Agnico Eagle Mines Ltd (AEM) 2012 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 2012 Conference Call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time. If anyone has any difficulties hearing the conference please press star followed by zero for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded today July 26, 2012 at 11 AM Eastern Time. I will now turn the conference over to Mr. Sean Boyd, President and CEO. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for tuning into our second quarter 2012 conference call. I'd just like to remind everybody that this presentation and call does include forward-looking statements, including estimates and forecasts, so please be forewarned and you're welcome to read our disclosure and disclaimers in the presentation, which is posted on our website.

But as we look at our second quarter, we continue to build on the momentum that our operations established in the first quarter to the point where we decided that it made sense to increase our forecasted production guidance above the upper end of the previous range and now at 975,000 ounces.

So our performance in the first half of 2012 sets us up for a solid second half to 2012. That is not a surprise to us. As we came through last year, we did have some challenges but we did remind our shareholders and the market that we did possess several world-class quality assets that we were going to continue to move forward to optimize and to improve on their operations. And that's what's occurred in the first half of this year.

If we look at our business, our business actually has a lot less risk than it had let's say a year ago. We have less operating risk. We have much better predictability at these mines as we've gone through a stage of mine building and commissioning and start up. As a result, we can now focus efforts on efficiencies and optimization.

There's less technical risk in our business now as we've gone through the major mine building phase of building five mines over a short period of time; and the growth that we expect to achieve over the next few years will come from those newly built mines that have more predictability and more stability.

We're now moving in, because of the fact that these mines are more mature, we're now moving into a significant exploration phase at these world-class assets and we can see some of the early results of that emphasis now on exploration where we've had good results across the board. We put out a press release in June updating the market on several projects and we continued that update in this press release with an update on the Meliadine project, where we continue to extend several zones and we made a new discovery in the last few months at Normeg.

One of the hallmarks of our Company over many years is that our approach is to maintain a low political risk profile. So we can still provide moderate low risk growth without having to increase our political risk profile. It works for us. There's no desire to change and we actually think from a strategic point of view that political risk is going to become a much more important consideration when looking at gold equity investments in the future in a rising gold price environment.

When you put it all together, essentially what we've got is a business that's generating strong cash flows that allows us to fund an attractive dividend with the potential to increase it and allows us to continue to invest in exploration and capital investment programs to expand and build on these world-class assets.

Our operating highlights in the quarter, as we said, we saw exceptional improvement from year-over-year in terms of output at these mines and that was largely driven by record performances coming out of Mexico, which saw over 63,000 ounces produced in the quarter at cash cost in the mid $300 range. We saw a record production driven off of record throughput.

At Medowbank they produced almost 100,000 ounces in the quarter and they averaged 9,900 tonnes a day. That drove solid cash flow and solid earnings. In the first half of the year we had record six-month cash flow of almost $400 million, which I think is really what we've been after as we went through this mine building phase is to get that cash-on-cash return and reinvest a portion of that in the business and return a portion of that back to the shareholders.

At Goldex we'll get into a little bit more detail, but the simple word on Goldex is the [GEZed] zone. Production from there remains suspended indefinitely, but we did announce a new development plan on satellite zones M and E at Goldex and we expect first production from those satellite zones in 2014. And, as we said at the start, based on the solid start to the first half we're comfortable increasing our production guidance for the full year now to 975,000 ounces, which we would characterize as solidly achievable.

Looking a little bit more detail at some of the operating results, we saw a swing in cash costs at LaRonde. The bulk of that increase in quarter-over-quarter cash cost was really driven by reduced byproduct production and reduced byproduct pricing. We did have some increases on the cost per tonne side but the major difference in the cost per ounce came from byproducts. We're still in a challenging environment in terms of the transition to the lower mine. I'll talk about that in an upcoming slide.

But again we had strong performance coming out of the other mines generating strong cash flow. In fact, if you look at it in balance on balance taking, 2011 first half production without Goldex taking the five mines year-on-year comparison, our production from the five mines was up 26% from a year earlier. So we can see that the five mines are performing extremely well.

On the financial results side I would simply point to the operating cash flow in the quarter, almost $200 million for the year. For the first half of the year a record of almost $400 million and that was driven by mine operating profit year-to-date of almost half a billion dollars from the five mines. And that compares to $434 million from the first half of 2011. So up significantly and you can see that it's balanced among five mines with the key drivers being Medowbank at 24% of the mine operating profit and Pinos Altos almost a third of the mine operating profits.

In terms of financial position, we continue to strengthen our financial position so I would characterize the financial risk as decreasing as we run a net free cash flow business going forward. We actually increased our cash position by $90 million in the quarter to $289 million.

