Agnico Eagle Mines Ltd (AEM) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico Eagle Mines Limited fourth 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 for you to queue up for questions.

(Operator Instructions)

I would like to remind everyone that this conference call is being recorded today, February 14, 2013 at 10.00 AM eastern time.

I will now turn the conference over to Sean Boyd, President and CEO. Please go ahead.

Thank you, operator, and good morning everyone and thanks for joining us today to discuss our 2012 year and our fourth quarter. I know it's a busy day for everyone so we will get started and I would just like to -- everyone to take note that there are forward-looking statements in this presentation. So just be forewarned of that.

I will start with the highlights of 2012. We ended the year strong. We produced 1.043 million ounces at a cash cost of $640 an ounce, which exceeded our guidance, which was updated twice during the year of 1.025 million at $660. We got there essentially from strong performance from all of our mines, in fact. When you look at LaRonde, their cash costs was on budget. Lapa, their cost per tonne was a budget. We saw some really strong performance out of our larger mines, Meadowbank and Pinos Altos, and in fact Kittila had better than budgeted cost performance as well.

So we saw good cost performance and also good output coming across the board from our mines. As a result, we generated record cash flow -- almost $700 million, or around $4 a share. And on the back of that solid performance, our production guidance going forward for 2013 remains unchanged. Essentially, we look at 2013 as a building year which sets the stage for our next phase of growth. Two of the projects that have the most immediate impact on that growth are Goldex and La India. They are both progressing well. Both projects are expected to go into commercial reduction in the second quarter of 2014. In addition to those two projects, we should see steady ramp-up in production at LaRonde. I'll get into some of the details as that deposit, or that mine, accesses more tonnes from the higher grade, lower part of the mine. This week the board approved the first of what will likely be a series of staged expansions in Kittila. This one sees increase in throughput by 750 tonnes to 3,750 tonnes a day. We'll likely see the impact of that in our gold production in the second half of 2015. 2013, we will see our 31st consecutive year of paying a cash dividend, which is something we are extremely proud of.

On the reserve side, we maintained our reserves at 18.7 million ounces. Within that we saw a good increases in grade at LaRonde, Pinos Altos and Meadowbank. On the resource side, we replace the 1 million ounces that we produced. We also added an additional 1 million ounces with some of those additions coming at key assets like Kittila and Meliadine.

In terms of the financial numbers, 2013 saw two significant milestones in our 55 years of operating history. It was the first year that we produced in excess of 1 million ounces and it was also the first time in our history that we had gross mine operating profit in excess of $1 billion from our 5 operating mines. So that is a milestone we are proud of. We saw solid contribution from all of the mines and even our smallest mine, Lapa, contributed $100 million in mine operating profit to the total. So that is extremely significant, given we bought that asset for about $8 million and made a discovery on it with our exploration teams to result in that mine. So good value creation over time.

Just looking at earnings and looking a little bit at that fourth quarter, we did see a quarter that from a perspective of operating costs in production was the weakest quarter in 2012, as expected. And that was largely driven by an expected lower grade production quarter coming out of Meadowbank. As a result, our cash costs in that quarter where the highest out of the quarters. But as you can see, that was expected given the fact that we were lower than our full-year guidance. We came at $640 an ounce versus a full-year guidance cash cost of $660.

Financial position is still strong. We still have over $300 million in cash, $1.2 billion, roughly, in undrawn credit facilities and we have $830 million in debt. The first principle payment is not due on that until 2017 and it is $115 million.

Looking at 2013 through to 2015, essentially, unchanged for 2013. Production of 990, which was the estimate we gave you about a year ago, cash costs the midpoint of range is 725 -- a year ago we said 720 so essentially unchanged. The key driver for 2013, but also '14 and '15 is Meadowbank. When we began the year our expectations -- when we began 2012, our expectations were that Meadowbank was a 280,000 to 300,000 ounce per year mine. Based on our operating experience last year, it is more in the range of a 350,000 to 370,000 ounce per year mine and that carries a big part of the production base over the next three years.

At LaRonde we should see a steady, but a bit slower, ramp-up and we will get into some of the details in an up coming slide. Kittila, we expect steady output. It had a good performance in 2012. We expect continued good performance move forward -- as we move forward. Lapa, short mine life -- we are looking to extend that into 2016 with some exploration expense.

