Agnico Eagle Mines Ltd (AEM) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle Mines Limited Second Quarter 2011 Results Webcast Conference Call. At this time all participants are in listen-only mode. Following the presentation we'll conduct a question and answer session and instructions will be provided at that time. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today Thursday, July 28, 2011 at 11AM Eastern time.

I will now turn the conference over to our host, Mr. Sean Boyd. Please go ahead, sir.

Thank you, operator, and good morning everyone and thanks for attending our Q2, 2011 conference call. What we'd like to do today is I'll take you through a bit of an overview on the quarter and then Ebe Scherkus will take you through the individual operations, talk about some of the issues and opportunities we have but also highlight some of the exploration results we're seeing at these properties and then we will open it up for questions.

So we'll move through the presentation and just focusing on the highlights for the quarter. We had, which was similar throughput with the addition of the crushing capacity at Meadowbank. As a result, we're in a better position to manage the costs at Kittila and Meadowbank and Ebe will talk about some of those initiatives.

In July at Meadowbank we see our throughput averaging now over 9,200 tonnes per day. That's up almost 30% from where we were in Q2. Our recoveries are 94%. Our grade is 3.1 grams, which was pretty close to the estimate we had for the month of 3.2 grams. As Ebe will get into it, our dilution is improving. We're getting better improvement in the blast inflation in the pit. We've got more work to do and further refinement and optimization is ongoing.

On the cost side we've seen really good cost performance in Quebec and Mexico. At Goldex our costs are sub $400 an ounce. LaRonde and Pinos Altos are sub $300 an ounce and, as we said, we've still got work to do at Kittila and Meadowbank but we expect better cost performance at both of those mines in the second half as we increase output.

On the exploration side, Ebe will provide more details but we continue to expand the West Lake resource at Meliadine and we've seen exceptional drill results recently at Goldex and Kittila outside of the known resource. So we should see significant increases in the size of those deposits as we go forward.

We also made a strategic investment in the quarter, a $70 million investment in the Rubicon. The way we view Rubicon is that it's a large high grade gold resource. It's got a large land package and it's in a proven mining camp.

So we do have some expertise in the Company in the Red Light Camp and it's consistent with our strategy that we've employed successfully over many decades here. In fact, Goldex and LaRonde came our way following the same strategy and it doesn't mean that when we take these investments that we end up increasing our position. In fact, over many decades we've actually sold positions at a profit when it didn't quite fit our profile.

So this is a way for us, like some of our other assets that have turned out to be quite big like Kittila, where we can exposure, understand the risks and opportunities with the skills that we bring to that particular area and that particular type of deposit. So actually we are going to continue to use that strategy going forward because it's worked well for us over several decades.

In terms of the financial position, I'll just really touch on the earnings; normalize $0.47, which is pretty much where the market expected us to be. Cash flow again over $160 million, which is just about $1.00 per share, which is a similar amount even through we had less ounces than in the first quarter.

But going forward we expect with a 20% increase in our production approximately in the second half and a reduction in unit cost as a result of some cost initiatives at Kittila and Meadowbank and, as a result of more production, we should see a bump in our cash flow as we move forward. Our plans for that cash flow are to reinvest in expansion opportunities, internal opportunities at places like Kittila, continue to move Meliadine forward more aggressively.

We're studying a ramp, an acceleration of the ramp, and we'll likely be able to talk about more about that later this quarter. And we certainly will be looking at increasing our long-standing dividends given that we have six mines operating near steady state, although we still have some improvements to make on the cost side.

In terms of more detailed operating results, I'll just briefly summarize these mines. Ebe will get into more details.

LaRonde, as you know it's a mine in transition to deeper levels and higher grades. That's going well. It's still a low cost mine and still a strong cash generator. We should see about 10% more production in the second half with good costs with that mine and we should be into the higher grade material in the fourth quarter of this year, the deeper mine.

Goldex, record tonnage with a low budget cost per tonne despite dealing with a water flow issue, inflow issue at the mine. Ebe will get into that. On the exploration at Goldex a potential to double the size of the reserve base there given the results of the D Zone. Ebe will talk about that.

At Kittila we operated about 15% below design as we had a 15 days down time in the autoclave. One plant shut down, one on plan shut down. Our recoveries, despite the start and stop in the quarter, we're still 83%, a little bit down from the first quarter, but we didn't have the difficulties with the stop and starting of the autoclave, so no issues with recoveries going forward.

Our production costs performance will improve in the second half. Again, at Kittila excellent exploration results extending at a large resource there not only at Rimpi but also Roura and wide open area that still needs to be drilled there.

At Lapa it's a narrow deposit, tough mining conditions but performing well on the cost side, below budget in fact on a cost per tonne basis.

At Pinos Altos record production, sub $300 cash cost so a mine working extremely well and more production expected in 2012 as we get a full year from our satellite deposit at Creston Mescota.

At Meadowbank, as we said, the additional crushing capacity is in place. That'll result in increased gold output but also lower our cost because we're not dealing with a significant ore handling issue as we move between portable pressures like we were doing in the first half, so that's gone. That's an immediate cost saving and there's more cost saving to come as we ramp up production at that mine.

So we're still positioned for a strong second half, not only in production but in lower costs, which is going to drive a cash flow.

On the financial position side, we still are generating good cash flow with increasing cash flow going forward. We have $1.2 billion in credit facilities available to us so extremely liquid.

