property, to drill the surface area where we are looking at installing our surface infrastructure, and as a result, we've delineated the two zones, those zones are up to 1-kilometer long; they are not very deep. So far we have delineated 140,000 ounces. This could be a second open pit. We've also had some interesting results on the f-zone.

So what this does is sort of changes the mix a bit going forward in our feasibility. The majority of the resource and reserves currently are on [Tiraganuak] at depth. The more we find on surface, will then potentially the more we will be able to mine by open-pit methods going forward. So this is an interesting twist for us that we will seriously have to look at going forward.

We are planning a bulk sample on two levels to be able to test the lower grades on Tiraganuak. However, we think that the future, the long-term future of Tiraganuak is at depth and downrake, as you can see on the longitudinal section. So we have already cost it out. We will be proposing to the Board to accelerate this program, keep it going for an additional four years. And you can see the ramp development right down the rake of the Tiraganuak zone. We will be coming to the Board with that proposal before the end of the second quarter.

Currently, we have two drill contractors on-site, similarly to Meadowbank. We did have some delays, some weather-related delays. Anytime there is a white-out or fog, we don't drill for obvious safety reasons. We have completed a new camp, expanded the camp, so we will be able to host a larger drill crew, and also, of course, the development crew for the underground development program.

We are currently working intensively on getting the road permitted. This is something we would like to do very early-on in the life of the project. This is one of the issues that we faced, or less that we learned at Meadowbank. That road went in late, and then everything else started to piled up in behind it and cause delays and cost over-runs. Our strategy here at the Meladine is to be able to get that road in as fast as possible. We are hoping to be able to get a permit later this fall, third, fourth quarter, and start road construction. It's a 25-kilometer road, it's not a big road, and we feel that it will take about six months to complete that road, and it's about -- total cost is about $12 million, which has been incorporated into our budget.

So we are pretty excited about this project. The real nuts and bolts of it is, the high-frequency of coarse visible gold. And for any geologist that has worked, anytime they see a lot of visible gold, well, that gets their blood pressure up and puts smiles on their face. And Meladine happens to be one of those projects where we seem to find a lot of coarse visible gold. We will be talking about Meladine at the end of June, at the Meadowbank visit. We will have all of the Meladine people there, the exploration people, we will have a booth, we will have core, and we are certainly excited to share the results of that program with you at the end of June at the Meadowbank tour.

That pretty much sums up operations and exploration, and then I would like to turn it back to Sean for concluding remarks.

Thanks, Ebe. I think what we'd like to do is just open the lines up for questions now; we'd be happy to answer them.

(Operator Instructions) David Haughton, BMO Capital Markets.

Having a look at Kittila, very good results there on the recoveries, obviously. What should we be thinking about on a go-forward basis? Would it be the 86% level or do we stick to the 83%? What do you feel comfortable with?

I will feel that you should keep 83% and beat the 83% to our 86% constantly.

All right. And with regards to the unit cost, EUR75 to the tonne, should we think of that as a steady-state kind of number?

No, you should not. What we were faced in this particular quarter is a lot of stockpile manipulation to provide a constant feed of sulfur to the mill. We feel we can beat that. Also what we were faced with is a significantly higher fuel cost because of the winter conditions where all the equipment ran around the clock for a good part of the quarter. We feel that is another area that we can work on.

The third area that we have to work on as we are transitioning to self-mining, we've used a lot of contract labor to help us catch up over the last couple of years. We have had issues, so we expect to have lower unit costs on a per-tonne basis and also with respect to development on a per-meter basis. So we feel our costs will be slightly higher than our budget. We did get a 13% tax on electricity due to a new tax imposed by the Finnish government. I would feel comfortable with a number in the low-EUR60s, David.

So that's 10% to 15% better than what you've got now.

Yes.

For the quarter, you had a blend expect of the open-pit and the underground ore. How much ore came from underground and were the grades consistent with the open-pit?

The underground ore produced approximately 30%. And so far, from a reconciliation point of view, we are getting better dilution results than we expected. And as a result, the grade is about 5%, 6% higher.

Thank you, and the other thing was quite a step-down in the DNA rate, which is in contrast to the other assets. Perhaps we could talk about the depreciation and the reason for overall lift, but in Kittila's case a little bit lower?

Hi, David, it's Ammar here. Overall the depreciation was still within our 200 to 250 guidance. It was at the high-end of it. We do depreciation on a per-tonne basis, and as a function of a lot of process of low-grade stockpile at Meadowbank, on average our depreciation was higher. Similarly, to some extent, at Kittila, with the slightly higher grades you would have had a proportionatly lower depreciation.

All right. Moving now, Ebe, to Canada. Having looked at LaRonde. Unit cost there, $68-per-tonne, quite a lift from what we've seen in the past. What should we think about going forward?

