Agnico Eagle Mines Ltd (AEM) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Agnico Eagles fourth quarter 2013 conference call. At this time all participants are in a listen-only mode. (Operator Instructions) I will now turn the conference over to Mr. Sean Boyd, President and CEO.

Thank you operator and good morning, everyone and thanks for joining ours Q4 2013 conference call.

Before I begin the presentation, I'd like to caution everyone that this presentation contains estimates and forward-looking statements. If we summarize the quarter and the year, I think from our perspective what we could control is our operations and our costs.

And again for the second consecutive year, we had a record production year, producing 1.1 million ounces of gold, which exceeded the guidance that was revised upwards in Q3 of 1.06 million ounces. We also exceeded and beat our cash cost and all unsustaining cost guidance due to the strong performance from all of our operations. One of the big contributors to 2013 and also going forward is Meadowbank, where we had record production of over 430,000 ounces at costs below $800 an ounce cash cost.

Meadowbank is set for a strong next three years and a particularly strong first half of 2014. Reserve grades are up based on our mining experience over the last couple of years, so we've got some pleasant surprises there and we'll have an extremely strong first half as we said. Growth going forward also comes from the restart of Goldex, where we reached commercial production in Q4 and the La India mine, which is expected to reach commercial production this quarter.

To adjust to the lower gold price environment we used a $1,300 gold price in conjunction with our auditors to review the carrying value of our assets that resulted in an impairment charge after tax of $436 million principally at Meadowbank, and we wrote off the entire goodwill on the transaction to acquire Meliadine of about $200 million.

Our quarterly dividend was reduced from $0.22 to $0.08. This is the 32nd consecutive year of paying a cash dividend. The last increase in the cash dividend was two years ago, when gold was approximately $400 higher than it is today. So we just thought it made really good business sense to reduce the dividend and take the cash outflow from the dividend on an annual basis from about $150 million a year down to about $50 million a year.

On the reserve side we used a lower gold price. We used $1,200, that's down from $1,345 to $1,490, which was used last year. What that did was we saw a 700,000-ounce reduction in reserves without including the production in 2013, so that was about a 4% reduction. But more importantly, the reserve grade increased 11% to 3.5 grams per tonne.

So a nice increase in grade at several of our key deposits. We'll talk about that later in the presentation. As far as the operating results. We got strong performance from a number of our operations.

At LaRonde, we saw a strong fourth quarter. We see increasing grade at LaRonde. We see more tonnage coming from the lower mine. What we've got in the lower mine is the cooling plant is now operational. The ventilation upgrades continue. They will all be in place in the second quarter. That improves our ability to develop the ore body. Opens it up.

We have three pyramids operating right now. So much more flexibility. That will drive production as we go forward and I will talk about that in a minute. Lapa continues to be a steady performer. Good cost control at Lapa. And also good operating margin. They have done a really good job at a mine that is narrow and has at a short mine life.

At Goldex, as we said, a successful restart, ahead of schedule. Cost performance is very good, indications are below CAD40 a tonne going forward, which is what we have been using in all of the studies. So that potentially opens up opportunities to put more of the resource into the reserve going forward and ultimately into the mine plan.

At Kittila, excellent mill recovery around 90%, very good cost control Improving operating margin at Kittila. Meadowbank, as we said, record year, tonnes processed were up. The grade is up, and extremely good cash flow generator for us. In Mexico, Pinos Altos and Creston Mascoto, excellent performance, low cost business, very strong margins and excellent cash flow generator. And La India as we said, ramping up, in the ramp up mode and we anticipate being in commercial production this quarter.

So, again, across the board we have got contributions from all of our mines in terms of not only more throughput and increasing gold output but also in controlling costs and I'll talk about that in a slide in a few minutes. Financial results, essentially earnings were negatively impacted by the asset impairments that we talked about.

Also $47 million deferred tax charge and that's simply a function of the increase in the Mexican mining royalties. Lower gold price also affected not only earnings but also cash flow. Our realized gold price from 2012 to 2013 dropped by $300 an ounce. And that essentially accounts for the decline in our operating cash flow.