In Mexico, our Mexican business is expected to grow over the next three years to about 300,000 ounces with the addition of La India. And that is one of our best cash flow generators from a business perspective, given its low cash costs. And to add to '14 and '15, will be La India and the restart of satellite zones at Goldex. Goldex will be, as we've said, a smaller and higher cost mine given that we are focused on the satellite zones.

Development is going well on those two projects from both a budget and a timing perspective. In terms of the cash cost estimate of $725 million, if we look at more of a total cost estimate, which would include cash costs, sustaining capital, corporate and general administrative expenses plus exploration expenses, our cash costs would come in a little bit lower than about 11 -- our total cash cost would come in a little bit lower than $1,100 an ounce.

Our growth profile, we've talked about it, it is about 20% growth from '13 through to '15. And the way we look at that is it is steady. It's solidly achievable. It is manageable, largely because it's production growth from existing assets and assets that we've worked out the major bugs. They are much more predictable and they are working well.

In terms of net free cash flow, we estimate that going forward, we should see capital in the same range as what we're forecasting in 2013 of about $600 million. In 2013 that $600 million in CapEx is about $200 million in sustaining, about $360 million in our growth projects and $40 million in capitalized expiration expense.

Looking at the operations in a bit more detail, LaRonde continues its ramp-up, as we said, slower than was expected. In 2012 we averaged around 4,000 tonnes a day from the lower mine. In 2013, we should see an additional 600 tonnes a day added from the lower mine. As we move into 2014, we should see another 600 tonnes a day added from the lower mine. So by 2014 -- in the range of about 5,200 tonnes a day. Accessing those lower level tonnes increases our grade. We are anticipating a grade of about 2.7 grams per tonne in '13, that was versus about 2.4 grams in 2012. We should see about a 30% pickup in grade going into '14 and about a 15% to 20% bump in the grade as we move into 2015 from the ramp-up in LaRonde.

LaRonde is still a key asset for us, although the reserves declined a bit. The grade went up 3% and our reserve and resource total is 5.9 million ounces. So still a long mine life generating increasing cash flows as we move forward and access the better grade material in the lower part of the mine.

At Lapa, still a steady performer, as we said, it generated $100 million in operating profit in 2012, largely because of good cost control. It is a difficult mine -- narrow, underground. Our team has done an exceptional job there. The task now is to try and extend the mine life through exploration and we're doing that not only drilling but extending platforms underground to put ourselves in a position to drill open areas of the main structure.

At Kittila the transition to underground mining continues. It's going well. In the fourth quarter we average a little over 2,000 tonnes a day from underground. Our costs in Q4 were about EUR70 per tonne. Our recoveries were almost at 90% in Q4. In 2012 we had a record year at Kittila. We had record production and that was generated from slightly lower than budgeted grade, which was offset by higher than budgeted recovery. So we continue to see good recovery performance coming out of the plant and our cash cost as a result of that record production were slightly below our budget at $5.65 per ounce. So a very good performance coming out of Kittila.

As we moved into January we've averaged about 3,000 tonnes a day from underground, which is the target. So the transition to the lower part of the mine is going well. We announced the approval of the expansion -- that is $103 million largely spent in the plant upgrading the facilities to handle the additional material. We are conducting ongoing studies at Kittila. We are looking at a shaft which we feel is the most optimal way to mine the lower part of that deposit. And in addition, that deposit is wide open at depth. We expected it to continue and we see a series of phased shaft sinking expansions over time there to access the deeper material, almost like what we did at LaRonde for 25 years. Nice and steady allows [deposit] to dictate how we reinvest dollars in a world class asset.

As far as reserves go, reserves are 4.8 million ounces. Our reserve and resource actually went up -- went up about 7%. It now totals 7.9 million ounces and the growth in that reserve and resource came largely from the [Ripee] area, which is an area of particular attention to us given its grade and its thickness. And that still remains the focus of our exploration and development plans in 2013 at Kittila.

In Mexico, very good business for us with above average returns -- the largest contributor to our $1 billion or so of mine profit at almost $300 million. Cash costs below $300 per ounce. And by 2015, we should be producing about 300,000 ounces when we add La India in. Again, low-cost ounces which will drive cash flow coming from that part of the world. It is a country we are comfortable doing business in. We look to expand our footprint there and that is something that we strategically look for as we look at ways to grow our output.

