Agnico Eagle Mines Ltd (AEM) 2015 Q1 法說會逐字稿

Good day and welcome to the Agnico Eagle Mines Limited first-quarter 2015 conference call.

This conference is being recorded.

At this time I would like to turn the conference over to Mr. Sean Boyd. Please go ahead Mr. Boyd.

Thank you, operator, and good morning everyone, and thanks for joining us for our first- quarter 2015 conference call. Before we get into the material I would just like to note the forward-looking statements, cautionary statement that's in the package. We do have some forward-looking statements here, so please be aware of that.

As far as the quarter goes, it's really a story of strong operating performance. We have solid contributions across all the operations. As a result, we're generating very good cash flow, and also net free cash flow. And more importantly, we are not doing that at the expense of squeezing our best projects or our best exploration opportunities.

As you know, in the press release we noted that we had record gold production, a little over 400,000 ounces, at a cash cost of below $600 an ounce and all-in sustaining cost of approximately $800 an ounce. We had records in Mexico, in terms of total production, but also, more importantly, in Mexico our cash cost are there are below $400 an ounce.

We also saw some really good cost performance in the Abitibi. We've had both Goldex and Lapa producing gold for cash cost of under $600 an ounce. As result of that good start to 2015, we're in good shape with respect to both the production and the cost guidance.

But I think what's more exciting to us, is that we have been very focused over the last little while on our exploration opportunities, not just in Nunavut, but at a number of our operations, and we continue to see very good results, and we'll talk about those this morning. Clearly at Amaruq in Nunavut things continue to move in a very good direction. But we've also seen some good results in Kittila, where we have potentially picked up a new zone within 150 meters of the main zone. So that could provide us with some interesting economics as we look to develop the underground mine at Kittila.

The balance sheet is strong, we were able to, given the strength of the first quarter, pay down $100 million on our credit facility, and in the quarter, we declared our quarterly dividend of $0.08 per share. Specifically, on the operating results, as we said, good start, so we're tracking well to the guidance. In the Northern business we are producing little over 300,000 ounces at a cash cost of $645 per ounce. In the Southern business we had 90,000 ounces at below $400 an ounce. So again, good solid performance and tracking well to the guidance, which is 1.6 million ounces at cash cost between $610 and $620 per ounce.

Financial position, we noted that at the start. We have net debt of $1.1 billion. We have a very manageable debt repayment schedule and, as result of the performance in the first quarter, we were able to reduce our credit line by $100 million, borrowings into that. So we now have available credit facilities of $800 million.

Financial highlights, we did generate some good cash flow despite the fact that gold was down $100 from the quarter of the previous year. Before working capital changes we generate a little over $175 billion US.

Looking at the northern operations in more detail, LaRonde continues to open up the lower part of the mine where we do have our best grades. We continue to work on installing infrastructure that will improve our mining flexibility, improve our cost position.

The coarse ore conveyor system, we've got that in. The new conveyor will be commissioned in of September 2015. As we said that helps with the flexibility of the mine. We are also looking at a study below know 3.1 kilometers underground, we've got resource there and we are starting to plan for that. The lead time on something like that can be as long as 10 years.

We still have a long life left at LaRonde unreserved. We have resource, but you have to start doing that planning; we are still drilling there. We still see strong globalization. I think what was important in the quarter, is our best grades are in the lower mine.

As you know we have been will mining well below reserve grade; reserve grade is 5.2 grams per tonne. In Q1 we were mining 3.5 grams per tonne at a rate of 6200 tonnes a day. Had a little less byproduct credit than we had expected. We had a couple of Stokes re-sequenced; we will get those back and that should help lower with the cash cost when we get that extra byproduct revenue in future quarters.

At Meadowbank, good cost performance on a per-ton basis, 71 CAD, that's versus 76 CAD year ago in the quarter. We see lower labor costs, lower reagent consumption. It produced just shy of 90,000 ounces, cash cost is $655, roughly 3 grams per ton at 11,000 tonnes a day, which is roughly the same tonnage as the quarter a year ago, but, as you recall in the quarter a year ago, we were in our high-grade, a very high grade kick at Moosehead, where we averaged over 5.1 grams per tonne and we had a record production in the quarter last year.

So we're in a lower grade area and as we move through the Vault pit, that is a bit lower grade. We're looking at a study to optimize Vault right now, and that Vault study is really designed to extend the mine life at Meadowbank, and we're hopeful that we can extend it about a year, which would take us to Q3 of 2018. And we're looking at that by bringing in about 240,000 ounces, or so that was previously removed from the mine plan a couple years ago.

