Agnico Eagle Mines Ltd (AEM) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Agnico-Eagle Mines third quarter 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. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today, October 25, 2012. I will now turn the conference over to our host, Sean Boyd, President and CEO. Please go ahead, sir.

Thank you, operator and good morning everyone and welcome to our Q3 2012 conference call. As per usual, we'll go through a short presentation and we've got our full team here and prepared to answer your questions.

Please be advised that this presentation does include some forward-looking statements so we do have our safe harbor language available on our website and in the presentation materials today.

I would like to start off, given the several records that were set in this quarter, in thanking our employees for very continuing strong operating performance, again with several record performances. A lot of hard work and a lot of smart planning were behind these record results and again, would like to thank our employees for that.

As we look out at our positioning and our focus and our strategy, as we've said many times over the last little while, there's no need to change the strategy. It's well-matched to our skills. It works for us. It's allowed us to create a lot of value over many years -- so again, no change going forward in the strategy.

As we look at our positioning, based on how much the assets have performed this year, we truly have a portfolio of mind that continues to perform well. So when one asset is having difficulties, we're able to make that up with our other assets. This is the first time in many years that we've had everything working so they're acting like a true portfolio which lowers the risk going forward from a technical and operating perspective.

We have growth coming into 2014 and 2015. We'll talk about some of those growth projects going forward, being LaRonde, a higher grade in the lower mine, La India which is under construction, the restart of satellite zones at Goldex and also the expectation that we should continue to do well at Meadowbank which should drive growth going forward. We continue to be an active explorer, largely around our existing assets. We will have an exploration update that will come out in November which will highlight the work we've been doing over the summer months and we continue to see growth in our deposits at several of our key deposits.

On the strategy side, we continue to look at the small end of M&A opportunities. Our objective is to still try to get in early if we continue to find the right fit. Geographically we continue to focus in and around the areas we currently operate. We are looking to leverage off the people skills. So it's a strategy that's not going to increase our political risk profile which is one of the best in the business.

So as we come out of the quarter, we continue to generate strong cash flow. We are looking, as we go through the budgeting process and long-term planning process, to strike the right balance between dividend, between exploration funding, between reinvestment in our existing assets and our growth assets and while doing that, we expect to continue to generate net free cash flow enhance our financial position which, we did again this quarter.

We've announced a couple of personnel changes in the quarter. I would like to congratulate David Smith who is now our new CFO and I would like to congratulate Picklu Datta who's the Senior VP of Treasury and Finance. We've had a number of changes over the last nine months and the way we look at it is the people that have left us over the last year or so have been a big part of not only our performance and the quality of company we have built but also were a big part of the culture that we built here which is a great culture. So we thank them for their efforts and our job is to look forward over the next five to ten years and we have a lot of bench strength here and that gives us an opportunity to continue to put good people in the right of positions to strengthen our business. So that's how we've come at the recent promotions. So again congratulations to both Dave and Picklu.

Moving to the operating results, we had record quarterly production. And if we look out the full year, I think that's when really important to note is that essentially the five mines have produced more gold and made up for the absence of the Goldex production after we have had to suspend operations there last year. So that's tremendous performance from the remaining five mines to make up for what we lost at Goldex. And to do that we continue as we said to get record performance.

We saw record production and through put at Meadowbank. We'll talk about that in a little bit more detail. Record production and really good costs at Kittila. We'll also discuss that in more detail. It seems that every quarter we continue to get good performance out of our operations in Mexico. Extremely low cash costs, sub-$300 in the quarter. That's generated record cash flow for nine months, almost $600 million for the quarter, about $200 million.