In the fourth quarter, Pinos Altos had very strong result in terms of tonnage and grade, both being above budget. The total reserve and resource there at Pinos Altos and Creston Mascota is now around 4 million ounces. So a good solid asset. At Meadowbank, it was the largest contributor to our turnaround, an extremely strong performance. A very strong year, averaged over 10,000 tonnes a day at a grade of 3.1 grams per to, which was slightly above the budget in terms of the grade. Record production -- very good cost performance on a per tonne basis -- $88 per tonne. In the fourth quarter we average over 11,000 tonnes per day, the grade was lower as we expected given the mining sequence. Our cost per tonne were $90.

So another good strong quarter. In fact, the last two quarters we averaged over 11,000 tonnes per day of throughput, which demonstrates that not only can we mine those volumes, we can also process them at good recoveries. The dilution is good. So whatever the block model is suggesting we should get, we are getting. And despite its relatively short life, Meadowbank is still a big part of our business going forward. It's got increasing net free cash flow over the next few years and it's got a skill set that we plan to use to advance our Meliadine project. In terms of grade over the next -- and tonnes over the next three years, we are looking for about 4 to 4.1 million tonnes processed at grades that range from 2.95 to 3.1. Production should range in the 360,000 ounces per year range. So a good contributor to our cash flow.

So just summing it up, we continue to be focused on just trying to build the foundation and base of our business. We are looking for steady growth. That growth is coming from our existing assets, which means it's sort of lower risk and more manageable. We've got what we perceive as being very solid achievable production cost guidance with growth of about 20% or so over the next three years. We do expect growth in reserves through exploration of existing assets particularly at assets like Meliadine and Kittila and La India Tarachi. Our strategy is really to try to maintain a 15 year to 20 year life of reserves and that is how we are sort of focusing our exploration efforts. As we generate cash flows, we're still looking at trying to create that balance between our key baskets, one of which would be dividends. We are looking to steadily grow the dividend as our production and cash flow increase. We are looking to maintain an active exploration budget, largely at our sort of key-and-core assets like Meliadine and Kittila, and La India Tarachi. And that will continue to remain a focus.

On the M&A side, our objective is to just to continue to look. We don't feel a sense of urgency to do anything. But we do have the capacity and we do have the skills to continue to build the Company through small selected M&A, similar to the strategy we have employed successfully over the last several years. In fact, if you look at our current reserve and resource, about 75% of that is made up from assets that we bought over the last six to seven years and drilled and expanded based on an active exploration program. So it has worked quite well for us so that is going to be our focus as we move forward is looking for assets that fit, assets that we have the skill sets to manage, assets that are in the part of the world where you can get mining done and create a good business. And that is just really more the same.

So, operator, I would like to open it up for questions.

(Operator Instructions)

John Bridges, JPMorgan.

Congratulations on the results. Everything looks great. Just wanted to ask you about LaRonde and the difficulties there with the ramp-up. You went through something similar with the bottom of the [Penne] shaft some years ago. I just wondered what was sort of different to the plans that you had? What has been surprisingly down there?

I think the challenge going back to the middle part of the mine at the Penne shaft is we did have some issues around one of our mining blocks back in 2003, which caused us to just slow down the development of the level 2-15. This is more general in nature and it relates more to lack of flexibility due to heat and congestion. And as a result of that, we're not seeing as quick a ramp up. We are sort of a year or so behind where we expected to be. This year we did about 4,000 tonnes of a day. We expected to be in the mid-4,000 -- close to 5,000. So we were short about 600 to 800 tonnes a day. Next year, as we said, we expect to be at 4,600 tonnes a day, roughly, and then 5,200 tonnes a day in 2014 and continuing to grow that in 2015.

So the challenge we have there is we can't throw more people at it. We can't through more equipment at it. That would just increase the magnitude of the challenges around heat and congestion and flexibility. So it is really a lack of flexibility. The important thing there is we are getting the grade. So our grade profile is likely going to go up as follows -- we were 2.4 last year and are roughly 2.7 in '13, roughly 3.5 grams per tonne in '14 and in '15 we expect to be a little over 4 grams per tonne.

The reserve grade here is now 4.5 grams per tonne. It did go up. And so for the next few years we're seeing increasing production but at below reserve grades in terms of the mine plan. So we should see a years above reserve grade. So we don't want to push it. We are going are going at a pace that we are now comfortable with. But I think part of the issue is we probably over estimate our ability to ramp-up in that lower part of the mine.