We did a private placement financing, which closed on Tuesday of this week, $200 million private placement debt, 11 year average maturity with an average blended interest rate of 4.95%. So a good piece of financing in a difficult market, which I think is a testament to our team and the quality of our business and we used the proceeds of that private placement to reduce our drawing under our bank credit facility, so a strong financial position going forward, good cash flow, good liquidity and good capacity under an almost fully now undrawn bank facility of $1.2 billion.

Our capital expenditure slide, we did make reference in our presentation to a ballpark estimate of CapEx going forward for the next few years of $500 million to $600 million. We should say that that's an estimate. It's not committed capital. In fact, we still need to complete feasibility or update feasibility studies or complete feasibility studies on La India, the Kittila expansion, Meliadine.

So these still would have to go to the Board for approval but what we wanted to do is just put some estimates out there to demonstrate that we can fund the growth that we plan to come from our internal opportunities and still do that and maintain an active exploration program and maintain a dividend and show the ability that we could possibly increase that dividend if it's warranted. So, again, moderate low-risk growth in production funded from the cash flow generated from our existing business.

At LaRonde we talked about a challenging transition to the lower mine. The mine faces heat congestion in the lower areas. We have to continue to monitor seismicity. Our tonnage from the lower mine was down about 5% than what we expected to happen. Our cost per tonne was about 7% higher than what we expected at LaRonde. Despite that we're still on track to achieve our gold production guidance at the mine.

When we look at the mine plan last year, this was a mine plan that had the most risk of any of our operations and we did provide for that increased risk due to the challenge of moving from the upper mine to the lower mine in our guidance.

Lapa, steady performance, roughly 25 plus thousand ounces a quarter, cash costs a little over $600 an ounce, slightly better than what we were budgeting. Our unit costs actually improved a bit from the previous quarter. So good steady performance and the emphasis now is on extending the mine life. We approved an extended exploration program underground including some drifting and we're hopeful that we can extend the mine life into 2016. Based on what we know now, we're going to continue that property with the hope of extending it even further.

At Kittila we did have a solid quarter. We had anticipated going into the quarter we had been planning for 40-day maintenance shutdown in the autoclave. When we went in the decision was made that we would do some minor repairs. 18 days we were down. We would expect to still be down another 20 days or so in the second half of the year, which again is within our plan where we had budgeted to be down about 44 days for maintenance in the autoclave for the full year in 2012.

I think the key thing about Kittila is recoveries remain very good. The grade is good. As a result, the mine operating profit has jumped significantly. In the first half of the year we generated $80 million of mine operating profit. That's up about 70% from the first half of 2011. So another mine that's demonstrating better predictability, more stable consistent operations and now to the point where we're looking at the expansion by 25% and that study should be completed before the end of this year. And a lot of that is driven off of some good exploration results that we continue to get as we move to the North and the deposit under the Rimpi area.

So our -- as we look out to the future at Kittila, we could see something that may parallel what we've seen at LaRonde over the last 25 years as a large world-class deposit that undergoes several expansions over time that are funded from cash flow generated at the mine. That's the way we're looking at it but there's still more work to do, not only from an exploration point but also from an engineering point of view and an economic study point of view to decide exactly how that's going to unfold over the next several years.

In Mexico it's our largest cash flow generator, again another very good performance on tonnage, on grade, on costs. The first half mine operating profit at the mine, $149 million. That's up 49% from where it was in the first half of 2011.

As we look forward in that operation, they are working on the La India project, which was acquired last November from grade resources. We'll have more of a detailed update on the La India project before the end of this quarter is our expectation and we'll be able to provide a little bit more clarity on the time line for La India and that certainly has the potential to increase the size of our business in Mexico and build on the successes that we've had on Pinos Altos.

And this is a perfect example of I think what shareholders are looking for in the gold business and certainly what we're looking from in our businesses. We paid $80 million for this asset back in 2006. We spent about $400 million in building the Pinos Altos infrastructure including Creston Mascota and we generated in six months this year almost $150 million. So we may have annualized operating profit coming out of this operation of $300 million so you can see the payback is quite quick.

In fact, on Creston Mascota the satellite zone, the payback has been about a year. So those are the types of things we'll be looking for, particularly from that part of our business as we go forward.

Medowbank, we did struggle last year to the point where we had to totally relook at this and revisit it and come up with a mine plan that was lower risk and that was focused on delivering cash flows and was focused on delivering predictability. Essentially what the team was trying to do is create conditions that were achievable in a difficult environment and a lot of that had to do with minimizing the requirements to move waste, which resulted in us taking marginal ounces out of the mine plan that shortened the mine life.