As a result of the strong performance, we've upgraded our production guidance again for the second time this year to 1,025,000 ounces up from 975,000 ounces. If we go back and look at where we were at the beginning of the year, we've got questions out there -- well, you lowballed this, you lowballed that. If you actually look at it, 60% of the increase in guidance from the original number comes from one asset and that's Meadowbank. The others will likely be within single-digit percentage points of where we expected them to be when we started the year. And when you think back of the challenges and difficulties we had at Meadowbank, we were hopeful when we put together our new mine plan but until we actually did it, we were unsure whether we could deliver the type of volume that we've been able to deliver to the plant on a consistent basis. And we were unsure when we started the year whether we could deliver those tons at the grades that were suggested in the reserve model given the challenges we had last year in blasting, in dilution, etc.

So we were bit cautious and I think that cautious, that conservatism was warranted given the challenges we had last year. We knew that we could process those tons. I think we've been a bit surprised on how quickly the team has responded and the excellent work they've done to be able to maintain consistently that production. Our expectation is if we can maintain the throughput next year. We've always talked about Meadowbank and the context of having higher grade pockets. What we weren't sure of when we started the year is when we got to the high grade pockets, with the changes we made, were we going to be able to deliver those high grades to the plant? Well, we've proven we can do that.

It's variable from quarter to quarter. In fact as we move into Q4, we expect lower grades at Meadowbank. But on balance, an extremely strong year. As we look at Q4, we will see lower grade at Meadowbank. We see lower grade at Kittila. We see our leach pad off-line for the next few months at Creston Mascota which is about 4,000 ounces a month and that really contributes to the full-year guidance of 1,025,000 ounces.

Looking at 2013, our guidance is unchanged. People say, "Well you've had such a good year, why don't you increase the guidance for 2013?" Number one, we haven't completed the budget process. We're in the middle of the budget process but there are some moving parts to 2013. One is a slower transition to the lower mine at LaRonde into the higher grades. We've talked about that for several quarters, so that will result in lower production coming out of LaRonde next year. We will still have lower production in the first half of the year coming out of Creston Mascota. On the plus side we expect strong performance from Meadowbank. We need the budgeting process to work through the plusses and minus to get a better feel for 2013.

We look at 2013 as a building year, as a year when we focus on La India, a new project in Mexico. We visited that project this week. Construction's well advanced. Things are going well there. We look to continue to develop at Goldex to restart the two new satellite zones to stay away from the GEZ zone but to open that up as well. We look for better grades coming out of LaRonde in the future. So we're setting up 2014 and 2015 through our efforts and work on developing some of our existing assets and optimizing some of those assets as well. So we'll come up with a full update in February of next year on our three-year life of mine production cost forecast.

As we look at our mines in detail, as we said, we had several records. Again I just wanted to reemphasize that it was an across the board solid performance from all of our operating assets which contributed to being us able to replace all of the production that we lost from the Goldex mine.

On the financial results side, we had, as we said, strong earnings, on a normalized basis of over $0.70, a very strong cash flow. The per share performance continued to be very strong. What these financial results have done is allowed us to strengthen our financial position again this quarter. We were able to increase our cash by $30 million to now $320 million. We were able with our long-term debt financing that was done to repay what was drawn up our credit facility. So now we have a fully undrawn credit facility of $1.2 billion.

As far as free cash flow, as we look forward, and free cash flow, we're expecting as we've saved, capital expenditures between $500 million and $600 million and given the expected EBITDA net free cash flow, we'll be able to cover that from the existing cash flow generated from the existing mines.

As we move to operations, at LaRonde, we continue to face heat. We continue to face congestion in the lower mine. There's a lack of flexibility in the lower mine. And what we've done is come up with a lower risk mine plan to transition into the higher grade and lower mine. We'll have the details of that in February as we go through the budget cycle. But still all in all, LaRonde will do its guidance numbers. It's still generating significant cash. It's still got an extensive mine life ahead of it of about 15 years. And what we look forward to is an ore that has a value of about 50% higher than what we've been mining over the last year, year-and-a-half. So it's still a big contributor for us as a company going forward over the next 10 to 15 years.

At Lapa, they continue to have steadily quarterly production, continue to manage their costs well in a difficult underground environment. Dilution was also well under control during the quarter. We've had some exploration success at Lapa. Our expectations now are that we will be able to continue to mine that deposit into 2016. As we began this year our expectations was that it would end in 2015. So we're in a position to extend that to 2016.