Our shares outstanding on a basic level around 170 million so that puts us in a good position going forward to be able to create per share value as we move internal expansion opportunities forward and we continue to stick to a low risk M&A strategy of getting into things early and not betting the Company on large acquisitions.

We did have some higher CapEx in the quarter. Ebe will touch on that. About $100 million higher, but a quarter of that was foreign exchange related. A quarter of that was the Meadowbank dyke design, which required the need to use additional materials. About a quarter was related to managing the water inflow issue at Goldex and Ebe will talk about that. And the remainder is really an acceleration of 2012 CapEx into this year and also some additional expenditures at Meliadine, which were capitalized.

So I'll turn it over the Ebe and he can give you an update more on the each of the individual assets.

Thanks, Sean, and good morning, everyone. LaRonde I would say had a reasonable quarter though not a great quarter. The milling capacity was restricted by two things, one a planned five-day shut down and then also we were having some issues with obtaining cyanide and that appears to have been resolved, but in the meantime the mine functioned well while we were choking back the mill. We did manage to stock pile additional ore on surface and that will be processed by the end of the year.

Recoveries essentially are according to plan, but the big story at LaRonde is it is a mine in transition. We are currently mining narrower stopes so, as a result, we are getting some higher dilution. But the big story is LaRonde extension will be ready by the fourth quarter of this year. Work has progressed very, very well. The load out facilities, crushing plants, all of it will be ready by Q4 and we expect to be able to extract our first mining block, higher-grade mining block, in October or November of this year.

In the big picture from a CapEx side, this was one of our more complicated projects with an overall budget of $265 million and it will be coming in on time and approximately $15 million under budget. So they did very well.

At Goldex, Goldex actually had a great performance from a materials handling point of view. It has record tonnage in May and June following modifications to the tailings pond system. Our operations continue to be under control. Our cost per tonne is actually under budget, but our CapEx are over budget and I will just like to talk a bit about the surface subsidence issue.

About four months ago we blasted on the Goldex extension zone and we re-hit a shear zone that it lies above the eastern part of the Goldex extension zone and that has been the source of water. We started getting an increase of water from another blast a little over a year ago and that was a major blast. So we started getting some infiltration. Goldex is historically a dry mine and so it's not equipped to handle a lot of water unlike some of our other mines at Pinos Altos and even Kittila. So we started getting some water inflow and that inflow gradually increased over the year.

So the impact of that water inflow, it lowered the water table and the over burden on top of the deposit and the over burden averages anywhere from about 75 feet to 150 feet in thickness. So our program of mitigating this issue consists of routing the shear zone to prevent the water from inflowing into the mine, re-injecting water to restore the water table and then also increase our pumping capacity in the event that we're not able to totally seal off the shear zone.

So far we have had -- it's still very early, but we have had some initial good results. Our pumping capacity has been increased significantly so as a result we have started to re-inject water tables and water into the water table and the early results are positive where subsidence or the rate of subsidence has declined. At no point or anywhere is the water table or the ore body in jeopardy. We have been pumping water and yet we have been able to establish record tonnage in May and in June.

So with respect to the CapEx we have taken a provision. We've only spent $6 million of that so far but we have taken a provision to continue this program to make sure that we complete it from now to the end of the year. So we will be doing more grouting, more injections and then also we will be pumping. So we'll keep you posted if there are any more changes but so far the initial results have been positive.

With respect to exploration, the big news is the D, the results on the D Zone at depth. This is a zone that we new about from back in 1996. We only had a few drill holes in it. However, we decided not to follow up on it at that time, but with the completion of production and development on the Goldex extension zone and we now started to drill it and part of that program is a 300 metre ramp below the existing workings. And so far what we have found are thicknesses equivalent to the Goldex extension zone, grades equivalent to the Goldex extension zone.

And, although the resource that we have had calculated so far of about 0.75 million ounces of gold, we can see with these new drilling results, we can see that resource grow significantly over the coming year. So Goldex, the D zone, has the potential to significantly extend the life of the mine. It could eventually even be a repetition of the Goldex extension zone, at least from the information that we have so far.

Lapa, this once again our nickname for Lapa is the little mine that could. It has had steady state performance exceeding its tonnes hoisted and tonnes milled. Underground development, its targets have been exceeded despite increased rehab and difficult ground conditions. Its cost per tonnes are below budget. Its unit development costs are below budget so over and all very excellent performance from the Lapa and the crew has to be commended for their hard work.

Exploration, we've started an exploration drive out to the east. We are developing an East zone and that should be able to extend to the Lapa mine lifeline an additional six months while we are drilling parallel to the Cadillac shear zone and we intend to methodically and systematically follow up on some previous surface to drilling results that were quite interesting. So we'll keep you posted on exploration results at Lapa as they become available.

Kittila, Kittila from a great point of view had an excellent quarter. Actually it met its budget. We did have a planned shutdown for the autoclave. That shutdown was planned in April. What we did not expect was another one due to an agitator failure and brick lining failure a little over a month later and that resulted in a second shutdown.

But as a result of these two shutdowns what we have noticed at some of the components the agitator shafts, the pumps, etcetera were not robust enough, so we have been systematically upgrading the quality and the strength of the various components and so we expect these types of issues to decline.

Overall gold recovery was on plan averaging almost 83%. Currently we're seeing 85% to 86%. Since the last shut down we have had excellent performance and averaging once again steady state, over 3,000 tonnes per day. The grades have been in the 4.8 to 5.4 gram-per-tonne range so that bodes well. We have 300,000 tonnes of stock piled on surface.