We also put in more conservative factor in for dilution and what that's done is show that we have a mine plan, in the first half has shown we have a mine plan that's very achievable and that does generate extremely strong cash flows. And I think the key point to note from Medowbank is not only is it showing some consistence in its operations but it has demonstrated its ability to mine and process high volumes.

Last year with the addition of the secondary crushing unit we demonstrate our ability to handle and crush high volumes. Now the new mine plan has shown its ability to provide those tonnes at the predictable grade to the plant and that's resulted in some good operating results at the mine.

Now the focus, because we've got a new mine plan, we've got more predictability, is now focused on cost reduction, optimization efficiencies and those initiatives I think are important because they'll allow us to start looking at opportunities to extend the mine life and our team will be focused on that as we move forward. As well, we continue to drill to the south of the pit, the pits, and we're not finished there, at least from the exploration front. There certainly are possibilities as we move to the south to maybe add some additional value there.

At Meliadine we have extended the drill program. In fact, the program was so successful we basically completed the planned footage by the end of July and there's still two good months of drilling left. We decided to extend that program and add another $10 million to the drill program. We funded that from cash but also from reducing our grass roots program by $5 million elsewhere so it's a net increase in our budget of $5 million but directed at a quality asset that continues to grow.

We've made new discoveries there. We've extended existing zones and we're really trying to understand exactly what we have there, what we own, which will drive what we ultimately build here. And we're really less concerned about the exact start date and more concerned on getting the right mix between underground and open pit as we start that deposit because it's long life and we expect it to be around for many, many years.

On Goldex we should say at the start that the GEZed mining of that zone remains suspended, absolutely no mucking from the GEZed zone as we move forward. We've profiled the stope. We've defined the stope. There's no significant void in the stope. The stope's full but what we've done as we went through the last six to eight months is continued to do an assessment and exploration on satellite zones and we've decided, based on doing an extensive review and risk assessment of satellite zones, to move forward and build a new smaller but higher cost mine that still generates very good cash flow and has a good investment return that is above our hurdle rate. It allows us to leverage off of our skill set and it allows us to maintain the exploration upside and the potential to in fact develop other satellite zones on the deposit.

So we're moving forward on something totally new at Goldex being the M and E zones and will continue to assess the other satellite zones, which we feel still have a potential going forward. But again anything related to the GEZed zone remains suspended.

I'll just quickly touch on Meliadine and exploration before we close. There's plan view in the package, which shows the various zones and the location of the various zones. It's an extensive property. It's 80 kilometers of coverage of a major belt. We've only explored a fraction of that. We're starting in this extra two months, not only to drill some of these recent extension but to step out a little bit and follow up on some targets that have been previously identified.

So again this is another project that has good potential to go through drilling like Kittila, like our assets in Mexico and this is just demonstrating that part of the next value creating phase at Agnico will involve our exploration team and solid exploration budget.

So I'd like to just close in summary and just state that there's really no change in our strategy. There's no change in our focus. Despite the challenges of last year we still have a really solid business that's delivering this year. We're still going to focus on increasing our shareholders exposure on a per-share basis to gold production reserves and cash flows.

We still have meaningful growth as we move forward. It's moderate from the rates that we've been use to but it's lower risk from a technical and operating standpoint. We can fund that growth internally.

Our guidance, as we said, even through we've increased it above the upper end of the previous range is still solidly achievable, both on the production and cost side. Our exploration program we feel will continue to add value through increases in the resource and reserve and again, the entire philosophy is to run a good solid business that generates net free cash flows without increasing the political risk exposure.

So, operator, I'd be happy to begin the question and answer session.

(Operator Instructions). And our first question comes from the line of Stephen Walker from RBC Capital Markets, please go ahead.

Thank you, operator, good morning Sean. Just a couple of questions, first of all on or in Mexico post the election I think the expectation of the mining industry is for an increase in, or excuse me, the application of a new royalty structure given that there's no royalty structure currently in place and then potential for adjustment of the tax rates and so forth. Could you comment, Sean, on what your expectations would be going forward certainly later this year or early next year?

Sure we'll have Tim, who runs our business there, give you an update on our thoughts.

Hi, so we get that question a lot and we hear the speculation a lot and basically we take care of our business and things that we can control and we recognize that Mexico benefits greatly from the mining sector. It's one of the most important sectors in their economy and I think that the government also recognizes that they benefit greatly from that sector.