At Kittila, record production, almost 50,000 ounces. Good costs, costs of around a little less than $500 an ounce, so generating good operating profit. We continue to have very good exploration results. That will be part of our exploration update in November. We continue to get good results under Rimpi where we've had drill results that are better than the ore reserve grade and good thicknesses which could potentially impact in a positive way the economics of that deposit as we move forward. We're studying the initial expansion. We should have the study done by the end of this year. And as we move into 2013, we will be transitioning fully into an underground mine. As a result our cost structure will be higher at Kittila and we're working through those numbers during the budgeting process right now.

At Mexico as we said in the introduction, they continue to have strong performance, produced over 60,000 ounces at a cash cost in the quarter of $212 an ounce. They had record silver production in the quarter. We did have movement on our leach pad of ore as a result. We have suspended operations at that leach pad. We expect to resume production from the Creston Mascota leach pad in the second quarter of 2013 and that roughly accounts for about 4,000 ounces or so a month coming out of the Creston Mascota operation. At La India, construction has gotten off to a very good start and we're set to add that to our production profile in 2014.

At Meadowbank, we had extremely good mining performance and extremely good milling performance in the quarter. In terms of moving waste and ore, we moved on average in Q3 a record -- 102,000 tons per day. If you recall last year, we were struggling to get anywhere close to those targets. So that's something that we're in a comfortable position to continue to do as we move forward.

We've seen improvements on maintenance and equipment availability in the quarter up to 79%. Our target was 75%, and that's a lot higher than it was last year. So the team is doing an extremely good job there. Dilution is where we expected it to be. We've had some positive upgrade on the Goose pit as we've got into some higher grade areas there, which is important there because we're getting to those areas and we're able to get that tonnage out without any significant dilution.

On the milling performance, we set a record of 455 tons per hour. That milling performance we expect to continue into 2013. And we've seen that as we've gone through our budget process and gone through the performance to date and we look at that has an opportunity and I think that's where we're expecting to see continued good performance on an annual basis coming out of Meadowbank as we move forward.

As a result of the record tonnage, our cost per ton was in the low $80s. Our budget was $96 a ton. Our cash costs was well below on a unit basis, per ounce basis, lower than we expected, largely due to the increased production coming out of the quarter. As we mentioned, our fourth quarter in the mining sequence will be lower grade, lower grade cycle, so we'll see that impacted in Q4 -- and that's reflected in our revised guidance of 1,025,000 ounces.

So I think I would like to end on the Meadowbank and say that we've seen consistently higher operating profit coming out of that mine, as we've seen growing and high operating profit coming out of our Mexican operations. As we go through the budget, the focus is really on operating profit. How do we maximize our operating product coming out of these mines?

As far as the news flow, exploration update as we mentioned in 2012, for 30 years we talk about our dividend in December. This will be no different this year as we expect to be able to give a heads-up on where we expect our dividend to be in 2013. And in February, our Q4 results will put out our new reserve and resource estimates and we'll put out our updated three-year production guidance.

So on that, I would like to turn it over to the callers, Operator, and the team would be happy to answer any questions.

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. (Operator Instructions). Our first question comes from the line of Patrick Chidley. Please go ahead and he's from HSBC.

Good morning, gentlemen. Everybody on the line. Congratulations on a great quarter. I would like to just start first ask about what's going to happen at Kittila in terms of underground production. Maybe you can give us more detail on the ramp up in underground production rates and how that will take over from the open pit.

Yes, Yvon?

I think we're terminating the pit production in the fourth quarter and moving to full underground production as of Q1 next year. The mine has been ramping up every quarter to the 3,000 tons per day rate. Just slightly over 2,000 tons per day in the last quarter. So we're pretty confident with the development and the advanced schedule there --

Sorry, you're fading there.

You didn't hear that, Patrick?