We're back in the Suuri [Cusco] pit after delaying work in it for over two months and that was part of the reason why some of our costs were high. We had higher than normal stripping costs. We did go into the Roura Vara pit and we did extract some ore from that pit but that pit as a contingency had a significantly higher stripping cost than Suuri and that is reflected in our cost per tonne. Had we made capacity and not had the stripping issues, the Kittila costs would have been approximately EUR72 per tonne.

Now what we are focusing on in the second half of the year is a continued elimination of contract work force as we are transitioning to self mining. These are an underground and surface contractor that has helped us out with waste stripping. They have also serviced the mine and installed all of the facilities and typically in Finland they also mucked out all of the development in materials. So, Agnico will be taking this function over totally in the second half of the year.

But also having said that, some other performance indicators, underground development performance was excellent and on plan. Underground ore production we hit our target. It was on plan, so basically I think we're setting ourselves up for some significant cost reductions and better results in the second half of the year.

I think the big news at Kittila are the exploration results at depth on the Rimpi zone way to the North. To put it in perspective, like for everyone that visited the mine site over the past year, when you look at this new current intersection, it is located approximately almost one and a half kilometers further north away from the mine and at a depth of 850 metres. And, as we were saying yesterday, every now and again an intersection comes along and we think about it going forward and the significance of it and this has the potential of being one of those intersections. It intersected over 21 metres of true thickness of 7.1 grams per tonne, so one of the best holes ever on the Suuri Cusco trend.

So in light of our current expansion study up to 4,500 tonnes-per-day, which we expect to complete by the fourth quarter of this year, and we also have to start looking at how are we going to access this new deeper extension or what are we going to do? And one of the options is an exploration shaft and we will be providing you with more updates as our thinking evolves on that.

Pinos Altos, there's not much that you can say about it. It had record quarterly gold production. It was our flagship operation this quarter, over 51,000 ounces of gold produced, cash cost below $300 per ounce. The underground mine averaged 3,000 tonnes per day in June. It's on plan, actually ahead of plan. The open pit, great great performance on cost per tonne basis. So over on all cylinders, on all metrics, Pinos Altos performed exceptionally well.

Mascota, the ramp up was faster than what we had planned. It contributed over 9,000 ounces to the Pinos Altos account, so all in all a great quarter for Pinos Altos. We are focusing on the satellite deposits. As you know, we have the Center deposit, we have Cubiro and we're still drilling on them. We are looking at various ways of accessing them so that will continue to be the focus going forward on Pinos Altos.

Meadowbank, well we can also say it's a mine in transition from a mine that has caused us a lot of grief, especially over the last, I would say, over the last year since the start-up. However, it did produce over 59,000 ounces of gold but the cash cost, the denominator was just too low so the costs were $910 per ounce.

Now one of the main reasons for the low production was the dilution in the open pit. When you look at it on a cost per tonne basis over the last quarter our cost per tonne declined and it was currently around $81 per tonne in June. And, with the current performance in July with the start up of the secondary crushing plant, we expect to continue to see a downward trend.

With respect to the dilution issue so far, and it's still very early, we've only had a couple of blasts and we have seen an approximate 50% reduction in our projection. For those of you who were up on the Analyst's Tour in end of June, we were getting displacements of the ore pile in the neighborhood of 10 to 13 metres. We are now seeing displacements in the neighborhood of four to six metres and when you look at the performance of the plant itself in July, we are currently averaging 9,300 tonnes per day.

Our recoveries are actually on plan, close to 94%, and the grades for the first time -- our plan is 3.2 grams per tonne and the current grade is 3.1 grams per tonne. So we are getting, at least from the grade point of view being sent to the mill, we are very close to our plan.

So if you do the math, Meadowbank so far, as of the July 25th, has produced close to 22,000 ounces and when you put that into the context of the 59,000 ounces that we produced during issue and trouble plagued quarter, we are well on our way to realize our objectives at Meadowbank for the coming quarter.

We've also been able to improve our operating staff. Positions have been filled. As we all know in the industry, labor and management to be able to get that is challenging but over the quarter we have now virtually filled all of our positions.

Our drills are currently performing well in the open pit. We are getting increased performance out of the open pit on the basis of tonnes hauled. However, CapEx has been an issue and the biggest issue has been dyke construction and that has been the central dyke as part of our de-watering program of the goose and portage pits. When we did the detailed engineering we were given a certain quantity of material.

When we went into the pit and then started drilling and sounding for bedrock we found in one location that rather than the expected eight to nine metres of over burden material we found 17 metres of over burden so, as a result the quantities required to build this dyke increased. So what we are doing now, we are looking at potentially modifying the design or seeing whether it could be modified to see whether we could reduce the quantities of material required for the dyke and reduce the CapEx. However, we have taken that provision and that is one of the reasons why there is an increase of CapEx at Meadowbank.

Meliadine, Meliadine is another project in transition. We have just completed 100-man camp and we're just in the process of acquiring another 100-man module and we're looking at increasing the number of drills on the property. We are also looking at increasing the underground development. We currently have a contractor on site. We are in the process of rehabilitating the ramp in the underground workings that were initially put in by [Comaplex], so they are on site and that is going on schedule.

But when you look at the overall challenge at Meliadine, we have to get the road permitted. That is what we are working on because we do want to accelerate the underground program. We are looking at a four-year program that will enable us to be able to drill the Tiriganiaq zone at depth of below 350 metres.