On the production side, you can see the numbers, again record production, both in the quarter and the year and what we've been focused on is trying to produce more higher quality ounces in our business and that's certainly been paying off in 2013. So essentially, we've had since the beginning of 2012, eight consecutive quarters where we've achieved or exceeded our production cost guidance.

Our financial position net debt is $830 million we have available credit lines, undrawn of a billion dollars. So that provides us with additional liquidity. We have a very manageable debt repayment schedule. But despite the manageable debt and available liquidity of a billion dollars we just thought it made good sense to reduce capital spending which we talked about last year going into this year. And also to lower the dividend to enhance our financial flexibility and reduce our financial risk as we move forward.

I'd like to talk about productivity and production. At a number of our mines we saw a number of our cost saving initiatives have an impact on our ability to lower the dollar outlay at each mine.

In addition, we've been able to increase throughput at a number of our mines, and as a result, we've lowered our cost per ton at many of our mines, while we have increased our production. At LaRonde, we're starting to benefit now from more development in the lower mine, more stopes available to us, which gives us more flexibility in the mine plan, and as a result more tons coming from the high grade lower mine. We're estimating at 80% of the tonnage in 2014 coming from the higher grade, lower mine.

Year-over-year the grade at LaRonde was up in 2013, 11% and as we indicated earlier, LaRonde is one of the mines that benefited from improving quality of reserve with an increase in the gold rate. We'll talk about that in a minute. Lapa, as we said, despite the short mine life and narrow deposit, the Lapa team continues to deliver good, solid steady production at low costs generating good cash flow for a short life mine.

Meadowbank, excellent cost performance. Increasing throughput Tonnes were up 8%. Grade was up 8%. Cost per ton year-over-year down about ten dollars, down to the CAD80 per tonne. So that's a mine that has come a long way in a couple years. A couple years ago we were over CAD100 a tonne. The team has done a good job optimizing that operation.

At Kittila, recoveries have been good, which has certainly helped. Cost per tonne has been steady and below budget. And that's important because the mine was in a transition phase in 2013 from a combination of open pit ore and underground. And now it's transitioned to a fully underground mine and it's been able to do that and maintain its cost, but also be below budget on cost per tonne.

At Pino s Altos, we are seeing steady gold output, lower cost per tonne. I think more importantly, at Pinos Altos as well, more emphasis on the underground mine and the on site total operating costs have been steady. So they've had a good handle on the costs. So this from our perspective, this type of solid across the board performance really sets us up to deliver on our growth that we've laid out over the next three years. We're looking for about a 16% growth in production.

That's really driven by grade at LaRonde, where we see growth in production over the next three years at LaRonde of about 50% off of the 2013 level driven by the grade, but also a function of more tonnes coming from the lower mine. Our reserve grade is up to 5 grams per tonne so improving quality reserve at that mine, which is important when we're mining in the lower part of that deposit.

Lapa, a relatively short life mine. We see in 2016, production beginning to tail off, but there is still some potential to grow that number in 2016. We have had good exploration results. We're working on those and trying to see if we can incorporate the resource into our mine plan.

At Goldex, as we said, the restart has gone well. Cost control has been very good. And what the cost control does is opens up the possibility for further growth and production at Goldex beyond 2016. We are working on those studies now. We should have more information on those studies before the middle of this year.

At Kittila we're expecting the mill expansion to be complete in 2015. We have an ability actually to optimize that mill expansion. We're looking at that possibility. That may help us to produce a bit more gold at Kittila. So good steady cost performance. Great recoveries at 90%. And now as the mill expansion proceeds, we're going to be in a position next year to ramp up tonnage and process more ore at that mine.

Meadowbank, we talked about that. Strong first half; about 60% of the forecast production next year from Meadowbank comes in the first half. We also see a good strong 2015 and 2016 at Meadowbank, and we'll be looking at those numbers based on experience in 2014 to see if we can possibly do better at Meadowbank.

The Mexican business continues to grow. We're expecting about a 36% increase in output coming from our Mexican operations, based off of the 2013 level, so that's good solid growth. It's our lowest cost business with excellent margins.