Sorry, I didn't happy the end of that, sorry.

So far we're saying it's no surprises about the underground ramp up schedule basically.

Okay. So 2,000 tons a day and that will be the process rate of the soil, will it?

There will be 3,000 tons per day next year. Currently we're currently we're mine being underground at 2,000 tons per day and roughly 1,000 tons per day from the open pit. The open pit will finish this quarter and we'll revert to full underground production afterwards.

So by Q1 you should be into back at 3,000 tons day underground?

Yeah, and essentially mining reserve grade --

Okay, thanks. Thanks very much. And just Meadowbank, do you see any need for caution over the winter in terms of production through put that you're getting there?

Could you repeat the question?

Sorry, at Meadowbank do you expect to have the same sort of production throughput as you had in the third quarter into winter in the fourth quarter and into Q1?

I think on tonnage, I think overall the production will continue to be strong on the production. As we are mining the five different zones in the Portage pit presently, as we go through the five different areas, we'll get through variations of grade, most likely in the fourth quarter we're going to see slightly lower grade in this area. But I think the guidance that's been shown so far for Meadowbank is attainable for the rest of the year.

Okay. And in terms of guidance, production guidance for the mine for the whole year, what would that be right now? Is it 300 -- just refresh my memory.

Yes, for 2012, to build up to our numbers, you're in that sort 350 range at Meadowbank.

350. So that means that Q4 is going to be a lot lower than Q3, is that right?

Yes.

And would that be without the impact of sort of surprise grades or is that a potential positive there?

We don't really get into grade forecasting on a quarterly basis. That's just based on our mine plan and our sequencing with the tonnage that we've been doing up until now.

Okay. Great. Thanks very much.

And our next question comes from the line of Greg Burns from TD Securities. Please go ahead.

Thank you. Sean, what do you need to see at Meadowbank to start to push out the mine line beyond 2017?

It is really costs and we're starting to think about that now. We can see on a per ton basis if the run rate is what it is, then we can likely bring some of that resource into reserve. We ran in the quarter 455 tons an hour. We're running scenarios for next year that are above that, which lowers costs on a per ton basis and so that's the type of analysis we're doing right now.

Okay. And at Kittila, the 25% expansion, what does that entail, both I guess more in the process plant than underground?

Yes, Jean Robitaille will answer that, Greg.

Hi, Greg.

If you look at the sequence, the grade will not be sustained so we need to increase the throughput to maintain the current profile of production. In terms of the expansion itself, it's a review of the different circuits to be able to process more tons, so the autoclave itself will not be really impacted. We have enough capacity but the remaining different circuit will be modified.

The autoclave won't be impacted but crushing and grinding and flotation will have to be expanded, is that right?

Yes, as well as the DCI circuit.

Is that where the majority of the capex is going to be spent?

Absolutely.

Thank you.

Even our next question comes from the line of David Haughton of BMO Capital. Please go ahead.

Thank you. Just following on from those questions that Greg had on Kittila, my understanding is the current autoclave can go up to 50% above your current throughput, is that correct, before you need to think about additional autoclave capacity?

Presently, the 25% of the autoclave can handle that. It's the amount of sulfur that we have to feed the autoclave so we don't see any problem and you are quite right, in-between 3750 tons per day up to potentially slightly higher than that we can handle that without difficulty.

All right. Just changing continents, back to Creston Mascota, can you just outline what has happened with the heap leach movement and what the remedial plans are? Is it simply just to build another pad and leave the current one settling and with the leach cycle performing? Or what is the circumstance there?

Hi, David, it's Tim Haldane.

Hi, Tim.

We did have a movement of the ore on the upper lip of Phase 1 on the leach pad and we suspended leaching on Phase 1. We already have Phase 2 built so we've got some work to do to change our stacking plan and some minor modifications to Phase 2 so that we can get back up there and start stacking again and leaching on Phase 2 and that's why we're talking about resumption in the second quarter of next year.