Now, when you look at slide 18, page 18, the overall extensive property position, what this particular map just shows, these are grab samples that our geologists went out into the field and systematically acquired by chipping away various outcrop that they saw and so there are some very spectacular samples that we haven't even drill tested yet and you can see Aklak 116 grams per tonne, Prairie 217 grams per tonne, so across the 80 kilometer strike length or length of this property what these samples show us that there are numerous untested targets that we will be following on over and above the Tiriganiaq and Wesmeg and Discovery zones that we currently have.

When you look at page 19 it shows what our thinking is with respect to the underground ramp extension and proposal. Currently what we have rehabilitated is the ramp of highlighted in black and that's where we will be taking an additional bulk sample later on this year to be able to validate the sample. But come spring we would like to be able to continue with development and complete the area highlighted in red and this would be a four-year development program. Of course, the size of the program of the ramp and the location of the ramp, we would be able to use this underground infrastructure for production purposes going forward.

So in summing things up, we have had a difficult quarter. There's no two ways about it. We have identified our issues and we are starting to see some of the results, positive results of these issues, especially at Meadowbank with the commissioning and start up of the secondary crushing plant. We are seeing increased performance from the open pit and tonnage move. We are starting to see improving grades coming out of the pit.

At Kittila we're back in the Suuri pit. We know we're going towards a high grade cycle in the pit. We also know it's a more mature pit so the stripping ratio will decline significantly and that will reduce our mining costs. We also know that we are getting rid of a contract force on site and going to self mining. And we also know that from our underground workings that the performance has been excellent from the development from the tonnes that have been coming out of the Kittila.

So there are a lot of positive signs, so with that I'd like to turn you back over to Sean.

Thank you, Ebe, and why don't we, operator, just open the line up for questions?

(Operator Instructions). Your first question comes from [John Tomaso] from John Tomaso Very Independent Research.

Congratulations on everything and all the progress despite the water. You seem to be doing great. First question, on Rubicon do you have right of first refusal or any protection from subsequent interlopers? You're up to $10 billion so a Company I am sure you're not in here to make a quick $10 million or $15 million trading profit.

No, John, we don't have right of first refusal. We do have a right to participate in future financings to maintain our position but we don't have right of first refusal.

Second, there are a number of your blue sky exploration in investment alternatives that look very good. You participate with [Ron Parret] and [Rich Padell] at Renaissance Gold, have the venture near [Wong Canyon]. I spent three nights at a truck stop in Argentina where there was a core shack of Ren Gold and there's some very interesting things there and they just went to Spain and that's just one of your friends.

With Rubicon and other things that I am sure none of us know about, you must have an array of opportunities of five or 10 things that could be your eighth mine or ninth mine. Could you talk just to sort of the big picture of where you want to go, building human resources and the next wave of Agnico's growth?

Sure, John. It's a good question because we've just come off of this massive mine building phase and we're feeling collectively internally that we've broadened our skill base and combined with an increased financial capacity that we'd like to invest in the industry we're looking at more opportunities now than we ever had. But, having said that, we're as per our strategy and style we're not going to do anything where we are betting our Company on. We're going to continue to do what we've done to bring in things like LaRonde and Goldex, as I mentioned earlier, and invest some things under the radar screen, which we have as you suggested.

Some things we take a bit more of a public profile on because we are actually in some cases being the technical engineering group of these companies and using our expertise to add value. So there's lots on the go and there's more internal capacity to help these companies and to also move our own internal opportunities forward.

Where do we want to end up? Well, we want to have more non-dilutive production in reserve growth and that's why we invest early and try to get involved with things that we can move forward and make bigger and then if it looks like there's a value proposition for our shareholders we may take a bigger stake as we have in the past. So we're going to continue with a very consistent strategy over the next five years, which will involve strategic investments, which may ultimately turn into acquisitions of projects. We're going to move our internal opportunities forward.

But I think more importantly for us, which also ties into our history, is reemphasize exploration now that we're through the mine building phase and you see that not only in the budgets but the amount of resources we're spending. And the next phase of that is something we did successfully at Goldex and LaRonde is an acceleration of underground infrastructure to get into these deposits, open up the structures, get a feel for their potential and then put a development plan to it.

And so that's why when Ebe talks about looking to accelerate at Meliadine it makes total sense to us, given the grade and the size and the exploration success we've had at that deposit that prior to making a construction decision it makes good sense to us to put a ramp in. That will give us much more flexibility upon starting up a plant and it will allow us much earlier access into the highest grade portion of that deposit and story.

And so we're going to look to do that at Kittila and we were going to do that anyways and we've had more recent drill results as we've seen that actually reinforce the decision to do that at Kittila. I am not a geologist but when I look at the Kittila long section 20 years from now it will probably look like LaRonde. It will probably have two or three shafts, given the size and the potential of that district and we own it 100%, so that's the way we're thinking, so five years out we'll be a bigger producer but our focus is just not to be big. It's also to do it in a way where we're not taking on a lot of dilution for the shareholders.

Thank you.

Anita Soni, Credit Suisse.

My question is with regards to the recovery rates at Kittila. The downtime experience you take what, a couple of weeks every six months, and I guess I am just wondering if this is going to be kind of continued pattern of having higher recovery rates in the quarter that you're not taking a downtime and then lower ones in the quarter that you are taking a downtime or what should we be thinking about as a long-term recovery rate for Kittila right now, 83%, 85%, 87%?