So we will have the results of that work by the middle of this year, but at current gold prices, particularly in Canadian dollars, and the oil price where it is at, that's looking like something that we should be doing. And what that would do is potentially close any potential gap between Meadowbank and the satellite deposit at Amaruq.

Looking at Amaruq we've a couple slides in here which highlight the location of the drilling. Currently there's five drills in operation. Within the couple weeks we will have another three drills, so we will have a total of eight drills. The current budget is $20 million. The capacity we can stand up to [50,000 tonnes].

We will be results driven. The resource that was announced earlier this year on Whale Tail is 1.4 million ounces at 7.25 grams per ton. The objective in the early stages of this year's program was to drill from the ice on the lake into this gap that we couldn't access last year during the summer drill program.

We've announced several drill results that essential close that up and fill it in with mineralization. Several of them are very good grade, so our team is confident that that resource is going to grow.

That is an open pit resource, so we will be updating the market on the results of the program as we go through the drilling season, as we extend the budget and we will likely have a midyear resource update, which will incorporate certainly the drilling in the gap, to but also looking to tighten up the drill spacing on the resource that we put out earlier this year. And we also hope, not only to grow the resource, but improve the confidence of the resource by moving it up from deferred to indicated.

We are also drilling to the west of Whale Tail. We're drilling Mammoth Lake now, and Mammoth Lake is the area where we think is the source of the boulder trains; we have several boulder trains. And Mammoth Lake has the same mag signature as Whale Tail, and so it is not only a program to do infill drilling on the Whale Tail resource and look to extend that resource to the west and the gap, but we are also looking along the strait. What we have at Whale Tail is a sizable horizontal structure with both a strike length and depth potential.

We're not really seeing the vertical constraints on Whale Tail that we saw at Meadowbank. So there's a lots of promise here and lots of it potential and, I think the fortunate thing for us is the fact that it's, by road, about 60 kilometers or so from Meadowbank. So that's something we are very focused on piecing together.

And as you know, we do have the Meliadine project as well, so we're working on how these all come together. And what we know, now based on the size of Meliadine and the potential of Meliadine and the large land package at Meliadine, combined with the discovery and potential at Amaruq, and the large land package at Amaruq, we're in a part of the world where there's tremendous mineral potential, and you can actually do business in the middle of it. And so we are fortunate to be in this spot and we are fortunate to be in early and we are fortunate to have a lot of ground, and one at 100%, and we are fortunate to have the skill sets that know how to do business there. So we see that as a big part of our future.

Moving to Canadian Malartic. Very good performance there. Record gold production in March. Costs were approximately $20 a tonne. We averaged in the quarter about 52,000 tonnes a day. In February and March we averaged 53,740 tonnes a day.

So we expect been in a range for the next year or so of breakthrough in 2016 in a range of 53,000 to 55,000 tonnes a day. We produced to our count 68,000 ounces at cash costs in the low $600, so good performance, good cash flow generator for us. I think one of the things that we were excited about was being able to get the drills on the Odyssey Project, so we have drills going there. We always thought that this had very good exploration potential.

As we had always said to the Abitibi royalties group, that it would be a shame if we put sort out the issues that we've had, because we've got some of the best exploration people in the business waiting to drill it. So now those people are at work here, putting drill holes down and, I think, we're quite hopeful that we're going to be (inaudible) mineralization that is good grade with good thicknesses, and ultimately we hope to be able to apply what we do currently at Goldex to an underground scenario on that part of the Canadian Malartic property.

At Goldex a very strong quarter; 6300 tonnes a day, a little over 1.7 grams per ton. Our throughput was up 16% from year ago. Mine site cost $34 a ton, they produced better-than-expected 29,000 ounces at cash cost of $541, so good start to the year. We've accelerated development in the deep zone.

We've allocated some more capital there and we also allocated more money to do drilling. We will have those studies done early later this year, early next year. And we're also working on the Akasaba study, which is the satellite deposit about 30 kilometers away. So what we're really trying to do is continue to optimize Goldex after the restart, Pete's done a very good job proving the cost model. We are trying to take advantage of the headroom that we have in the plants and build a frame that can do 8,000 tonnes a day, we used to do that in consistently in the early days, so we're still working on optimization.