As far as Phase 1 goes, we need to do a back analysis to see what was the cause of the event. We don't have that answer yet. If we were going to -- we need to find out the cause of the slippage, but it looks like probably the remediation is going to be changing the stacking angle on Phase 1 and subsequent Phase 2. We want to get that right. We want to take time to do the analysis. But we were following the design stacking plan and apparently we need to modify the design.

As far as the material goes right now, will you be adding any additional tonnage to pad one or it's just the legacy leaching of existing inventory that we'll see coming through?

We still have to answer that. I'm not sure which. But where we were in the sequence anyway, we were getting ready to go to Phase 2. We were just -- we were planning to make that transition to Phase 2 anyways. So this is just more of a delay in production and an operating challenge that we need to deal with for the next couple of quarters.

All right. Still in Mexico, Tim, maybe you can help on this. What's the current status of La India as far as the permitting goes, the progress towards construction and engineering and drawings and all of that? Whereabouts are you standing right now?

We have all will permits we need to do the construction and the first several years of operation of La India. The first five years is operation. The permits for the subsequent years are in evaluation right now. So they're in process. We don't see any concerns about permits. Construction, it's early. We've got a lot of the -- well, the basic engineering is done. Detailed engineering is pretty well complete on most of the mechanical components. And what's going on at site right now is some of the early earth work. But it looks like we're on schedule.

Okay. And on schedule means expected production back end 2014?

Yes, second half.

All right. Moving just the last topic, further north where it's somewhat colder, what's the current status of the Melladine project. Whereabouts are you? What's your thinking and when shall we see some more news?

David, it's Sean. In terms of the timing, we are looking for sort of final feasibility, updated feasibility, late next year or early 2014. The focus is still drilling and reserve and resource calculation and update. There's about $70 million to $75 million that gets spent there annually. About 70% of that is within the deposit outlines, looking to confirm and increase the confidence around the resource and move it into the reserve category. We would expect to give a construction decision sometime in 2014. The ultimate production timeline will be driven off of the permits. We don't anticipate any issues. And that's why we're saying in terms of production, we're saying late second half 2017 or into 2018, depending on the permit scheduling.

We will see an update on the exploration next month. We are actually working on an updated resource calculation on Westmeg Normeg which we expect to have out in November. The full update on the overall reserve resource will have to wait until February, but some of our best drilling has been in Westmeg and Normeg. Our geological interpretation is changing a bit. Normeg may be a high grade ore chute. So things are changing there. We're just moving it forward at a very steady pace right now.

And you're thinking of open pit and underground or both together or one after the other?

A combination of both together. The ultimate mix has still to be decided and that will happen over the next year or so and will be driven largely by our engineering, our planning but also exploration and the drill program for next year is expected to be as comprehensive as we had this year where we drilled 145,000 meters. A lot of that information still hasn't been tabulated. We still have assays coming in. We expect to have the same type of activity as we said next year, so there's still a lot of information coming in.

Thank you very much for the update, Sean.

And our next question comes from the line of Anita Soni from Credit Suisse. Please go ahead.

Hi, good morning guys. Congratulations on an excellent quarter. I've got three questions. First, just to follow up on the Meadowbank extension on the mine life, that study that you're doing, when do you expect that to be completed and delivered to your board?

We're presently in the budget process. Probably over the next two months we'll complete life of mine exercise and review some 6 these studies and we'll provide clearance on that in the guidance period mid-February.

So there would be an increase if we're going to see an increase, there's potential to see it in February?

We'll see that when we present it.

Yes, okay. Secondly on the grade reconciliation at Meadowbank, you're seeing the Goose north pit was showing better than expected I guess grade reconciliation. How many tons overall feel in that pit versus all the reserves that you have and what kind of -- what kind of percentage terms did you see in terms of grade reconciliation?

I don't have all the specifics on the tonnage but essentially we've mined probably 30,000, 40,000 tons of Goose since July roughly. We've had two months where we've had no influence. We've had strong reconciliation grades at Goose at surface. We've seen similar effects in Portage in the past.