I'll answer the first part, Anita, and then turn it over to [Jean]. I think what we have noticed with the current two shutdowns that the recovery period or the period to be able to get back on track has been a lot shorter so when we looked after each of these shutdowns, well once we started them they were down. The recoveries were in the mid 70%s to 77% and then rapidly climbed to 83% and now we are seeing 83% to 86% so I think whenever we refurbish an autoclave or put it back on line we've gained the experience where we come back on track a lot quicker than we used to say a year and a half ago. And so with that, Jean, what -- can you add anything?

Yes. Hi, Anita. For you model I will recommend, as I mentioned to the last conference call, to use 83%. For sure we are targeting to be above that. We are able to maintain 86%. On the long-terms until we'll have the expansion study completed and all of the test work around it I will go on the safe side to use 83% for your model but yes we have absolutely upside on that.

Okay thank you very much.

Richard Hurriman, private investor.

Right question is a financial one relating to currency fluctuations and particularly considering the current environment here in the States regarding the dollar strength against the euro, the Swiss francs and the yen. What -- I'd be interested in your thoughts about what impact the devaluation of the dollar for example would have on your bottom line or your operating income, either good or bad.

Good morning, Richard, it's Ammar Al-Joundi. I am the CFO. With regards to currency, a lot of our operations, all of our operations, are in either Canada, Finland or Mexico so we do have significant currency exposure. We have some currency hedging in place that has obviously proven to be profitable given the weakness of the U.S. dollar and we are actively looking to add hedges opportunistically as opportunities present themselves.

Do you view the devaluation then as a negative or positive or is it kind of a wash?

Well, overall there is a correlation between the devaluation of the U.S. dollar and the appreciation of gold and we have great leverage to the gold price so we benefit as the gold price increases. That said, we remain very bullish on the gold price and we are therefore aware of the pressure on the U.S. dollar and so we would go in and hedge when we can. But overall we want gold prices to go up and--

What is the current spread roughly for your Company?

I'm sorry, the current spread?

Between your costs, all in costs and the gold price, which is gold is around 16, 19 now and I think your last release said your costs were around 578 or 560, something like that.

Yes so those are the right numbers. It's about 1,000 to 1,050 right now.

Okay good. Thank you very much.

John Clarke, Morningstar.

It seems like most of the increase in the CapEx forecasts are comprised of one-time items but I am also wondering how much of this is due to just structural increases in the gold mining industry, which will affect the Company's just run rate CapEx levels going forward in 2012/2013, etcetera.

I would say general labor and consumable or material escalation would be about 15% so that's just a strictly on the labor and the materials that we would see CapEx increase so that's just a general industry wide consensus. However, having said that, there are also other potential issues like just general infrastructure and contractor availability, quality of engineering, etcetera, so all these other factors have a more important role to play in overall CapEx escalation. And from our experience in dealing with the engineering companies etcetera, they are being pushed to the limit as well and frequently the people to be able to do detailed design are just not available so the final product may have some flaws in it so when it comes time to do more work or execute or refine it you'll see escalations in CapEx.

Okay and do you guys expect to increase your CapEx forecast for 2012, 2013 and not just for this year?

Well, we're always going to look at other internal opportunities or to see whether we can accelerate some things but I would think going forward if you look at what we have done this year we are continuing to de-risk like things like dyke construction. Once those dykes are built that's a one-time item. The subsidence issue at Goldex, which is a large ticket item, once that water inflow is resolved that's a one-time item as well so it's not as if this is going to be perpetual and we're going to have other issues. However, if we do get an opportunity to accelerate underground development because of interesting exploration results or add more drills or buy a piece of equipment or change or modify a mill that has and get a very good short-term return on investment on it, we are going to continue actively pursue these types of opportunities to be able to keep a lid on our operating cost.

Okay and speaking of opportunities, what are some aspects of the Phoenix deposit that made it interesting to you because obviously there are tonnes of juniors out there, even within the Red Lake district alone so what was particularly exciting or interesting about Phoenix and Rubicon?

Well, I guess the number one answer is I like Red Lake. But I think the second thing is when we started looking over overall at our overall portfolio of properties, grades, etcetera, and it was a discussion that we had after building the Pinos shaft. We were bias towards deep underground mines etcetera so we decided to look at opportunities that had easier or open pit type operations and so we look at our overall average grade and I think our portfolio what we needed, or what we would like to be able to obtain at some point in time, is a high grade deposit but a real sweetener.

And that's one of the reasons Rubicon does offer that potential. It's the grades are in the neighborhood of 17 grams per tonne and it also has significant upside. And then the other thing is when you start looking at overall execution risk, permitting risk, things of that sort, well you look at Rubicon. It does have underground access. It's got some of the permits in place. It is close to infrastructure. It's in an existing well known mining camp. So these are all pluses that you have to look at going forward so Rubicon offered opportunity on all of those issues.

Okay appreciate the help, guys.

David Haughton, BMO Capital Markets

Thank you for the update. Perhaps for you, Ebe, looking at Goldex you're doing quite well on your throughput, well in excess if you're 8,000 tonnes a day. Can you sustain that kind of level, the 8,500 tonnes a day level or should we be backing it off a bit going forward?

Keep it. We have 13 million tonnes of broken underground reserve in the Goldex extensions own as we speak so we feel with the modifications that we have made with the mill with the SAG mill motor with the pumping capacity to the tailings pond those are the -- that is a tonnage that we feel comfortable with.

Jack, do you want to confirm?

No I with the pre-crushing circuit and all of your component we are in line to maintain that cap.

Okay that's a pretty good result. Having a look at that design that you had shown in your slides, should we be thinking about this as another mass blast potential?