Go back to the original budget, which would be about $81 per tonne, that is our budget. Right now when you look at the denominator, because LaRonde was slightly under budget with respect to tonnage, that inflated unit costs by about 12% or thereabouts. So right now it's back to normal levels, so it's more a function of tonnage processed through the mill.

Okay, so a function of fixed versus variable components?

Yes.

You mentioned in the discussion that at Lapa you are considering a lower cut-off grade. What should we think about thinking ahead for those cut-off grades? Should it be something like we saw in the first quarter or more likely what we'd seen last year?

I don't think we are looking at a lower cut-off grade at Lapa. And on the gold price assumption going forward. That's where we are.

Okay, so you had about 6.8 grams in that first quarter, is that the target rate we should be thinking about? Is that the new norm?

Yes. As the gold price has increased, we have incorporated more lower-grade material. We don't only face that at Lapa, we face in that at all of our operations.

And from a planning point of view and even from a guidance point of view, with increasing gold prices, well we will see typical lower grades. And then to be able to maintain guidance, then we have to increase throughput, be able to process lower-grade material and meet guidance. So that is part of the issue. So you look at things like Goldex, or even Meadowbank, or Pinos Altos, Pinos Altos is running at 5,000 or over 5,000 tonnes per day, the solution there is we increase the throughput, but the benefit of that is we also increase the life of mine.

That's a natural outcome, given where the gold price is at the moment. Okay, well, thank you very much. I'll let someone else have a go.

John Tomaso, John Tomaso Very Independent Research.

Congratulations on the 86% at Kittila. I would appreciate if you would take a victory lap and explain to us what changes brought about the full utilization, full recovery rate, whether the nature of the ore will change as you move into deeper lateral zones to make it easier or more difficult? The second question, if fortuitously each of the operations performed to plan in the same quarter, what do you think is your production capacity at the moment?

I will answer you're last question first, John. We are looking at about 300,000 ounces rather than the 252,000 ounces. The main stumble that we had this quarter was Meadowbank. All of the rest were pretty close on target. So we feel if Meadowbank gets resolved, and we believe it will, then we should be very close or above the 300,000-ounce-per-quarter mark.

With respect to your first question, before I turn it over to Jean on the metallurgical part, we don't see any change. With respect to ore characteristics at depth, we have tested it and it appears to be more of the same. So this is something we are going to have to live with at Kittila. But we did metallurgically, I will turn it over to Jean.

Hi, John. First of all, thank you for the congratulations. This is a teamwork and I can tell that all of the support and team at Kittila did a very good job. We were able to sustain constantly through the last 3 months, and it is still going on presently. So essentially, it is an optimization process, a good control on the organic and the same good control on the removal of terrain. and [we think the other parameter] that is normal in any optimization, so temperature and pressure. Thank you, and congratulations. I know we all raked you over the coals when things were going badly a year or 2 ago.

If I may add to that, it's also a better understanding of the chloride and the organic material itself, and as a result of that we have -- Jean and his team have been able to do a much better job at removing it and controlling the oxidation process in the autoclave.

Joung Park, Morningstar.

My first question is on Meadowbank. It seems like to be able to reach the $700-per-ounce projections at Meadowbank, you would have to generate cash cost of something like under $600 per ounce in the back half of 2011, once the permit crusher is installed. So is that what you look at as a sustainable long-term cost-to-year for that line?

I would say at this point in time, yes, but quantify that a bit. What we are planning, we think we may have some extra capacity, and what we would like to do is adopt a fill-the-mill strategy. And by that, one of the issues that we currently have at Meadowbank, we sort the ore into low-grade, medium-grade, high-grade, etc. And as a result that has cost a lot of money with respect to rehandling and contractor cost. So with that fill-the-mill strategy, anything that is above our cut-off grade will then go directly to the mill, so we foresee significant savings on a cost-per-tonne basis and that should be reflected on a cost-per-ounce basis.

How much benefit would that potentially be?

How much of a benefit on a per-tonne?

Yes, on a per-tonne basis.

I think what it would do is probably help us rather than maintain our budgeted cost-per-tonne rather than face additional increases.

Okay. And in slide 17 of the presentation, for the CapEx forecast for 2012 and beyond, does that incorporate growth projects such as Meladine, or is that just purely sustaining?

On the gray bars, it is just sustaining. But what we did on that slide, we drew an illustrative line making the assumption that we are going to proceed with a Kittila expansion. We will make that determination later this year. And we also built in an assumption for Meladine based on what it cost us to build Meadowbank. But ultimate Meladine, CapEx will be determined by the size of the deposit. It's growing quite quickly, and as Ebe mentioned, it's growing quickly with mere surface mineralization. So we will have to make a determination at some point based on our drilling what proportion will be open-pit versus underground, and we may see a bigger footprint than originally thought of when we bought last it last year.