Atain, what we've laid out here for the market over the next three years is growth in a guidance we would term as solid and achievable. And I think most importantly, it's coming from mines that are already built and producing gold.

This is the bar chart on our growth. You can see we have been in a steady growth phase since 2011 as we completed our mine-building phase in 2010. As we've optimized these mines, they become more predictable, more efficient. We've lowered the cost per tonne.

The growth that we show in the forecast is largely driven by LaRonde and Goldex and La India and also at Meadowbank. We achieved that growth. We actually see a decline in our capital spending, and we talked about that earlier on our financial balance sheet side. So, lower CapEx required to deliver solid growth from existing mines.

Our reserves were done at $1200 down from $1345 to $1490 used last year. Net of production, we saw about a 4% decline in reserves as we had some really successful drilling that helped to offset the effect of using the lower gold price on some of our deposits. The exploration team did a really good job this year at adding to the reserve base and proving resources, and, more importantly quality resources.

Even though we saw a slight decline in the reserves due to the lower gold price, we saw an increase in the average grade up by 11%. Average grade of our reserves is now 3.5 grams per tonne and we saw several key mines with increases in grade. LaRonde we talked about. It went up 10% from 4.5 grams to 5 grams. That's a 3.9 million-ounce reserve with a significant resource. So higher grade, better quality reserves, which I think will be beneficial to us when we're sourcing 100% of the ore from the lower mine in a couple years.

At Pinos Altos, we saw an 11% increase in grade to 2.5 grams per tonne. At Meadowbank, we saw a 15% increase in grade to 3.24 grams per tonne. We tried to in our calculation capture some of the up side we were seeing in our production as we reconciled to the block model. We're seeing in the first quarter very strong grades, as well. So we're off to an exceptional start at Meadowbank. That's going to build a very strong 2014.

And at Meliadine, importantly, as well for a large development project we saw the grade of that reserve increase from 7 grams to 7.4 grams. So that will be incorporated in the updated feasibility study that we expect to deliver before the end of this year.

In terms of sensitivity, the reserves are not that sensitive to a drop in the gold price. At $150 lower gold price we estimate a decline in our reserves of about 5%. We have a lot of low cost reserves in our total reserves. And that gives it that good solid protection as gold prices decline.

Just to summarize and then we'll take questions, as we said, we had good solid production, record production in fact that exceeded not only our budget and also the guidance both in terms of production and also in terms of cost. We saw higher grades at Meadowbank. That's expected to drive good solid performance over the next two to three years. We saw good optimization and cost reduction programs leading to lower costs per tonne. So that came from a number of our mines, so it wasn't one mine carrying it. A good contribution from all the mines.

The production forecast through 2016 is for 16% growth in production, and again we would term that as solid and achievable, and also improved from the guidance we put out for 2014 and 2015 earlier last year. We talked about the reserve quality. It's improving at several of our key assets, using a $1,200 gold price, and at the start we talked about the dividend.

I've been here for 29 years. We've paid a dividend for 32 years. So I've been involved in a lot of the dividend discussions and it's gone up and it's gone down. One thing we can say it's an important part of the way we think about our business and returning cash to our shareholders. But sometimes you have to manage the business and create the right balance.

We did go to our employees last year and our employees gave up a substantial amount in terms of benefits, et cetera. And it made sense to us that we spread things around and do it in a way that we can get the right balance and improve the financial flexibility of our business and reduce the financial risk going forward. We just thought it made good business sense to do it.

And hopefully, if things go well down the road we'll have an opportunity to increase it. It's gone up and down over 32 years. It's never easy to reduce it. It's always better clearly to increase it. We've got a good solid business that's going to generate good returns going forward and that's what we're focused on.

Operator, I'd love to open up the lines for questions.

(Operator Instructions)

Your first question will come from the line of John Bridges with JPMorgan Chase. Please go ahead.

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

I just wanted to dig a little bit deeper into where you see reserve replacement a little bit longer term. The point being that Lapa is relatively short lived. Meadowbank is apparently quite short lived. And you're using the better results you're seeing from the existing operations to take production higher.