We -- you know, this is very early days and if I start arm waving a bit here we view this as a potential repetition of the Goldex extension zone when you start looking at some of the thicknesses and grades they're very similar to what we had obtained between before 1996 to 2005 so it's very early conceptually but we've only -- we've started the 300 metres of ramp development. The other thing that we may do or recommend and we're toying around with right now is why stop the ramp? Keep it going and to be able to have more drill platforms deeper down to be able to assess the deposit.

But I think the second time around it will be a lot easier because we have all of the experience and history of the Goldex extension zone above. Back in 2005 it was very difficult to quantify the grade and we did extensive sampling but I think this time around, if it looks like a duck, quacks like a duck, it probably is a duck.

And how does E Zone fit into that broad scheme of things?

Sorry?

How does the E Zone fit into that scheme of things? Would that just be a smaller project on the way down to D or--?

These are all potential zones that we are evaluating individually. We have the M Zone. We also have the S Zone so I think in the overall mine plan like D Zone is so fresh that we will probably put all of our energy on the D Zone because it has the biggest economic impact. It has the biggest potential to increase our reserves but of course all the other satellite zones over time will be looked at in detail and over time will be mined out. I think what is interesting at Goldex and we did this exercise back in the mid '90s and this is early days with John Tomaso.

I mean the overall envelope at Goldex we came up with over 90 million tonnes of an average grade of 0.04 ounces of gold per tonne, which translates into 3.6 million ounces of gold. So if you look at the 1.6 that we currently have and around the 750,000 in resource not including this latest drill hole, these latest drill holes, we're well on our way to that overall big number.

All right, switching continents now looking at Kittila, you had made reference there to an expansion. Are you thinking there about an expansion of the plant?

Well, we are looking at the 50% expansion to 4,500 tonnes per day. That is the what the underground ramp can sustain comfortably. That's the maximum capacity of the ramp. Anything bigger, anything higher than 4,500 tonnes per day would require either a second ramp or shaft, etcetera, so we have decided just right now to look at maxing out the ramp, expanding the mill but of course in the mill anything we do there will be provisions made for further expansion if so required.

This latest drill hole on Rimpi at 1.5 kilometers to the north of the main Suuri infrastructure, well that's a very -- that opens up a lot of -- and asks a lot of questions. It's can that be a second operation. As Sean mentioned, this is looking very similar to the area between [Dwial] and the Pinos shaft. In terms of distance should we be looking at putting down an exploration shaft size it for production and have a separate satellite or second mine there not conflicting with the Surrey mine and then shipping that ore to the Ketola mill and still have the economies of scale to be able to have with respect to overhead to be able with both mines keep or help in keeping our costs down so it's very early days, David, but nonetheless a very exciting intersection.

Yes I also understood that the autoclave capacity was at 4,500 tonnes a day so it sounds like it matches the ramp. What sort of timing would you have in mind for the expansion to that level, the 50% lift in throughput?

Well, the underground part I wouldn't say is easy but it is simpler. It just means additional mining equipment and additional development to prepare mining blocks to sustain that tonnage so that and additional ventilation and things of that sort so that really is an overly technically complex. With respect to the mill, I'll turn it over to Jean and he can give you a bit more detail on what his thinking is.

We plan in the Q4 to have the result of the study for the 4,500 tonnes per day. Let's assuming that it will be positive, then you have to figure out let's say two years after to go with. In terms of the autoclave 4,500 presently, the current autoclave will be able to, with some modification, will be able to handle the throughput. One point is with the new discovery with Rimpi the possibility to go at 6,000, maybe more, I and we will have to revisit. We may have to revisit on the positive side if we move at faster than expected at the potential 6,000 tonnes per day. So it's early stage. By the fourth quarter we will have more information.

And ultimately this mine is transitioning from the open pit to the undergound. What proportion was the underground of the throughput for the quarter just gone?

One third. The underground is currently averaging 1,000 tonnes per day of the 3,000 tonnes per day capacity. And going forward, by the end of next year, end of 2012, we expect that to have increased to 70% and then in 2013 when the open pits get depleted it will be at 100%.

All right and as far as the unit costs go, kind of all over the place from one quarter to the next in Euros, eur79 this quarter, eur75 last quarter, what should we be thinking about notwithstanding the one-off issues? What should we be thinking about going forward?

Well, based on our internal calculations if we do succeed in getting rid of the contractor and we do have steady state operations of 3,000 to 3,300 tonnes per day and we are back on the Surrey pit full time without any production disruptions or whatever and we do mine our roughly 100,000 tonnes per month, that figure should be somewhere in the mid 60s in terms of Euros, low to mid eur60s in there from the present value. That's what our internal target is.

All right thank you. That concludes my questions.

Haytham Hodaly, RBC Capital Markets.

Just a couple of quick questions and maybe I'll start with Ebe just on Meadowbank you provided some good details there on throughput higher at 9,300, design is 85. I think you're operating well above that. Costs per tonne have obviously come down because of the throughput. What type of cost per tonne are you seeing if you were to be at the 8,500 tonnes a day, Ebe?

Currently we saw 81 and we believe that we can see low 70s or maybe high 60s if everything goes well but it's -- I would say it's a fragile number. I am not kidding anyone or myself. We have made progress and it's going to be a steady progress but it's not going to be next quarter. It's going to be 72 and then the quarter after that 65 because we still have a lot of work to do, so that's what our target is.