So no doubt that discussion goes on. We participate with the Chamber of Mines in Mexico as the industry group that speaks with the government from time to time. I would not be surprised to see something happen but we don't know what or when or if something would happen.

Okay, thank you for that and maybe, Sean, just at LaRonde the per tonne cost of CAD97.00, as you had previously indicated in the first quarter were going to go up from the CAD84.00 or the year-over-year CAD84.00 that are obviously up, what -- do you get a sense that those costs could improve on a per tonne basis or is CAD97.00 or CAD95.00 to CAD100.00 a pretty good range going forward, particularly as you incorporate in more of the LaRonde deep gold, higher grade gold material?

Yes we'll let Yvon Sylvestre answer that, Steve?

I think we should forecast the CAD90.00 for range for going forward for the next few months until we get through our budget exercise.

I'm sorry what would you think is a reasonable mining--?

CAD90.00.

And then into 2013, sort of next year is that likely to be sustainable at those levels?

We'll provide guidance at that time.

We'll go ahead and go through the budget process, Steve, and so we'll sort of reserve a number until we sort of do that exercise. Essentially where we are now we're producing at the lower mine at around 4,200 tonnes a day and so we need to ramp that up steadily over the next two to three years.

We're slightly below our targets in terms of tonnage coming from the lower mines so that will really dictated by the state of our development as we move through the summer and as we move into 2013, '14. Conditions do improve there as major ventilation works get completed over the next few quarters.

We're just in a difficult period right now. We're still able to meet our gold production targets. The grade has held up. It gets a little bit more challenging to meet the tonnage targets. We're off a few percentage points, as we indicated.

Thank you very much for that, Sean. Thank you, Tim, and thank you, Yvon.

Steven Butler, Canaccord Genuity.

Oh, Sean, just to follow up on Steve's question, I suppose that the long term throughput assumption for LaRonde is in the range of 6,000 tonnes per day sustainable?

Yes, 6,000 tonnes from the lower mine because, as you recall, as we've been working over the last five years on building the infrastructure and opening up the lower mine, we had planned to have smaller mining blocks and that was going to result in about 6,000 tonnes a day versus the 7,000 tonnes a day from the upper mine.

Okay.

We still -- there is a possibility depending on conditions that we could do better than 6,000 but we'll reserve judgment until we get down there and open it up and get some experience.

Sean, the grade was a nice surprise, at least for me, Medowbank in Q2. Do you have any comments on grade profile second half? Is it going to be closer to three grams or closer to three and a half and throughput last two quarters it's been in the 900 tonnes per day level? Do you have any view of throughput second half? In other words, what seems to be implicit is that you've assumed a slight reduction in Medowbank's cost, Meadowbank's production profile in the second half but of course we're working off one consolidated number, but what's implicit in your guidance, I suppose, on the Medowbank second half for throughput specifically?

I'll just start I think from a throughput expectation there is the possibility to do what we've been doing in the first half from a throughput perspective. The toughest quarter is generally the first quarter.

Grades a little bit more difficult, but we've been saying over the last few months that we do know as we move to the south that we do have pockets within the pits that are higher grade. And we were always excited about the potential that once we were able to maintain a rate of production above 9,000 tonnes a day from a mining perspective and then consistently be able to process it that we would have some good quarters when those parts hence came into the plan.

So we expect Medowbank to have a strong year. We're measured in terms of our guidance and we'll just sort of stick to 975 as being solidly achievable and we'll leave it at that.

Okay leave it for me to fudge around mine by mine. Okay thanks, Sean.

David Haughton, BMO Capital Markets.

Yes good morning, Sean, and thanks for hosting the call. Just for clarification on the CapEx of 500 to 600 that is inclusive of the Kittila expansion, La India and Meliadine together with the Goldex, so this is just an indication as to where you're heading?

Exactly, that's just a sort of a rough estimate to just sort of give some definition around what we could expect over the next few years, but again not backed up by a completed feasibility studies nor gone to the Board at all.

All right and well then a little bit more about what the expectations are then on La India and Meliadine as far as CapEx timing and scope and all that kind of stuff.

So for pieces of that, we will get some clarity on La India this year on that number and we don't expect that number to veer from what we have been talking about since we bought that. We bought it -- the expectations of the junior was about $100 million and our expectations were in the $150 million range. So I think the $150 million range for that one is comfortable.