We're going to be mining several benches in Q4. It will give us better feeling as to how strong the block model, preliminary indications are that we're cutting -- we're cutting grade at a levels that probably too low for the reality of ore body there. I think the challenge is also on the geology side because the ore is more easier to dig out, recovery-wise so we're probably also getting lower dilution because of the markers. I think in the pit itself because of the variations in the different sectors that we've been mining, we've also had strong grade at Portage and a wider zone which has given influence on the overall performance at Meadowbank on grade.

And Anita, we'll be able to take our experience from this year as we look at the reserves and the calculation around cutting factors and factor that into our life of mine planning that will come out in February.

Excellent. Thank you. And the last question again another grade reconciliation but at LaRonde -- it look like the gold grades are coming in better than expectations, and I know that's well below the life of mine grade that you've got there at 4.4 grams. It's actually not just the grade but it's the silver and the zinc. Should we expect that to sort of the continue into next year and, really even before you get into sort of the deeper zones there?

Yes, I think one of the things to take from LaRonde's performance is that the grade that we're going is what we expected to get. So the block model is working in the lower mine. I think that's important as we transition to the lower mine. Our challenge is to get the tons that we expected to get there due to the heat and congestion. So the mine plan that we're working on will be a slower ramp up than what we had originally anticipated, but our flexibility improves every month. We opened up and started a up in pyramid in the third quarter which gives us more flexibility. We're still challenged earlier next year with heat, because we don't get the cooling system in place many in the second half of 2013. And those are the types of issues that will result in a slower transition to the higher grade. But I think the important factor is the grade that we had expected to get from the block model. We are getting in that lower mine. So over time we'll be mining above reserve grade when we get the tonnage up.

Okay. So then I'm just curious as to the original guidance had a 2.3 gram per ton for the grade for the year and you're sort of running, you know, just a little bit slightly better, maybe it's splitting hairs this quarter was at 2.5. I'm just wondering what the source of that was, then.

That's the lower mine.

Thank you.

And our next question comes from the line of Joseph Reagor from Global Hunter Securities. Please go ahead.

Hi, guys, that was for taking my question. At Meadowbank, was the majority of the improvement quarter over quarter due to grade dilution improvement and throughput or was there some geological grade improvement side of things that were a major contributor as well?

Yeah, it came from several areas. Clearly grade was one but also the tonnage was up over 1,000 tons a day from the previous quarter, setting record tonnage. So we each made major improvements in our minding efficiency, both from the perspective of dilution and able to move not only ore but also waste. As we indicated in the call, we set a record of 102,000 tons per day in total movement of ore and waste -- so, much more efficient. So that was also a big contributor as well as the grade and the upgrade that we saw in part of the Goose deposit.

Okay. Looking at your previous mine plan that you had there and I know you guys are updating it. But the previous one showed a reduction in waste ore next year and the year after. Is that still the case? Or is that now about even across the board with the reductions in Q2 and Q3?

The last life of mine exercise that we were showing, we were showing similar stripping ratios for 2013/2014 as we are doing in 2012.

Okay. And then a more grander picture thing side of things. You are estimating $660 cash costs, $602 year-to-date so that leaves rough numbers $850 for the fourth quarter. Can you gives give some color as to where the major increases are going to occur?

Well, if you look at the math, Meadowbank will probably be, as far as gold production, the lower rest quarter out of all the quarters. And that's the biggest part of our production base so it will have the most meaningful impact on the cost structure. So you'll see it there. Kittila you'll also see it as well. But it's largely at Meadowbank.

And then just one final minor thing. Do you guys have any update on what's going on with Tarachi? I know it's a more longer term project. Have you guys done any drilling or seen any good results there?

Hi, Alain Blackburn speaking. Right now we have three rigs on the site. And if I remember, the resource when we calculated in December of last year, we had [inaudible] 36 million tons 55 gram per ton and that mean 660,000 ounces. And I'm sure at the end of this year that we will update the resource speculation and ensure the resource [inaudible] --

Okay, and what's the total yearly spend there this year for exploration?