Right, right. Your fallback position previously was to go back up into the upper levels, which obviously you've mined out now. Do you have -- are you dusting off some of your resources in that immediate vicinity in case you continue to struggle?

We don't have a lot of flexibility in the upper mine left. Part of 2012 we did take a little bit more zinc and that is why our cash costs were roughly close to budget. We do have a contingency in our back pocket for '13 where we could go after some more zinc material, which would certainly help cash flow if we had some issues around getting the gold tonnes in the lower part of the mine. So we have built that in to our own internal plans but the plan that we put forward was to do our tonnage of around 4,600 tonnes a day from the lower mine. We think that is achievable.

Thanks, Sean, very helpful.

Joung Park, MorningStar.

Hi. Thanks so much for taking the questions and thanks for just all the detailed production forecast and all in sustaining cost disclosure. That is really helpful.

You're welcome.

So first question I had was what is the decline in production at Lapa going to look like? Is it going to be a slow draw down or is it -- are we going to see production kind of halt abruptly after 2015?

Well the current plan there is to maintain the current production rate for the next two years and then we fall from around 100,000 ounces level down to about 60,000 ounces. And based on the current plan, that would be it. But we are still actively exploring, following up targets, following up on some resource. We do have in our reserves about 400,000 ounces. We also have about 400,000 ounces in resource, which is not in a mine plan at this point. So we are hopeful that our exploration is going to prove that up. We get sufficient continuity that it make sense to put it in the mine plan. So there is the potential to extend that beyond 2015.

Okay. I see. Second question I had was on Meadowbank. Congrat's on the good continued good results there. And it looks like you guys are going to be spending quite a bit of non-sustaining capital expenditures there. So I'm just wondering what that will be used for? Is that mostly to maybe extend the mine life there?

Yes, we are developing a separate pit called the vault pit, which is about 7 kilometers away from the main mine. So that is what that number is. There is also, in 2013, some additional work to do on our dike system. And that starts to fall away in '14 and '15 and that is why we can see our net free cash flow going up from Meadowbank. So that is a general breakdown of the trend at that asset.

Okay, great. Thanks so much.

Jeff Wright, Global Hunter Securities.

Had a couple questions on Kittila in Finland. Looking at the cost coming op and going deeper, do you think we should be looking more at the mine at the 2013 cost levels since 2012 was a record year there? And second question with Finland, there was a fair amount of maintenance that was deferred in 2012 and spaced out. Is there going to be an extended maintenance period in Finland in 2013?

Yes. I will answer those. On the cost side, we did have a really good cost year at Kittila in terms of cost per tonne and we brought that down significantly from what it was prior to 2012 at around EUR70 per tonne. We have been forecasting for 2013 about EUR80 per tonne and that is to account for going underground. We have had good cost performance so far in the underground mine. If you actually look at Q4, which was EUR70 per tonne, about two-thirds of the tonnage came from the lower mine. And so I think that is an indication things are going pretty well at Kittila in terms of the transition to the underground mine. And in January we averaged about 3,000 tonnes per day, which was what we were expecting from the lower mine. So we will need a few more months from the full underground mine to see where those costs per tonnes in euros settle out. I think we are comfortable with our $80 number and we are hoping to try to do better there.

In terms of the maintenance shutdown, I think the question was around the autoclave. We do have an extended shutdown built in to our forecast for 2013. We were able to defer some of that work from last year but we feel we will do it, and need to do it, this year. So that's factored in and I think the timing of that is the second quarter of 2013.

Okay so we should be looking for that in Q2. Thanks, there. Then quickly looking at Mexico -- clearly there's a little bit of risk with the crested heap leach. And while you plan on going back and stacking, is that something we should look as a clearly a variable that might take longer? It might -- clearly safety is a concern at some level -- we should just maybe be very conservative on that number for crested for 2013?

Yes. I will just get Tim Haldane to answer that.

We have given a midpoint guidance for Creston Mascota in 2013. There's tracking that we're doing a Creston Mascota is on a different phase of the leach pad -- basically isolated. It is always a question with the heap leach operation -- how quickly does the inventory build up and how does the ounce flow go? So we've given you the midpoint. But technically, I'm not concerned about us getting that lease.

Okay so the 32,000 ounces is more of a midpoint and then once you're comfortable that all those issues are resolved, we get back towards closer to that 55 ounce level going forward?

Yes.

Okay that make sense. Appreciated. Thanks a lot.