I just wondered where you see the replacement from Meadowbank and Lapa coming from in a few years time?

At this point, from the Meadowbank perspective, the ability to replace Meadowbank from a production side we see additional growth possibilities at Kittila. We see additional growth possibilities at Goldex. And that's by including a resource into our reserve and ultimately our mine plan.

We see possibilities to grow our business in Mexico. But also Meliadine we still have to do our work. I think our drilling suggests that we have a higher grade deposit, certainly focused on an underground.

Our feasibility work is now geared to and focused on an underground scenario. And what we're looking at is getting a production base established largely focused on the underground, which lowers up front capital and focuses on the best part of the deposit. We see that as a possibility but we're not in a position to make a decision on that until later this year.

That was the key question. Thanks a lot and congratulations.

Your next question will come from the line of David Haughton with BMO Capital Markets.

Thanks for the update. For Meadowbank, it continues to outperform. I see in the words that you've reinterpreted the block model and as a consequence better grade is shown in the reserves but kind of better reflects what you're mining. What's the substance of that reinterpretation?

I'll turn that over to one of the operating guys. We'll give you a sense of what we're seeing and what we've tried to bring into it. I think we've tried to be conservative. But I will turn it over to them.

Mostly on better understanding, continuity of the super high grade in the lenses in that area. More on the continuity and the interpretation.

Okay. With the continuity of the super high grade. It comes and goes and it's very hard to tick up obviously in widely spaced drilling. Have you changed the way that you've been doing your drill patents or anything like that to be able to pick up these lenses?

Not necessarily. When we started mining we recognized some of these continuity issues with high grade sectors. And we pursued the mining as we went through the various -- as we deepened the pit.

And somewhere in Q3 we started getting back at some of these continuity areas. And we've remodeled the block modeling in Q4. And updated our forecast for next year.

So we're pretty comfortable with the numbers that are there. Tons are slightly down a bit but the grade is up quite a bit.

And did the model reasonably predict the grams you got in the fourth quarter.

That's correct.

That's encouraging. Second question if I may to Kittila, you have your expansion to 3,750 tonnes you're suggesting to look forward to that mid 2015. What's your thinking about taking the expansion beyond that?

There's a couple things there. We were at the site a few weeks ago. And what we're trying to do is look at how much head room is in that 3,750-ton number.

It's a little bit too early. But there certainly are signs that there's a possibility to stretch it beyond that. That would be phase one. And we could do that with the existing setup.

Beyond that, we really need a shaft and we really need development around the Rimpi zone where we have better grades and thicknesses. To go beyond much of 3,750, we could tweak it up from there with the existing configuration but to go much beyond we need a new source of ore which would likely be a shaft. We've got studies underway there on several phases of a shaft, which would incorporate getting access to the Rimpi zone. And that would be potentially supplemental tonnage at some point down the road.

Do you see that as potentially viable even with the gold price where we are now?

Yes, we do.

Well, I'll stay tuned. Thank you.

You next question from Anita Soni with Credit Suisse Securities.

My question is with regards to the calculations in doing reserves. What does that include when you use the $1,200? What's the cost that you embed as the offset to calculate the cutoff grade?

Anita, it was hard to hear the question. Your line was breaking up.

Sorry about that. On the reserves, when you're calculating your reserves at $1,200 per ounce. What costs are included are you including sustaining capital within that? Or also are you including any corporate overhead costs as well?

I'll just give you a bit of a summary. We've done some sensitivities, and the way we've done some of our estimates -- we are estimating at about 89% of our reserves would have a cash cost associated with them about $950 an ounce.

So you can see that there are some really profitable ounces there. It's based on the mine. Some mines have different overheads applied to it than others. I'll turn it to the exploration guys to provide a more detailed update.

Thank you.

Your next question comes from the line of Andrew Quessy with Goldman Sachs.

We'll finish that answer Anita. We'll take this question and finish the answer.

Congratulations on a very strong quarter and positive outlook comments.