I think we spend around $6 million on the Tarachi only.

Okay, thanks a lot guys.

And our next question, comes from the line of Steven Butler from Canaccord Genuity. Please go ahead.

Maybe Sean maybe I'll take back the word sandbag in my title. That was an excellent performance. That was inside thing with you. But on the Meadowbank, the quarterly -- the cash costs there, $81 a ton and in fact the last three or four quarters you guys running around $80 million per quarter. But it seems to be obviously a scale that's giving you that cost per ton reduction. Do you guys think there's any more areas for cost reductions at Meadowbank?

Yes, it's in the sort of mid 80s is sort of the outlay on a quarterly basis. The team, you know, was largely focused over the last little while on getting the throughput up and getting more efficient from a mining perspective. And now that they've, you know, done an excellent job on that, they are looking at several cost reduction initiatives. We don't think that's going to have a material impact on improving costs, but maybe they allow us to offset some of the input price pressures.

Right. And were you thinking sort of in your planning on reserves last year, Sean, where we saw a pretty big reduction in both grade and tons and ounces. Were you sort of implying at that time a longer-term view maybe $100 a ton for this site?

I'm not sure the exact number we were using in the planning but it was more to do with trying to eliminate the requirements for waste development given that we were nowhere near moving 100,000 tons of ore and waste a day. We've proven we can do that and that's why we needed to revisit the overall feel plan. So it's more along those lines.

Okay. And lastly, Sean, it's a wonderful increase in throughput three in Q3 versus just Q2 so a 10% bump roughly. You sort of implied in your remarks that you hope that that may be a sustainable rate. Is the ore hardness or something a bit different in third quarter or was there anomalously a better result or just simply getting the circuit going even humming better?

No, I think the overall improvement has been relating to optimization around the crushing area both at the [inaudible] and at the secondary stage. They've been able to clamp down that crusher and get the more finds and generate more tonnage through the plant and they're pretty confident about the sustainability of that.

I think, Steve, the best investment I think one of the best investment, we made last year with the technical service group here and the team at Meadowbank was $28 million for the crushing facility. That actually did work quite well last year. So we knew coming into this year that we could process a lot of tons. What we weren't sure of, as we said earlier the in call, was how efficient we would be at mining and could we deliver those tons. We have just answered the second part of that equation with the performance so far this year so that's what's helped.

Right. Are you guys still hoping or thinking that long-term throughput underground mill throughput at LaRonde will be in the 6000 or 6300 ton per day level? Is that the long-term plan?

Yes, that's still the case.

Okay. Thanks, Sean.

(Operator Instructions). And our next question comes from the line of Anita Soni from Credit Suisse. Please go ahead.

Just following up on Steve's question with regard to LaRonde's throughput next year. Could we see levels that we saw in terms of throughput in Q4 or should we be modeling that somewhat until the event expansion goes through in the fourth quarter?

We're still working on those numbers right now. It's clearly not going to be what we thought it was going to be earlier this year. But the improvement, as we were said, we're still seeing improvements on a monthly basis given the fact that we're just opening up more working areas in the underground mine. So we'll come out with a three-year forecast tonnage and grade in February for LaRonde that will take us out through the end of 2015.

And just a final question on Meadowbank. Is there any seasonality as we come into the winter months at Meadowbank that we should think about this year or have those issues been largely resolved?

Presently we're still looking at the Q1 with budget in mind, maybe 5% to 7% decrease in production to take into consideration winter challenges up there. As far as the rest, I think the guidance will reflect the numbers going forward. And the numbers you saw this year on production should be, unless extreme measures, we should see continuity of production in 2012.

All right. Thanks very much.

Our next question comes from the line of John Bridges from JPMorgan. Please go ahead.

Good morning, Sean, everybody. Congratulations on the results.

Thank you.