At Lapa, strong quarter, 1700 tonnes a day getting good grades, good recoveries, the team is doing an exceptional job for a mine that's got a short life. So even though the mindset to close before the end of next year, the team is working as hard as they've ever worked to make that mine generate free cash flow.

We decided as a group to continue exploration. We're doing exploration on the Lapa property in Zulapa area; we are getting some interesting results. And we are also drilling with our partner, Yamana, to the west of Lapa on the Pandora property, and we're also getting interesting results at Pandora. So we haven't given up. We continue to invest in areas that we think have some potential, so hopefully we'll get a break there and maybe we can rework the Lapa people for working so hard and hopefully extending that mine.

At Kittila, solid performance, tonnage up 12% from year ago, cost per ton 77 EUR, cash cost below $700 an ounce. I think the most exciting thing in Finland, as we have been drilling there for a number of years, for the longest time we were basically drilling from surface, for the last little while we've had access in the underground ramp and we've got underground drills going. We continue to follow the trends, deposits, we know the direction of the plunge as we move to the north, we continue to follow those.

Not only are we getting good results in main train, but now we're -- we've just drilled a hole which seems to indicate we have a parallel zone to the main zone, about 150 meters to the east, and it -- that confirms drilling that we did a couple of years ago. So that's the focus, we're adding a drill. That would certainly change the economics at Kittila, as you know we have a narrow deposit, it is large, that does require extensive development. We've been contemplating a shaft for number of years, as we've said all along all, ultimately they need a shaft, but the parallel zone, a good grade and decent size, it certainly help us in making that decision.

Meliadine, we talked about that. Recently we put out our 43-101 simply based on the reserve. The focus right now is an internal study using that base case on the reserve and adding a significant quantity of the resource; the resource is 6.8 million ounces, to the economic study, we call that our base case plus study. That will really drive a lot of our decisions around Meliadine.

But we are hopeful that we can improve the economics by adding some resource there, and we also, as we said many times, see Meliadine as a big part of our business platform in Nunavut. And when you combine it with Amaruq and spread the overhead, you have a platform that can be one of our biggest contributors to not only our production, but also our cash flow as we go forward.

The Southern business, record gold production, record silver production. Excellent quarter in the first quarter. Cash costs below $400. So we are getting good strong performance at Pinos Altos, which produced 50,000 ounces, cash cost around $350 an ounce level. The shaft sinking program is ongoing, on time, on budget, expected for completion in 2016 at Creston Mascota. Steady output, a good cash cost in the mid-$400, so no surprises there. We seem to be picking up additional ore, we're mining some ore outside of the block model, so that's always positive. At La India we had a new record for quarterly production, 27,000 ounces, cash cost in and around the $400 range. We do see potential to add more mineralization to that mine plan. We did acquire an adjoining property, a small concession from Alamos Gold, which consolidates our land package there, and that has additional potential to add ounces.

Before we take questions, it's our view now as we look at our positioning in the market, it's still a challenging time for many gold companies, but as we look over our sort of long history, we think it is really the best time for -- to be thinking longer-term rather than short-term. We continue to believe this is the best time to be drilling, the best time to be building new production platforms.

We think it's the best time to be looking at new opportunities, but I think for us the key is we need to keep doing those things, but do it in a -- as part of a longer-term strategy, and do it in our sort of customary measured way to make sure we not only understand the risk, but we also have a good appreciation and understanding of the opportunity, and we don't lose sight of the opportunity as we try to understand the risks.

So today is an important day. We have our annual general meeting at 11:00 at the Sheraton Hotel so all of you are certainly welcome to attend, and I also just want to mention that we do have a couple of site visits coming up over the next several months. We have a site visit to go to Nunavut and see Amaruq, and that's on August 20. Space will be a bit limited there.

And we also have a site visit to Barqueno in Mexico. So that was a project that came from the acquisition of Cayden Resources. We have several drills on that project, I'm going now, so we will have an update on that over the next couple of weeks on how drilling is going there. So that visit is September 23 and 24, tied onto the end of the Denver Gold Show. Our expectation is that we should have an updated resource at Amaruq prior to that visit, and we're hopeful that we'll have an initial resource at Barqueno prior to that visit.

Operator, we would be happy to take some questions.

(Operator Instructions)

Andrew Quail, Goldman Sachs.

Good morning, Sean, thanks for taking my questions and congratulations on such a strong quarter.