To build on Dave's question, mine is about Kittila and potential expansion beyond the expansion and if you've done any studies on addings autoclave as with the shaft. With the -- good mine and place to park some more capital over other places. Can you guys comment on what sort of cost it would be and how far down the road you'd be in the autoclave?

Well, to go much beyond 3,750 we would obviously have to have additional autoclave capacity. We've done some initial studies on it. And the capital for an extra autoclave is in the $80 million to $100 million range. So those are all part of the study.

And we'll have sort of the results of that probably in the third quarter of this year, midyear through the third quarter of this year. So all of that is being considered. Shaft, ramp access to Rimpi. Autoclave capacity. The Rimpi is what can drive this given the grade and the thicknesses and the potential to expand the mineralization at Rimpi.

And last question, Sean, just on the Mexican tax situation. Is that sort of much of a deterrent for future capital?

Well, we don't like it. If you actually look at it. It takes about $100 million out of our NAV.

We saw a deferred tax charge, which is non-cash, but the real impact is the cash impact, which reduces the value of our business in Mexico by about $100 million based on spot prices. But there are good opportunities there. There's a good skilled work force. It's one of our best businesses so we know how to do business there.

But all of our decisions are made after tax. And any time that the tax burden increases, that could potentially impact our decisions on where we allocate capital. We do know in Finland that the effective tax rate there is about 20%. It's gone down.

So other jurisdictions have gone up and Finland has gone down. From an after tax perspective, Finland has put itself in a position where they can stack up pretty well on an after tax basis. All that all plays into it, but we still do like Mexico as a place to do business.

Thanks, Sean.

What I will do just before we take the next question. We didn't get the opportunity to respond to Anita's question. And we'll do that now.

Okay.

The based on using the mining costs, the processing costs, and the G&A. Days on the life of mine plan.

Thank you.

I think that's it. Operator, we're ready to have another question.

The next question comes from Don MacLean with Paradigm Capital.

Well done on Q4. New year and new challenges. Can you give us a bit of a sense -- and this is taking from John Bridges' comment about reserve replacement.

What are the odds that you'll be able to find more resources at Lapa? Sean, we heard several times you said it was a short life mine. But also very importantly on Meadowbank.

Is there anything from this high grade zone that gives us more hope into the exploration potential to add more life there? Or anything else maybe that's been found in the region for Meadowbank to potentially extend its life?

Lapa if we're successful we were just there last week. We're talking in the order of magnitude months rather than adding years to some of the recent drillings. Maybe we have a more robust 2016 than we expected. It's not for lack of trying. At Meadowbank, the reserve that we see now has incorporated some of the higher grade we see in the existing pit.

But we did subtract some ounces at a vault. And they were lower grade ounces that we decided to take at a vault. I think it was around 0.25 million ounces or so.

So I don't think -- we may mine this out over the next four years at a slightly higher grade than the reserves. That wouldn't surprise us given the amount of visible gold and the extent of the visible gold in the structure. We may have a more robust next four years.

But to find more gold on the mine site or in close proximity to the mine site before we mine the remaining reserve is going to be challenging. We did have some exploration results about 50 kilometers away. And they actually look very good. And we've allocated some of our drilling budget to follow up those structures and who knows.

But I would suggest that maybe there's a higher gold price that allows us to go beyond the pit, maybe take another 300,000 or 400,000 ounces. That's always been something we've been hoping to do but we've never gotten enough continuity. From our perspective, we just look at Meadowbank as a good, solid four years, maybe get more production because of the high grade nature of what we're seeing.

Some of the regional exploration, it's early and seems to be paying off. Given where we are with it and its location. Even if we had a successful drill program in 2014 and started to extend the structure, it's highly unlikely we could get something developed before the four year remaining mine life at Meadowbank.

That's where Meliadine comes into play. It's early but we have refocused the feasibility work to focus on the underground. There's lots of gold in that system. It's sort of in terms of the way we play it.

It almost reminds us a bit like LaRonde. LaRonde it was important. It looked marginal. It was important for us at the time to get LaRonde built. So we built a small mine an 1500 tonnes a day. A mine we could afford and finance.