Okay, that's fair enough. Just a follow-up, when I added up the sustaining CapEx figures for the quarter and annualized that, it turned out to be somewhere close to $200 million. But I look at the CapEx estimates for 2013 and 2014, and that looks more like $100 million. Just wondering how we should look at sustainable maintenance CapEx levels going forward?

We have incorporated some significant CapEx, especially at Meadowbank, this coming year. We still have some (inaudible) construction, we have air strip construction, so as result CapEx, especially at Meadowbank, is higher. We also have the completion of LaRonde extension, which once completed we will not have going forward next year. So a lot of these big-ticket items will be completed and as a result we expect sustaining then to drop.

So somewhere close to the $100 million level?

That is correct, but then we also have other projects that may be attractive with respect to the processing plant at LaRonde, CIL conversion back to CIP from Merrill-Crowe. So there's a whole bunch of projects that we may follow-up on if they have the proper rate-of-return and also the side benefit -- additional benefit of reducing or putting a lid on our operating costs.

Okay, that's fair enough. Thanks for the help guys.

Barry Cooper, CIBC World Markets.

Congratulations on getting Creston Mascota up and running. I just had a question on the commercialization there. Was the 4600 ounces that were produced, was that all produced in March or was that produced over the course of the quarter so that part of that was commercial and part of it was not?

I'll let Tim Haldane answer that.

That was the full quarter production, Barry.

So how much would have been commercial then?

I can get that number, but March production was around 1500 ounces, 1700 ounces.

Okay. So looking at the number then, it kind of looks what you have done, at least from the footnotes and whatnot there, that you have taken the costs and whatnot for March and then amortized it over the entire quarter production to give your $319 per ounce. So I am guessing that had you done it over the commercial production, then with the commercial costs the cost at Mascota would have been much, much higher. Am I wrong in that?

This is Picklu, the Controller. All the costs were inventoried prior to March 1. So all costs attributable to the production before March 1 was within the production costs post-March 1.

Okay. So you did not capitalize -- normal procedure is to capitalize that non-commercial production and absorb those cost into capital costs. That's not what you did is what you're telling me?

Correct.

Good enough. Then further on Mascota, obviously that entire region of Mexico has difficulties with respect to silver recoveries, and indeed you faced that problem at the rest of Pinos Altos with material going through the mill. But your recovery at Mascota is basically zero-per-12-gram that was mined. Is there anything that can be done on that, Tim, to improve those silver recoveries?

We never planned to get much silver out of Creston Mascota. I think the head grade is very low, the bleach recovery on silver, for us anyway on this district, is going to be 10% or 15%. I don't think there's much realistic opportunities to increase that. We are doing some research now to see where we can get more silver production out of Pinos Altos and Creston Mascota, but we are subject to the mineralization there and we don't see any instant answers on being able to increase recovery of silver.

I appreciate the complexities and difficulties there, although at almost $50 a ounce, it may start paying people to pay a attention to some of these problems, because even small incremental changes can probably make a huge difference in your bottom-line effect.

We are paying a lot of attention to that, we just don't have the breakthrough yet.

Right. And then on Kittila drilling, maybe, Ebe, you can answer this, you give a table of uncut grades. Would there have been any difference if you would have cut those grades, and what is a top cutting factor that you use on your drilling to bring things down?

It wouldn't have made any significant difference, Barry. Kittila does not have a very coarse nugget effect. So cutting, I believe we cut the equivalent of 1 ounce of 32-grams-per tonne. But the population is so small so it's got very -- next to no effect whatsoever.

Okay. Good enough. That's all my questions. Thanks

(Operator Instructions) Tom Lesiak, Macquarie Securities.

Ebe, what should we be looking for from Meadowbank in terms of production over the next few quarters?

We see similar production in the coming quarter, maybe slight improvement as we get the secondary crushing plant. Our mining plan is actually back-ended, so for the next couple of quarters, I just have the number here, we are looking at close to 100,000 ounces per quarter going forward in the next 2 quarters -- I mean in the third and fourth quarter, slightly better than the first quarter and the second quarter. We will have more consistent mill feed and more consistent availability, so we will see a ramp-up, but it is back-ended to the last two quarters.

Okay. If I remember correctly, the crusher was not supposed to be up until sometime in September. With it hopefully being in by midyear, does it appear now that your guidance, the revised guidance for the year looks potentially a bit conservative here?

I think with everything that has happened at Meadowbank, we are going to be ultraconservative.

Probably a good idea. A question for Sean on silver. Sean, do you think the silver price looks extended here? And would you look at potentially hedging some of your byproduct production?