I just wanted to dig a little bit into Kittila. You've been digging the last of the pit out with a strip so the numbers, cost numbers this quarter have really been quite nice. You were saying you're going to go all underground next year. Do you have a sort of order of magnitude to give us a bit of guidance as to what we should be expecting in terms of costs next year?

No, not at this point. We're still going through the budgeting process. I think we were in that sort high EUR60s, EUR70 per ton area this year. We will clearly be higher than that next year. But we'll reserve comment on that until we go through the budget process.

Do you have a specific cost number that you've been attributing to the pit?.

I think we look at the open pit/underground split. The underground currently at 1700 tons per day, with the remaining 1300 to 1400 tons a day coming from the pit. So a little more emphasis on the underground as we move through the year. And those costs representative with that mix would be on a per ton basis in that EUR70 range. So as we move to next year, we will see that sort of go up with less impact from the pit ore.

Okay. Thanks a lot. Good luck.

And our next question comes from the line of Joung Park from Morningstar research. Please go ahead.

Hey, guy, thanks for taking me question and congrats to David and Picklu on your new positions. Just going to Meadowbank, I know a lot of questions have been asked on that one. It's been four or five quarters since you've been above the design capacity of 8,500 tons per day there. And if you factor in the normalized winter, what do you think we can expect for a base line annual throughput at that mine going forward?

Well, we're looking at run rates equivalent to where we were this quarter. I think we've seen three strong quarters. So we're looking at those types of run rates. Those are the types of run rates we're discussing in our budget process right now, for next year at Meadowbank.

Okay. And should we read into anything into the very good recovery rates at Kittila during the quarter, are you guys still guiding for the mid 80s recovery rates for that mine?

This is Jean speaking. The recovery was sustained very high, and fortunately we are in transition going underground so we prefer to keep in your model 86% for now but we received last quarter very good results so we anticipate to be able to be above the mid 80% mark.

So expecting to be above the mid-80s mark?

Yes, 86% for now.

Okay. And then my final question, going to slide nine of the presentation, the illustrative ongoing reinvestment figure in that chart, is that just a maintenance CapEx or is that also including development spending for some of your growth projects like La India and Kittila expansion.

There's a rough estimate in there for that number. Our guidance has been $500 million to $600 million. That's an estimate because the vast majority of that sort of ballpark has not been presented or approved by the board. That's just our ballpark estimate of what it may look like over the next four to five years given that we have projects to build.

Okay. Fair enough. Thank you so much.

And our next question comes from the line of Alec Kodatsky from CIBC. Please go ahead.

Thanks and good morning. I just wondered if I might be able to get a bit of color around what's been different with the ventilation system at LaRonde relative to your expectations? Is it the fact that the plant expansion happening later than you anticipated or is there something else that's gone on there that's been a surprise?

Well, I guess it's a combination of things. I think the fact that the heat has been greater than anticipated in some of the areas, it's hurt on productivity. Productivity has had some impact on development schedule. We've also had some delays in the equipment delivery. So I think these are the factors going forward. Some changes were done to the ventilation network this year. They have provided for minor reduction in heat. Booster fans are going to be added for the exhaust next year and a coolant plant will also be added in the deeper portion of the mine. So as we complete these, we'll have better conditions to get back to the original plan.

Okay, great. Thank you.

And our next question comes from the line of Virginia O'Kelly from ING. Please go ahead.

I may ask just a question on the Meadowbank. I know that there was increased asbestos there and any concerns or controls you have on ventilation or work health issues?

Basically in the last two quarters, we've some areas particularly in the Goose area where we've found some fibrous material that have been linked to asbestos. We're in the process of defining the sampling campaign around the area. But it's mostly relating to sample prep and laboratory at the crushing plant in the mill. But that's correct, it's just something that's ongoing and that we're working with the local community on protecting the people there and getting the information around.

Okay.

And we have no further questions at this time.

Thank you, everyone. Thanks for the attention and thanks for the good questions and participating in our Q3 2012 call. Thanks again.

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