A couple questions, one on Pinos Altos. Obviously your grade jumped up [through topography]. Do expect that to keep going into the second half of 2015 to remain at Q1 level? Which is more like your reserve build.

Q1 was higher than subsequent quarters will be. We've got a little bit of higher grade, just due to sequencing, and we also got lucky on one of our Stokes underground and had a higher grade than we expected, so it will moderate in the rest of the year.

Okay. Question about the one last (inaudible) on Amaruq. Obviously we'd get an update mid-year, and you go up there, hopefully, in August, but when you look out and look at your guidance at Meadowbank, it obviously comes up in 2017 and this obviously looks very positive. Can you just talk about the strategy, maybe, as much is you can? What are the headwinds here? Obviously the transport -- you're trying to get the permits there. What's the strip like of the area, and what are the key issues that we should be focusing on? These can't be delivered in 2017 and fill that gap.

There's a few things there, and so the focus right now is not just on drilling, but it's also on -- probably have a couple dozen people that will be there in the summer, and are there doing the baseline work, so we're already thinking and preparing earlier than you otherwise would. And what we contemplate there is certainly our [gold]. We know the location of the road. The road would be about 62 kilometers long. We would be finding an open pit to start at Amaruq. We'd have to put up a dam, so we'd have to dewater part of the lake.

So all of those things are things that we do currently and have done at Meadowbank. So we're not really asking the authorities to allow us to do something that we haven't otherwise done. But in order to do that and to stay on track, we will have to put a pit in it at some point this year and that's the purpose for the updated resource. And then we'll turn it over to the engineering guys and they will design a pit. Right now they've done some preliminary work, but it was really done on two pits because we didn't have the gap drilled off. So it's too early to say what the strip ratio would be. Is it Meadowbank-like or a little bit higher than Meadowbank?

Those are sort of the general range, but I think what we've got is, we've got something with at least the initial resource. Something that's, at this point, sort of half the size of Meadowbank in terms of total ounces at double the grade. So we expect that 1.4 million ounces to grow, based on the results we've got so far, and we'll continue to tighten up that spacing. As we said, this has got lots of strike length potential, the mineralization is very continuous, the rock quality is extremely good. So we expect it to get bigger. So it will be a bigger number.

When we were up there, a year ago, our guys were saying that from an operating standpoint, to the exploration team, we'd need about a million ounces of high grams, so we're already past that hurdle. In terms of timing, if you actually take -- and we've been saying this for the last few months -- if you actually take the Meliadine permitting timeline, and that may or may not be appropriate, but if you apply it enough since Meliadine's a bit more complicated because we're -- Meliadine's building a plant, etc. -- you'd be looking at Amaruq some time in the second half of 2019.

So we can push out Meadowbank to later in 2018, and then start to work from the Amaruq end and hopefully move that forward, with the objective is to eliminate that production gap. And we have been very clear with the regulators and people that would be involved in reviewing what we would be proposing at Amaruq. And it's essentially the same groups and the same people we've worked with on Meadowbank and Meliadine, and we've made that known to them, that the timeline is largely driven by the resources that the authorities can bring to the table to redo.

So the federal government has just put more money into the Nunavut Impact Review Board to actually boost those resources at that Board, and maybe that will help accelerate the timing. But we see a couple things -- we see more resources on the other side. We've offered to add resources, if they need it, to help with that review process. But we are also seeing a project that is less complex than Meliadine. And as we said, we are not asking to do something that we haven't been able to do up there in the past.

I think this is a good point to make: is that our experience at Nunavut, in terms of actually getting things done, has actually been quite good, and it is not a part of the world where they're adversarial with respect to mining. In fact, I would say they are positive towards mining. They want to understand the impacts of mining, but generally they're positive because of the economic impact that it has there. And Meadowbank's been a great example of that.

This morning at the Annual Meeting we'll have the Premier of Nunavut there; he's in town. And so the government of Nunavut's a big supporter. (Inaudible) Nunavut is both the federal government and the local community, so we've got all the support we need to keep moving our business forward. We just see it as a great platform with tons of mineral potential, and also a place to do business, and I think the industry is challenged to find these types of places, so we are fortunate to have it.

Thanks very much, Sean, that's very helpful.

Stephen Walker, RBC Capital Markets.

Thank you and good morning, everybody.

Sean, just want to circle back on something that you'd said about the shared benefits between Meadowbank, Amaruq, and Meliadine. Are there tangible synergies? Or is it more just you've got a team that is used to dealing with regulators and with the permitting folks in Nunavut?