I think silver is probably run a bit too far at the moment. We are not looking at hedging silver. We actually think the gold price is going to continue to move up and silver is going to move up with it. We actually ran some numbers for next year using an $1,800 gold price and a $60 silver price, and the numbers are extremely strong, particularly on the cost-per-ounce side. Because at 6 million ounces of silver production using a $60 silver price, we get a extensive credit. So we are actually optimistic about gold and, as a result, silver, so we are not contemplating doing anything on the silver side.

Okay. Could you give us a sense of where your views are right now on implementing a gold link strategy like at Newmont, and what you're view is on where dividends for gold companies should be heading in order to compete with ETFs?

We had a substantial increase in the dividend, as you know, in December, that is consistent with our 29-year track record. We are one of the leaders as far as that goes. Going back to one of the slides in the presentation that outlined an illustrated reinvestment program for the existing assets relative to our EBITDA, you can see there is room to increase that dividend.

We are currently paying a little over $100 million gross on an annual basis, so there's room to pay more. How we pay it, we haven't decided. Whether we got to something tied to the gold price or whether we bump the quarterly pay-out and then look at a special pay-out at the end of the year based on how the metal prices have performed throughout that year. We haven't really decided. But it is something we are looking at over the next couple of months.

As far as where they should be from an industry perspective is that I think everybody acknowledges that the equity valuations are at the lower end of the historical range for a number of reasons. The next -- to bump those valuations we need obviously more generalist investors in the space. Traditional gold investors can take a dividend or leave a dividend, but we think the next wave of investors that will be forced to look at the space because of performance of the gold price will be focused on the dividend as well as the strategy and management. So I think it should be in the 1.5% to 2% range versus a minus-0.4% range on the ETF. then you have a spread of 2% to 2.5%. I think that would be really important. But I think overall it's more than just the dividend, I think it's a, and I we are seeing this in the industry, a little bit more discipline in terms of capital allocation.

The companies have a lot of capital. It's getting difficult to grow if you are really big. That's why we like our position. We can still grow the million-ounce-base over the next 10 years, we think. So I think more important than the dividend is the strategy, keeping it gold-focused, not diluting it and trying to keep a lid on the share count is more important than the dividend.

Thanks, Sean.

Anita Soni, Credit Suisse.

At Creston Mascota, do you expect to still be looking about $5 per tonne in unit costs going forward?

No. It is going to be closer, between $10 and $15. I think we are expecting about $13 this year, $14.

Okay. In terms of the grades at Creston Mascota, is that a result of the rethink on the cut-off or was just a result of -- it was slightly lower than the forecast you put out, or was that a result of basically not wanting to check high-grade ounces at the start-up of the mine?

The early mining at Creston Mascota, we've actually had some positive variance. We found a little bit more ore on the upper benches than what was in our original plan. We just took the ore as it was mined and out it on a heap.

Okay, because the original guidance that was put out in December was looking at about 1.62 grams per tonne for the heap factor. I think you came in at 1.4, so. Then on LaRonde, in terms of byproducts, again the grades were slightly lower. When do you expect to get back into the higher grade, or should we be rethinking our grade assumptions for LaRonde on the byproducts?

It will also be impacted by higher growth rates at depth and more tonnage from LaRonde extensions, so that will have an impact of lowering the effect of zinc and silver and copper grades. It is an affect of that, but as far as the ore body itself, there is no change with respect to zinc grade or silver grades per tonne, it's more a function of the blend.

Okay. I guess I'm just a little confused because again in December it was -- on silver it was more like 2 ounces per tonne that you were looking at and you came in at about 1.5 ounce this quarter.

We are a lot closer to that in Q2, so that is just the mining sequence.

Okay so you're just back to into what you'd previously guided?

Yes.

On Meadowbank, I guess with the split that you were describing at about close to 100,000 ounces per quarter in Q3 and Q4. I guess that 45/55 split you were originally talking with the March 29 guidance is not as valid as it was before? Sorry, it looks like it's more back-end-loaded than you had originally described in the guidance press release you put in March 28.

I think Anita, Ammar, here. I think, overall it will still be approximately that 45/55 for the Company overall. As we said in the press release, about a 20% increase in the second half versus first, which is about the 45/55.

All right. What kind of throughput rates are you expecting for the second quarter at Meadowbank?

Currently we're averaging close to 8,000 tonnes per day. For us, the main challenge has been availability. We have had days where we have exceeded 10,000 tonnes. For us the challenge is to make absolutely steady-state operations, and we are currently achieving availabilities close to 90%, so we are seeing significant improvement. I think the second quarter maxes out at an average of 8,000 tonnes and then that will ramp up in the third and fourth quarter.

Okay. Thank you very much.

We have no further questions at this time.

Thank you, Operator, and thanks everyone for tuning in. If there is an interest to go to our site visits at Meadowbank, Kittila or Pinos Altos, give us a call here and we would be happy to accommodate you. Thanks again.

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