And then on the Kittila expansion we've said sub $100 million to increase throughput by 25% and I think that's a good number. So that's a small portion of the brackets that we've created. The bigger portions would be Meliadine and we're still a ways away from a final feasibility study on that project and that's one we are not really 100% sure on the right mix right now between underground and open pit because the deposit continues to evolve from an exploration standpoint and you look at some of the recent results around a structure like Normeg close to surface, extremely good grades, just developing with some extent as we go deeper. Those are the types of things we need to know more about before we put the pin in an infrastructure and construction program.

Yes given it's evolving nature, would you see that that work could be ready next year?

Well, we're saying end of 2013 for a feasibility study, a construction decision sometime in '14 for a start at some point in 2017. But, as we said at the start of the call, I am less fussed about exactly what quarter it starts. I want to make sure we get the right mix of underground open pit and my expectation is is that we'd see subsequent expansions over time based on the type of exploration results we're getting now and the extent of the land package and the potential land package.

Also in that number would be a sustaining CapEx number. What's your sense of that scale of the sustaining issue?

In the sort of $200 million range.

All right. Now moving over to Goldex and decision to pursue M and E zones away from the area of influence of the GEZed issues, 1.5 grams seems pretty skinny and are you confident of those kind of figures, given that you're looking at a different kind of mining method to what you have or had used at the GEZed?

Yes it's been well drilled and maybe I'll let the technical guys just provide a little bit more color on that.

We're very comfortable with the block model that the -- and the drilling that's been done to define the ore blocks plus the mining method will satisfy dilution and mining recovery, which are critical in getting that grade up the plat that's at the design rate so we are comfortable with the number.

And are you comfortable also with the mining costs?

Yes we are.

All right and talking about LaRonde, transition to that 6,000 tonnes a day, what kind of time line would you expect to go from your seven or 6.5,000 tonnes a day down to the six if that's where it is to be mined at?

Well, the full transition to the lower mine will be late 2014 into 2015 when we're drawing the 100% of the tonnage likely from the lower mine, so it's in transition over the next 2.5 years but I think we can see the grade profile. It was 1.8 last year. we're comfortably over two this year. We expect that to increase next year as we mine that deposit, so I think that's the key is the grade and the tonnage, although it is challenging, is not far off our expectations and we're still meeting our sort of gold production guidance targets.

Okay thank you very much for hosting the call, Sean.

Joung Park, Morningstar.

Thanks for taking my call and congrats on a good second quarter. Just wanted to know what was the main drivers behind the sequential decrease in the mine site costs at Meadowbank? Is that mostly from lower fuel and oil cost?

No the main driver was the ounce output so they maintained a strong volume of ore through the plant at better grades, so it was simply the fact that the denominator was bigger and that helped to drive the unit cost, the cash cost to produce an ounce of gold down. The cost per tonne performance remained steady so they've been able to maintain some of those costs on a cost per tonne basis but to get it from 1,000, which that's where it was roughly in Q1, down to 800 was really a function of producing more ounces.

I guess I was referring more to the cost per tonne rather than per ounce.

The cost per tonne wasn't a huge change quarter-on-quarter. We expect to see that in that sort of $90 a tonne range so we're pretty close to our expectations. I think one of the things that we indicated earlier on the call, which I think is important going forward, is that the mine has gotten to the point where it's running consistently with no significant issues and now the efforts are focused on efficiencies and cost reductions.

They've got about a 10 to 12 point action plan to improve the cost performance there, which they're working on and we think that is important because it also potentially has implications for being able to extend the mine life if we can make some improvements on the cost structure. But you indicated one point energy and oil. That certainly makes a big difference up there and if we continue to see weakness in the oil prices, that would benefit that property.

Okay thanks for that. And then at Goldex it's great that you guys can access the M and E zones. I'm just wondering are you guys doing any work on accessing the D zone and if you guys want to produce some ore from there what kind of major works would you have to do?

Well, the D zone is -- has been also a part of the exploration program like the M and the E zone and has been over the last little while. That's one where we haven't come to any conclusions yet. We still need to do more drilling on that and we won't be able to update or provide any definitive update on the D zone or the potential of the D zone until we complete the exploration work and finish the economic analysis.

Okay understood, and my final question is you guys won't be spending as much on CapEx as some of your peers, just based on your guidance, and you guys will probably be generating meaningful free cash flow as long as gold prices remain at current levels so what are you planning to do with the cash that's going to be building up on the balance sheet?

Well, we have a 30-year track record of paying a dividend so that's sort of a core part of our strategy but we do feel we have very attractive solid investment opportunities within our existing portfolio of assets. Several of them are new. We haven't fully defined them from an exploration standpoint. We expect several of them will continue to grow so we will be looking to reinvest back in our business and we'll also be looking to improve our financial flexibility and strength as we go forward like we have done over the last two quarters.