It is some of that, but I think if you go back a year ago, all the work we're doing on Meliadine as they were going to bear the entire overhead and all the burden, so now we can spread that over two projects. I think the advantage that we have with the Nunavut base is its connection and link to the Abitibi region -- not just the physical link with a logistical support base at the Val d'Or airport, but also the technical link and the technical skills that help us develop that.

And how is this manifested? We can see it is already adjusting our drilling cost at Amaruq, which are sub-$300 a meter, which are as competitive as what we are spending in Mexico. So if a junior company was drilling in Nunavut it would probably be triple what we are spending. That platform of Meadowbank that helps us get the skill sets and helps us, so there's a lot of things there that make a lot of sense for us.

And we're looking at what's the overall strategy there. I've been asking, what does Nunavut look like in 10 or 15 years? Is it a series of satellite deposits where ore is being fed into two or three plants? Those are the things we are trying to figure out, but the more critical mass that we have -- which we should have with two mines -- the more efficient we can be and the easier it is to optimize the business platform there.

Great. And just maybe follow-up with a logical question with respect to Mammoth drilling and Whale Tail -- is that the same geological structural continuity? I know that there was once, as you suggested the (inaudible) indicates everything lines up. But what you've seen in the drill hole so far, does that suggest that geologically it's on the same type of a structural geological trend?

Yes, exactly the same type of (inaudible) as we are seeing in the Whale Tail, and in some terms what we saw in the Boulder (inaudible), what we see basically is a lots of coarse (inaudible) sulfite that explains the mag and (inaudible) and normally that's what we're getting in the lake, and now we are in a waiting time because we see how much more we're going to get from the first few drill holes because we just started drilling in Mammoth Lake about a week ago. We're getting four or five drill holes completed, so this will be incorporated in the next update to the market.

But you are seeing similar [to logic] geology, and obviously those were gold, to what occurred in the Boulder train from the sounds of it?

Yes, we see training and (inaudible) are over 10 to 20 meters, which looks good. We haven't seen visible gold, per se, but if we compare it to general (inaudible) how long we see visible gold, the rate seems to hold. So it's not necessary to see visible gold. We saw some in the Boulder train, as you mentioned, but we see all the right ingredients in -- visually in the drill hole. Now we have to wait for the lab to tell us what the real gold rate of that.

Thanks. Just while I've got you talking or looking at Kittila, you've got a parallel zone which increases the tons per vertical foot. What -- today what's the geometry, what's the potential for that to yield significant tons, or ultimately significant ounces in a reserve? Is this a parallel structure that has some continuity? Is this just a small lens, or display, off the main structure at Kittila? Can you talk a little bit about what this parallel zone is?

It's too early to comment. We are only three holes drilled on that [parallel structure] East of the main street to the (inaudible) zone. And what happened, we drilled at the end of (inaudible) the 10-gram (inaudible) and we wait to get that gram. And the ranking's there right no;, it was the first hole that we hit again that new zone. And (inaudible) [gold front] 2011 and now is over 500 meters, and now the plan is (inaudible) between to see what could be the size of the structure. But it is (inaudible)[structure holds] very well together, and now it's to be cross the fingers, look at we can hit in between, and see the size. We don't know exactly what will be the size for now. But we're following right now.

Great, thank you for that, Alain.

Anita Soni, Credit Suisse.

Good morning and congratulations on a good quarter, and on these significant exploration results.

My question is just with regards to Meadowbank unit costs. So they came in a little bit below your budget. Do you expect that to continue throughout the year? Or will that revert more towards budget?

I think costs, we're slightly below expectations in the quarter. Some of that might be due to stripping. But I think going forward I think the guided (inaudible) this year. I think it's well in line with what we had announced.

All right, thank you.

(Operator Instructions).

Phil Russo, Raymond James.

Yes, thanks, Operator. Good morning guys, hello, Sean and the team there. Congrats on the quarter.

Just maybe on Meliadine here. Can you perhaps just remind us what the timeline is here for the go-forward decision? And then, so secondly, you seem to be talking pretty optimistically about what things that are happening out there in Nunavut. Maybe talk about your willingness to fund the project; your capacity to fund it here at spot. Is it more debt? Or are you talking JV partners and those types of things?