And Meliadine we're trying to look at ways we can get a production base established. It's an 80 kilometer [greenstone] belt. We own it 100%. With lots of gold. We've only drilled 10% of it. That's where we're putting a lot of energy and time.

And maybe if I can ask sort of more of a big picture thing on the financials. In Q4 you drew down another $50 million on the line of credit but the working capital went up 27 or something. There's kind of a net addition to the debt of about $22 million.

If you look at all the changes to, you know, much lower capital, you're going to save money on the dividend. But gold prices lower. And operating costs a bit higher. If you look at 2014, do you think you'll be able to exit the year without having to draw down on the line of credit more if prices sort of stay the way they are, Sean?

That's the plan. The plan was always as we worked through the budget, the strategy was to put together a plan that we wouldn't have to draw done on the debt. And, as a result, we decided to reduce the dividend and reduce the capital requirements and still do the growth that we set out to the market.

So we've got a good balanced plan. It's a plan that works. It's very doable for us.

We're hoping we can do better than the plan. We'll see how the year unfolds. But we like our position and we like our position to weather a storm if we do see lower gold prices.

Good. Everybody loves the dividend, but it shouldn't be at the cost of the balance sheet.

No.

Thank you.

Thank you.

Your next question will come from the line of Stephen Walker with RBC Capital Markets.

Great. Thank you very much. And again, Sean, thank you very much for the 2016 guidance, as well. That's been very helpful.

Just on La India if you would. We see the recovery starting to increase nicely, 58% and 21% for silver. For gold and silver respectively. How do the recovery curves look vis a vis what you had seen in the column tests so far, and then if you could comment on what you think the ultimate recoveries are going to be and whether they could improve.

And then, secondly, if you could talk a little bit about the water budget. And I know you had enough water I believe accessible for 12 or 16 months when you were through there last fall. But can you talk a little bit about where you stand on the water budget as well going into --?

Okay, Steven, it's Tim. I got -- you were breaking up but I think I got most of the question.

Your first question was talking about what do we know now about metallurgy at La India. How does it look compared to our expectation. I think the short answer is, pretty early and the stuff that -- the ore that we're stacking on the pad right now is the more of the silica cap. But in sum total, the bottle roll test results we have, the hot cyanide leads compared to fire assay test that we have, and the column leach curves that we have are where I would expect them to be. I don't see any surprise either way with metallurgy. The next question was about our water balance, how's our water budget, and we're fine. And going into year one with ample water supply was critical to us.

Year two we have the added advantage of having more water storage. And also we'll have the saturated heat which holds quite a bit of water too. So year one was the critical year and we're fine. And I don't expect a problem in year two.

Great. Thank you, Tim.

Your next question will come from the line of Mike Jalonen from Bank of America. Please go ahead, sir. Mr. Mike Jalonen you are live.

Is that Morse code, Mike?

He has disconnected so we'll go on to the next question. Mr. Adam Graf from Cowen, please go ahead.

Thank you, guys. Can you hear me all right.

We can.

Thank you guys. I was just looking through the Pinos Altos guidance, and it looks that, on first glance, both at Pinos and at Creston that your cost per tonne numbers are rising sharply. Is that -- what's that? Am I seeing that right? And if so, what is that attributable to?

You're seeing that right with respect to guidance. I think one thing I always like to look at is what is our total operating cost in dollars rather than dollars per tonne because on a mine like Pinos Altos which has underground, and open pit, and heap leach in the middle, you can easily get distracted by the mine side cost per tonne number.

And the same at Creston Mascota. You've got stripping ratio that affects the mine side cost per tonne as well. Total dollars, my expectation our direct operating expenses next are going to be lower than they were this year. So cost per tonne, I've often said I don't think that's a great metric in Mexico.

Okay. Even when I'm sort of looking at it on your guidance. You gave specific guidance looks like on a mill basis for Pinos and then on a leach basis for Creston. And assuming the leach of Pinos is the same --.