Okay no that's good. Maybe a question for you, Sean or Ammar, just with regards to the increase in CapEx, the $110 million increase, can you outline what the accelerated portion was and I guess that's the first question to start there. There was $45 million I think accelerated from 2012. Where is that going?

It's Ammar here. There's of that $45 million roughly half is accelerated underground development in different mines. I can talk to you off line on specifically what those items are. $1 million of that is accounting reclassification so it's really not additional spend. It's just spend that was going to be expensed and now is getting capitalized as a result of faster than expected or faster than budgeted development. That's the majority of it and then the rest is effectively capitalized drilling at existing mines because of some good results we've been getting and we're trying -- we're frankly being aggressive in developing these mines, which is a good thing.

Okay and then the $25 million that you outlined as part of the remainder, the remaining 65 I think you allocated it to FX changes. What exactly are you talking increasing CapEx because of FX changes or are we talking -- I mean, what is that? Is that another accounting thing or is that an actual cash outlay?

No it's most of the CapEx we spend is either in Canadian dollars or Euros or Mexican pesos so those have not had cost overruns. Those are still on budget. It's just that we express numbers in U.S. dollars so the Canadian dollar equivalent, for example, or the U.S. dollar equivalent of the same Canadian dollar has gone up.

Okay and last question, do you have an indication at this point how much the Meadowbank fire added in overall CapEx?

Yes the overall cost of replacing the kitchen will be in the neighborhood of $15 million to $16 million. We should get a credit of about $10 million from the insurance company. The other thing that we did is we kept everyone on payroll and really we did not get any productivity or any anything from that. What we did do is maintain our work force so that's probably another $4 million in there an ultimately it proved to be the right thing to do because everybody came back. When there are so many jobs out there they could have left.

Okay no that's good. Thank you.

Barry Cooper, CIBC.

Just wondering what was the due diligence that you did on the Rubicon investment? And then, Sean, you mentioned in the introductory remarks that the strategy is to take a toe hold there, kind of see how things evolve and whatnot and basically de-risk any further investment, if indeed there is further investment. So what do you see as kind of the main risk of the Rubicon investment right now?

The due diligence that we did, Barry, there was a small group of us and myself included. We went underground into the F Zone. We met with the people. We looked at all of the data and satisfied ourselves that number one, the gold is there and that there was upside potential and so we did some internal checking with respect to resource models etcetera but we felt very comfortable. I mean you know Red Lake. When you start seeing that high frequency of visible gold, I mean we saw it at Gold Eagle and when you start seeing that sort of frequency -- I am not trying to market for Rubicon here by the way -- but you start seeing that. Then traditionally in the Red Lake camp that bodes well and that has been the history at Campbell, at Dickenson and at [Kushner].

As far as timing goes, I think one of the other things that the Group highlighted when they came back is that Rubicon are very good explorationists but when it comes to underground development and planning there's very little expertise there and that's what certain Ebe and the team bring to the table. How does that sort of factor into timing, it's hard to say right now.

We'll certainly give them our input on how we think they should tackle the deposit and the next steps there but traditionally if you look at some of our historic strategic investments that we've ended up taking bigger positions in, that was anywhere from one to three years before we decided to increase our positions and conversely those things that we've sold it was pretty much the same time line. A couple of ones that are current single asset producers right now out there we did have meaningful investments in those over the last few years that have been sold at a profit so generally those take roughly the same time, one to three years.

Right, Sean, you may have misinterpreted my question then. You implied though that de-risking the project I wasn't thinking of the timing, although maybe that is the answer. I was wondering do you see the risk as maybe the project is not as big as what you had hoped? Do you see that the risk is in the reserve? Do you see the risk is in the permitting? Do you see the risk is in the capital costs and what could evolve? I was sort of trying to get a sense of what risk you were implying there.

Well, I think with respect to Rubicon the biggest risk there is grade and then of course the exploration upside. I mean that is the story if can you get Red Lake type camps? Everything else like from infrastructure of the region, permitting, these are all relatively known issues. As far as capital cost to develop an underground mine, whether it's the size of a Lapa or whether it's slightly bigger or whatever, this is all very well in our comfort zone and it's very close to home so we feel that those really aren't our risk issues. Rubicon, the F2 Zone or the Phoenix deposit we will need a lot more diamond drilling.

We feel it may need a lot more underground access to be able to get a better handle on it and that has to be figured out in our view and that could conceivably be a risk factor. But then once again every time you see all of that visible gold spread out over the longitudinal sections, then you start looking at all of the drill core and it looks very familiar to material that you've seen elsewhere in the camp and that bodes well but we have a lot of work to do.

Right so when you see it in the longitude how did it look on the cross sections?

We feel it looks quite intriguing in the cross sections but I mean the cross sections the way it was drilled, I mean there's a lot of off section holes and we tend to be a bit more geometrical. I mean they did that out of necessity to not put in the underground development. They also had to do it from drill platforms on Bruce Channel so there are a lot of questions with respect to surveying, projections and locations so our way of thinking is we like to go and touch it and feel it and see it and open it up and then get a better sense of the ore geometry.

Right okay. Then on a similar vein, no pun intended but a different place, how comfortable are you with projecting the true widths at Rimpi? You know, 21 metres you indicated as a true width. What was the core width and how comfortable are you that that is indeed a true width?

Well, we look at, we've been drilling there now since 2005 so we've got six years of experience and now we're able to judge the precision of our drill holes along the belt and we've intersected the drill holes at depth and actually when you start looking at the foliation or the coring or you're getting pretty -- you're pretty close so the actual core length here was that 58 metres and of that and at the angle, acute angle, it ended up being around 21 metres.