Okay thanks so much for taking the questions.

[Matthew Vancleave], John Tumazos Very Independent Research LLC.

My question is regarding the June 26th exploration release, which was very (inaudible) from (inaudible) but not quantified in terms of ounces. Are you now more confident that year-end 2012 reserves will be an increase over 2011 by about zero two or four million ounces?

No we're not going to be able to give estimates of what we think at this point we'll be able to increase the reserves by. That calculation is done annually. We announce the results of that work generally in February so that will be when we put out the updated numbers. I think all we can take from the exploration update that came out in June and the smaller update, which came out in this release, is that we continue to see potential to grow some of our existing deposits. We continue to actively drill them.

While we were in the mine building phase we were more focused on that. Now we've switched gears a bit and now we're sort of reemphasizing exploration at these wide open large deposits, so we expect them to continue to grow but it's way too early in the year to be able to quantify what the growth could be.

Okay thank you very much for taking my questions.

Barry Cooper, CIBC.

Good day, everyone. Sean, just wondering, you give an indication of a 15% hurdle rate. Obviously that's applicable to Goldex there but I am assuming that's a corporate wide number. Just how do you look at the acquisition costs when determining that 15% hurdle rate?

Well, it's baked into an analysis of where we think the reserve and resource can grow to so we do a bake base case model and then we do an upside case model based on our estimates of reserve and resource growth and in all instances, except for Meadowbank, we have achieved the 15% hurdle rate including the acquisition cost as these deposits have grown. But Meadowbank was the exception. We really didn't find any other meaningful ounces there. As a result, we had the write off.

Right okay. Then so looking at Meliadine for an example because that's one of the larger more recent ones that you've done, was a $600 million acquisition price plus I guess there's been a couple of hundred million since you've bought it and there's probably another better part of a billion between now and when it actually gets built. So you would anticipate a 15% greater return on an after tax basis on that 1.5 billion?

That is the target and I think that's why our comments about timing being less important than what it is we build and how we build it and how we spread capital out over time and look at it from a phased expansion perspective and some of the recent drilling has shown some attractive near surface mineralization, which was not contemplated at all in any sort of rough plan or draft or initial feasibility. So things are changing quite quickly and for us it made sense to lay out a very large drill program this year, which we did, of 115,000 meters, which was on the back of 105,000 meters last year.

That 115,000 meters will be extended another two months. With that supplemental $10 million budget we would expect a similar type of program next year. So it's changing but I think what's important is we continue to get higher grade intercepts and we continue to get some near surface mineralization that have potential to work into a mine plan in the early part of the mine life, so we need to understand those.

Right. I saw the need to understand them too because when I looked at the drilling there it almost seems like all of the holes are hitting the zone almost perfectly perpendicular based on the true width estimates versus the core length, which is not unusual or is not that common, particularly when you get drilling at depth. But I also see that some of them you've got an estimated true width that exceeds the actual core length, which by all classes that I ever went to is impossible. So I am just wondering how are these estimated true widths being judged? Are they being judged off of core angles or something else?

Well, just the exploration guys are just looking at that. I am not sure--

If you look at the F zone and you look at the first two exploration holes it goes, for instance, from 80 to 83.7 meters, which is 3.7 meters what the estimated true width is 4.2.

Yes our exploration guys are going to answer that.

So maybe there's a quick glitch over there in the calculation but basically what we see over there that the deposit is fairly predictable dipping at about 65 degrees to the north and the way we're drilling it usually with the control that we have a very good control on drill hole diffusion and usually we get into them fairly perpendicular and but on some of them, like an F zone, I think there's maybe one glitch over there but basically it's pretty much true width if it's not total true width. But it cannot exceed, you're right. It's a mistake in the press release.

Yes okay. You just may want to check on that because I don't know whether the other ones are all perhaps slightly off there as well but that may be something to check. Okay that's all my questions. Thanks.

Greg Barnes, TD Securities.

Sean, at LaRonde you've mentioned the challenging mining conditions currently and seismicity. What kind of seismicity issues are you monitoring on the basin?

Yes it was hard to catch that but I think you made reference, Greg, to mining conditions and seismicity at depth?

At LaRonde yes that's right.

LaRonde, I'll let Yvon handle that.

I think the challenge so far has been getting through the ramp up in the current pyramid and it's very quick progression production wise in the pyramid that we're mining now. We will be opening a new pyramid. We're actually drilling in the spokes in the new pyramid in the new pyramid as we speak now and that pyramid will come into play in the third quarter. That will add more flexibility.