Stephen Walker, RBC Capital Markets.

Maybe just a follow-up question for Tim on the -- and I apologize if this has been dealt with earlier. I missed the first part of the call. But just the reasons why the leach pad at Creston Mascota actually moved or slumped -- did you ever determine definitively what the cause of that movement was?

We put most of our effort into mitigating the movement to make [opted] and also getting Phase 2 ready.

Is it a geotechnical issue? I guess what I'm asking is if it's a geotechnical issue, then the material stacked on Phase 2 -- is there potential [rid] to move? As I say, I mean it is unusual. And again, we talked about this the last call but it is unusual to see movement in a heap lease pad unless there was a designed or a geotechnical issue that -- a design error or a geotechnical issue that just had not been picked up in the material being stacked.

Well, yes, I think you got that right. The Phase 2 is designed with that in mind. The early stacking of the order that we put on Phase 2 is going to be [cool].

Okay. So potentially it was moisture buildup within the stack itself and then that ponding resulted in movement. Okay that make sense. With course of materially it should leach better and be more stable. Just on Pinos Altos, Sean, as you transition into underground or the higher grade underground ore, can you give us a sense of what the grades are going to do over the next couple of years if you would? And then just comment on the hardness of the ore underground. I noticed that you've obviously been able to get that plant to operate in excess of 5,000 tonnes a day, which was very nice. But will you be able to sustain that as time -- as you go forward if the ore is harder? Or does the ore get harder and you cannot sustain 5,000 tonnes per day?

I'm going to jump in on that one too. It is Tim again. The hardness of the underground ore doesn't seem to be any different than the open pit. So we will sustain the 5,000 tonnes a date. And as far as the underground grade goes, it tends to be a little bit higher silver grade and the reserve grade is in the [appendicies] press release but similar to the open pit grade or similar to the grades we've been mining recently.

Okay. Perfect. Thanks for that. And just one last question. Circling back on Goldex, if there is an update on Québec Ministry of Mines, I believe, is continuing with an investigation and there is an ongoing -- or there was an outstanding lawsuit if I'm not mistaken. Can we get an update on both of those and where they stand?

From the Québec Ministry side, there is no investigation.

Okay.

From the lawsuit side, the US -- we moved to dismissed the US action and it has been dismissed. It had -- that dismissal is now being appealed and that is where we are there. And the Canadian class-action, there's no update there at all.

Okay, great. Thank you very much for the update, Sean. Thank you, Tim.

Anita Soni, Credit Suisse.

I guess my question has really been asked -- sorry -- asked and answered already. It was with respect to the standing capital at Meadowbank. So that was with the -- you're doing work on a dike system and then you said it falls away in 2014 and '15?

Yes.

And additionally, the vault pit, does that also trend down or will that take a couple of years for you to develop that pit?

I think the vault is over two years.

Okay.

Yes, two years.

So similar -- I'm sorry, what was the relative split between the two?

Do we have that, Dave? The split between vault and -- We will get back to you on the split between the two.

All right, thank you very much.

Greg Barnes, TD Newcrest/Waterhouse Securities.

Sean, I know you're working on the feasibility study on Meliadine, but what is a medium size mine?

What is medium-size mind?

Yes.

4,000 to 5,000 tonnes per day.

And ballpark CapEx?

Yes, it's tough to say. It's early. It's -- Meadowbank was $800 million or so. This is going to be more expensive than Meadowbank.

Okay.

So north of $1 billion.

And I know you've said in the past that you're looking at phasing into Meliadine. Is the 4,000 to 5,000 tonnes a day the first phase that would be expanded over time? I know over the multi-million ounce resources -- is that the way we should be looking at it?

Yes, potentially. I think what we are really trying to determine now is whether we can link a Normeg, Wesmeg with the underground [tyreganiac]. That could have a meaningful impact on the underground mine and its production ability. We are sort of targeting in terms of annual ounce output in that sort of 400,000 ounce range. And we're trying to figure out what is the optimal mix between open pit and underground as we start.

Does the 4,000 to 5,000 tonnes a day get you to that 400,000 ounce?

Yes.

It does. Okay, good. Thank you.

(Operator Instructions)

There are no further questions at this time. Please continue.

Thank you, operator, and thanks everyone for your attention. I know it is a busy day. And if there is any follow-up questions, please feel free to give any of this call here. We will help you out. Thanks, again. Goodbye.

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