The thing with Pinos Altos is often our heap leach tonnes are highly variable and unpredictable because we didn't drill for low grade heap leach resources in that ore body. And when we encounter them we process them. But we don't account for that in our guidance and our plans. So there's very likely to be a higher deviser at Pinos Altos, and if that were the case then our cost per tonne would be lower, but I'm still going to go back and say I think cost per tonne is not a great metric.

Sure. And that's why there's not so much guidance as far as the leach material and grades and such at Pinos.

Right, it's highly variable. We do expect less heap leach tonnes in 2014, but we are developing the San Eligio pit, for example, and already we've seen a few extra tonnes coming out of that pit that were low grade heap leachable, so we'll see.

How many years do you think you have left at Creston? Are your resources and reserves -- it only looks like a couple.

You know, I better not answer because I don't remember. Off the top of my head I'm going to say five. And then we're looking around for more. And we'll find more I hope.

And then the leach at Pinos Altos, that could continue but -- for some time in the future but you just don't have a feel for it?

Well, the open pit mines at Pinos Altos depletes somewhere towards the end of this decade. And we're not going to be heap leaching underground ore.

Right. Got you. Thank you very much for answering my questions.

(Operator Instructions)

Your next question will come from the line of Mr. Steve Parsons from National Bank Financial. Please go ahead. Mr. Steve Parsons, you are live.

Thank you. Just a quick question on Meadowbank. Guidance would appear to be clear that the high grade component at Meadowbank, as in it will enable a stronger -- each one this year.

If you could talk a little bit about, perhaps, the geometry of that lens. I'm trying to get a sense to what extent that lens may continue at depth. Whether you can pick it up when you push the benches deeper in the pit, is it pinching out? Trying to get an understanding of how that will affect future years.?

We've looked at underground scenarios and the economics at this stage. Even though grades are high, the overall economics don't generate any potential to deepen the pit. And at this stage, going underground to follow the high grade vein doesn't appear to be economical as well. So, that's the reality.

As far as the -- why the stronger grade in the period. We've talked about recognizing the continuity and the grade of that area, but we've also been mining at an accelerated pace in Goose towards Q4 and on to Q1. So that will be a portion of the reasons why the quarter will also be stronger in performance, we're stronger in Q4.

Okay. And the next question. As you apply the lower gold price to the reserves and maybe specific on the underground mines, see higher grades but maybe also lower tonnages.

Could you maybe talk a bit about how this could impact mining methods? Are you looking at requiring narrow mining widths and having to alter mining methods at some of the mines to accommodate the higher grades? Will that require more development, more faces, in the narrower areas? Could you elaborate on that, please?

I assume we're not talking about Meadowbank any more.

No, let's talk about LaRonde.

Okay, so we've just completed our reserves and our cash cost profile for reserves for most of our underground mine is pretty solid. So the -- some of them are still sensitive, but the sensitivity is quite low at this stage and we're talking probably 5% to 7% if price of gold is lowered. So we're pretty comfortable and positioned as to where we are at the current reserve prices.

Right. So, no change to mining methods?

Not at all, no.

Okay. That's it for me, thanks.

Your next question from Anita Soni from Credit Suisse. Please go ahead.

Thanks. Just a couple of follow up questions. On Pinos Altos, the development projects, I'm not quite sure if you delineated what that was dedicated to -- the $29 million, what are you going to be spending on there?

Well, we're sinking a shaft at Altos. So that's the shaft sinking during the course of the year.

And that's the majority of that is $29 million? Is anything else within that $29 million or just the shaft sinking, that's it?

Largely the shaft.

Okay. And then just on the tax rate in Canada, sorry, the overall tax rate. What portion of that is cash taxes?

Hi, Anita. That's a bit of a moving target obviously. But the main cash tax is still just the Quebec mining duty. So it's 16% and it shouldn't be much more than that.

All right. Thank you.

Gentlemen, there are no further questions, I'd like to hand the conference back over to Mr. Boyd for closing remarks.

Thank you, operator. And thank you, everyone. We know it's a busy day and thanks for tuning into our call. And if there's any follow-up questions, feel free to give any of our guys here a call. Thanks again.

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