I think development wise there's been some areas where productivity has been impacted by heat, not necessarily by some of the areas in the ventilation system that we need to put into place. So these systems are being put into place most likely in the third quarter. And then finally, we'll have our final cooling plant next year so, as we get the final cooling plant into next year, I think flexibility will be far greater underground in getting to the deep ore.

And what about the seismicity? What issues have you been facing?

We're monitoring events, like we've monitored from the past. There's no real issues at this stage in that. We're mining at depth and we're just being cautious about it and we're just highlighting that as a risk as part of the mining team.

Thank you. And just switching to Goldex, I think you've completed the review of the crown pillar and what happens around the GEZed zone. Sean, what are the conclusions? Did it move? Did it not move?

The conclusion is is that we should not go back and mine there. The conclusion is it's full. The conclusion is we made the right decision and the right time. We don't want to sort of get into a characterization of what happened. There are civil litigation issues out there for us so I think we came up with the right process with a full assessment using some world experts and they concluded that we should continue to suspend operations in the GEZed zone and one of the reasons or one of the examples of why that makes sense is since that has happened we basically had essentially no significant subsidence so I think that tells us it's full. It's stable and we should leave it alone.

When you say it's full, Sean, does that mean the rock has fallen into the void in the GEZed zone?

Well, we put a camera in and the camera shows that it's full of broken muck and maybe I'll just turn it over to the technical group and they can sort of characterize what's in there but our sense is is that it's just the ore and that we didn't have any significant caving because we didn't have a significant void there. So no the operating guys are signaling they don't have anything to add.

Okay fine. Thank you.

[Stephan Porter, Case de Depor].

Actually my question was on seismicity and it's been answered. Thank you, gentlemen.

Anita Soni, Credit Suisse. Miss Soni, your line is live. Your next question will come from the line of Jeff Wright.

Thanks, Sean, for taking the questions. I had two quick ones, one on Meadowbank. Could you kind of go over the cost assumptions there and do you think the $800 an ounce range is sustainable or possibly it will go lower with lower fuel costs in the second half of the year?

We're really not sort of making a call on sort of quarter-by-quarter basis from a cost perspective by mine. We're really focused there on just maintaining the tonnage level at above 9,000 tonnes a day. Our expectations on grade continue to be good based on our experience in the first half, so it has the potential to translate into a strong second half, which would mean lower unit costs but we're not going to make any sort of calls or predictions on exactly where those numbers will be.

Okay and second question on Meliadine looking at future development there I know you're permitting. Can you give us a sense of what stage of the permitting we're in and how long you think the permitted time line would take for that project?

The expectations are that roads been permitted. The permitting process will take likely into 2014 and it's one that's consistent with the process that we went through at Meadowbank, so that's our expectation. But that drives the time line. We don't control that 100%. It's controlled by the regulatory authorities but it's the same people and bodies that we dealt with for Meadowbank so we have good open dialogue. They understand what we're doing. There's a lot of clarity there so we don't anticipate any major issues there.

Okay fantastic. And lastly, you mentioned there's additional 20 days of planned maintenance in Finland. Do you think that that could be shortened or elongated or do you think -- what's your thoughts on that 20 days? Is that equally spaced out in both quarters?

Yes we're sort of looking at 10 in the third quarter and 10 days in the fourth quarter and what we see in third quarter when we go in and do the maintenance will determine what will ultimately happen in the fourth quarter.

Okay thank you very much.

Don MacLean, Paradigm.

Well, guys, thank you and a good quarter. Just a couple of things on the Goldex do you have any sense of this D zone mining method that might be applicable there?

Yes I'll just let the technical guys answer that, Don.

The mining method that will be applied will be very similar to what we are implementing now with this new development on the M&E zone so it will be a long hole scoping with base back [build]. That would most likely be the approach that we would take.

Okay great and notionally similar kind of mining costs? Any thing particularly different that stands out?

Similar range, I guess you could say that. I think the issue that still needs to be resolved as we better understand our resource is the access to the zone and how important the zone could be with time.

Great. And, Sean, can you just update us on how much was spent to stabilize things at Goldex?

Well, we did make a provision late last year when we decided to suspend operations of about $45 million and that was for remediation and assessment in monitoring work so we would have spent pretty much all of that.

Great. On to Meadowbank, any change in the views about the dilution there because that was one of the things that was a floating variable for some time and then there was an assumption made. How do we look now?