We're pretty comfortable just judging on the orientation of the foliation survey data, experience so it might be 19 and then again it might be 23.

Right, right, okay good enough; then thanks a lot.

Anita Soni, Credit Suisse. Sorry about that, your next question will come from Richard Hurriman, private investor.

This relates to a question I asked some months ago regarding your Mexican properties. The drug wars of course have escalated substantially since then. Apparently local law enforcement is almost non existent. Federal law enforcement apparently is moving into take their place. Again, my question is what is your perspective? What is being done regarding to the Mexican properties?

Hi, Richard, it's Tim Haldane. I have the same answer to the question from a couple months ago. We're very aware of what's going on around us in Mexico. We're -- most of what you hear in the news and concern you expressed is happening in the border areas or some heavily populated zones. We're not in those zones, have had no direct security impacts on our operations in Mexico so we're just remaining alert and following good practices.

You've had no incidents of concern then?

No nothing related to the mining operations.

Well, but not related to the mining operations then?

That's right.

Okay thank you very much.

Steve Butler, Canaccord Genuity.

Well, guys, I'll squeeze one in there. Ebe, it looks like good progress for sure at Meadowbank and you talk about the potential for $70 to $65 per tonne. We won't nail you on that but we'll see how Q3, Q4 comes through. The grade was expected to be 3.8 grams per tonne in the second half. Do you have confidence to get the grade up from the 3.0, just over 3.0 grams in July up the 3.8 grams for the second half?

That is largely based on our mining plan and accessing higher grade packets in the open pit and if we access the ore we will make that grade. I am actually quite pleased now because the grade we are seeing is what we are predicting and what we are getting in the mill but, once again, that is a risk factor. If we continue to dilute it that could be a problem but right now based on July's performance we're encouraged.

How was dilution in July, Ebe? Was it the new buffer blasting implemented?

Well, we were. We only have a couple of blasts as we -- as I mentioned, and we don't have the number to say all right it was used to be 25 and it's now down to 15. We don't have that number but what we do have is we know that the displacement has been cut in half and when we do put the grade control balls in the production drill holes, we can locate them a lot faster and we don't lose them by them being projected all over the place. We can actually find then for a change so this is good progress but we still have to work on quality control, depth of drill holes, location of the charges, all of these things have to be -- they are a work in progress and we will continue to make progress as we move forward.

Thank you very much.

Tanya Jakusconek, Scotia Capital.

I just wanted to have a little bit more clarification on the Goldex eight just so that I understand that just on the soil settlement issue my understanding is that now you're grouting the share zone and you're pumping the water back into the water table to stabilize that. When is all of this $19 million that you're spending to deal with it all? Has it already been done and you've seen settlement and so it's all taken care of or--?

We have an overall budget now of about $19 million and we have spent $6 million. We still have a lot of grouting to do. What we first did is we put in the diamond drills and we defined the structure to make sure that we would be grouting in the right place so that structure now has been very well located. There are a couple of ways in which to do it so we have a two tiered approach; one, seal the [fear] zone, pump it full of cement so that the water doesn't go into the underground workings.

And then the second thing and then let nature take its course and gradually the water table will build up and subsidence will end. But to accelerate that we have got wells drilled and we are injecting water and what we have found, the moment we inject water subsidence slows down almost immediately so we'd like to make sure that we've sealed it and worst comes to worst we'll just inject water into the water table and it will be a net benefit, a zero, zero and the subsidence should stabilize.

Okay and when do you think this project will be completed? You said you've only spent $6 million and you've got $19 million. Is it a 2011 project by the end of the year it should be done?

That's our objective.

And what -- how much impact have we seen from surface? Like what sort of area is this soil impact?

I would say there's probably an area of 150 metres in diameter and it's an area for those of you that have been at the Goldex mine site, it is an area that starts just at the edge of the dome and goes towards the highway in there and you can -- the center of that area is where it is.

Okay and how much displacement have we seen?

Well, the maximum displacement that we have seen is five metres at the center. It's like a cone of depression.

Oh okay, okay. Okay perfect, thanks.

Anita Soni, Credit Suisse.

Just to follow up with the Goldex, were there any houses that were impacted by this [subplant] issue?

Yes there are. Since we are very close to existing houses, there are some houses and a business that are impacted by that. We have been in discussions. We've already acquired some of the houses. That is part of the $19 million provision.

Okay and then just with regards to continuing on with dilution but at LaRonde, the grades dropped there. You said it was as a result of dilution. Is that something that we should be forecasting or that you've already forecasted into your LaRonde deeps guidance going forward in the next two to three years or should we be taking down our grade?

No the dilution at LaRonde was mostly in the narrower in some of the zinc stopes that we mined. They are on the eastern and western limits of the pyramid so they tend to be higher stress than they tend to be narrower and so it's just the mathematical thing, Anita. If the zone is three metres wide and you end up with one metre, you'll get 33% dilution or if you end up with a larger stope at LaRonde extension, which is 20 metres thick and you end up one metre, your dilution will decline. So I wouldn't change anything.

All right thank you very much.

(Operator Instructions). Mr. Boyd, there are no further questions at this time. Please continue.

Okay thanks, operator. Thanks, everyone, for tuning in and we look forward to keeping you updated on the progress we're making on our projects and the exploration results. Thanks again. Bye.

Ladies and gentlemen, this does conclude our conference call for today. Thank you for participating. You may now disconnect your lines.