I don't think there has been any changes in the way we approach it. As we better understand it and I think the geology is probably less challenging going forward, so the -- I guess the lessons learned in the past two years will help us in maintaining better control and dilution and then better control on mining recovery in the pit so -- but I think the last year's efforts were -- a lot of it were dealing with a very flat zone and very geologically challenging basis to mine so I think we're going to see a little less of that as we go forward.

So an improvement in the dilution?

Yes and part of the action plan on grade control has been implemented and we're getting the results but without actually getting into all the technical aspects it has significant improvements on that side.

Could you kind of quantify that, how that went in this most recent quarter compared to say your budget?

I don't have that reconciliation with me at this stage so we could provide it if you need it.

Okay well thanks for the color. That helps in itself. And then lastly, maybe on the Meliadine a bit more color on where you're going to spend the extra $2 million, Sean.

Yes it's $10 million and I'll let the exploration--

Sorry $10 million.

Give you the sense of where the focus is.

Well, if you look at the map on -- within the press release, we will be mostly following up on the Normeg, the discovery which is in the western extension of [West Meg] where we hit the most of these high grade near surface intercept lately and also on the mostly in the F zone and from deposits where also we got good high grade and with over a good width near surface, so to focus and to expand the resources on these three deposits.

Excellent. Thanks very much, guys. Good luck, good hunting.

(Operator Instructions). [Nesdima Wazi], CBC Radio.

I have a couple of quick questions. I was just curious to know what are the chances you'll extend the life the Meadowbank mines?

I didn't hear that. Oh well, we just got a new mine plan there. We've seen how it's performed for two quarters so we'll be working on that over the next six to 12 months and we do have some flexibility that was built into the new plan to allow us to extend it a couple of years so we're not in a position to sort of characterize what the chances are at this point.

What will be the determining factors?

Economics, the return on the investment.

And then how does it look going forward then?

Well, we can't characterize that potential extension of the mine life. All we do know is that the current mine life we've had two solid quarters generated solid cash flow, has achieved and exceeded our expectations so we're just continuing on with the existing plans for the moment.

Part of the plan was to shorten the life so that's why I am a bit surprised that you decided to possibly extend it.

I didn't hear that.

Sorry. From what I understand part of it was to shorten the life of the mine and it was shortened by a few years and I am curious to know how the new results factor into this decision you're going to make.

The decision last year was to create a lower risk mine plan to address some of the challenges we were having with waste development and costs. That's the plan that was implemented to start this year. That plan has worked extremely well and for now we'll continue on with this plan until we get information that tells us that maybe we should modify the plan.

Okay and lastly, what's been the biggest challenge to operating the Meadowbank's mine?

It's a remote location so logistics is a challenge. It's a higher cost environment so that all plays into sort of the economics of where we should be investing and where do we get the satisfactory return but we're seeing the results of putting in additional crushing capacity. We're seeing some of the positive impacts of the new mine plan and those are helping to mitigate some of the structural challenges relating to costs that are driven by location.

Thank you very much.

Gentlemen, there are no further questions at this time. Please continue.

Okay well thank you, operator. Oh I think there's a couple more questions we're seeing on the screen?

Okay we have our next question from Anita Soni.

Hi. I am sorry if this has been asked and congratulations on a good quarter. I was just wondering the grades that you are mining at Meliadine, or sorry at Meadowbank right now, are we going to continue to see sort of mid threes for the next few quarters or should we kind of revert to better guidance?

It's hard to say, Anita. We did respond earlier. We're not going to be able to categorize Meadowbank's grades on a quarter-by-quarter basis going forward. I think there's been a couple of answers to questions today, which commented on the dilution, which has been what we thought it was going to be so that's favorable. The mining rate is favorable. All we can say is we do know that as we move to the south there are pockets of higher grade mineralization. So we're actually optimistic on Meadowbank as we move forward for the next few years.

Okay and then I guess just my question was with regard to LaRonde byproduct. I thought that as you got into the deeper gold grades you actually had copper occurring with that as well so I guess I was a little bit surprised by the copper trending down and the zinc holding in as well as it did, so I am just wondering sort the byproduct grades, what do those look like on the zinc and copper side and then for the rest of the year?

You are correct in saying that the zinc values are going down and coppers are staying essentially flat but the value of the copper credits greatly out weigh the -- essentially the zinc credit greatly offset the copper credits.

Okay. All right so I was just wondering did the rate of decline on the zinc, should we be still focused on the original guidance for the year or and ditto for the copper?

Correct yes.

Okay that's it for my questions. Thanks.

Gentlemen, there are no further questions at this time.

Okay thank you, everyone, for tuning in and participating in our Q2 2012 conference call, look forward to updating you in October on our third quarter. Thank you.

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