Sure. On Meliadine, in terms of timeline for decision, our expectations are on the permit side, that it's early next year to get the permits. So it is between now and early next year. The base case-plus study will be done the middle of this year, so around the second quarter. So we'll have a good sense; we're well advanced with that and what that looks like when we take the reserve and incorporate a subset of the resource.

In terms of funding, as we said, it's in that sort of $1 billion range. We do have some capital coming off as we complete the shaft at Pinos Altos, so we do have several moving parts. We do have some depth capacity. We have been approached by people looking to partner this, and we're not sure that, that's the right thing. There is a lot of exploration upside. So we're looking at a lot of different options up there, but it's our view from a strategic point of view that this is an important part of our business. Will probably be a more important part of our business, given the mineral potential and the ability to get things done. And it reminds us a little bit of LaRonde in terms of having to get that first production started and get a base established. And we think this is a place that, once we get that production base established, that we'll be there for a long time.

So that's the way we are approaching it. We are moving the studies forward as quickly as we can. We added some more people resources to the team because of the Amaruq and adding more options and more opportunities up there, and we are just trying to sort a lot of that stuff out right now.

Thanks.

Mike Parkin, Desjardins.

Hey, guys, good quarter.

Just a couple questions on the Nunavut area. Are you looking to secure diesel prices -- like lock them with any kind of hedging? I know the shipping season's still a little bit out, but just a comment on that? And also, on Kittila, this new heavy drill rig -- when do you expect to have that on-site? And what's the distance from this new zone that you expect to be drilling from?

Mike, I will take the first part of that.

We do actually consume a fair amount of diesel already in the North at Meadowbank. We do hedge part of that. We have a shipping season. We do some hedging outside of that because our requirements have increased due to the acquisition of Malartic specifically, being a big open pit. So that is something we're active in, we're trying to take advantage of the currently low prices.

And then longer-term, we're actually doing some work at the moment to see how we can contribute to the overall return profile of the new projects like Meliadine, as well. So we are definitely active, not only in fuel, but also in currency, as that also has a major impact on our results.

Just on the Kittila?

Yes, the Kittila we have already rigs in place, they already are, and we continue to drill between that lower and upper part, and the EC drill would be [already there] three months or four months to drill, and to understand the size of the difference. Already drill between the two holes is done.

Okay, thanks very much. That's it for me, guys.

Steve Parsons, National Bank Financial.

Yes, thank you, good morning. Thanks for taking my call.

A question beyond LaRonde and, specifically, with respect to the coarse ore conveyor that's been planned for commissioning later this year, can you just maybe elaborate a little bit about the indication that you should expect to see, is it [increased] mine flexibility there? Is there potential for the grades to take (inaudible) and maybe close to reserve once that in place, or as it relates to cost? Or maybe just add a bit of color on what the benefits of what that would be?

I think we are in the position of completing the construction in the first quarter, and essentially establishing the commissioning in the third quarter for this year. I think on the cost side -- we're not expecting major impact on the cost side, but we're more focused on flexibility, minimizing traffic, and then just basically establishing the mining sequence in the bottom of the mine, and being able to move out [foreign] waste at a more productive pace, so it's basically flexibility.

Okay. Maybe secondly, as it relates to LaRonde, there was an indication in the quarter that there was some harder ore, maybe some harder stokes, that complicated some drilling efforts and impacted cost in the quarter? Is it something as you get into the deeper part of the mine we're going to see more of, more harder, or maybe higher drilling cost and potential implications in the mill?

We've seen as more depth, more profile is getting harder. We're dealing with drilling suppliers to find solutions with that in mind. They have had some recent success in certain areas. So I think it is more a question of re-adapting to rock strength in that area and basically putting in planning and proper tools to adapt. We are not necessarily very focused with rock hardness profile burdening large cost consequences.

Okay and maybe lastly on Pinos Altos, to follow-up on Andrew's question on grade there -- it looks like, if I take a look at the delta between gold sold and gold produced, there was about 10,000 ounces of gold not sold at Pinos Altos, which would suggest to me that maybe some of the higher grades were hit later in the quarter. I don't know if that was true, but if so, is there a chance that higher grade structure, whatever it was, extends into Q2?

No, there's -- April's going okay, but I would stick with my answer is, we're going to tape or moderate and going to (inaudible) for the rest of the year, that's our forecast. And yes, we did get some good production in March, later in the year, you are right about that.

Very good. That's it for me.

Stephen Walker, RBC Capital Markets.

Thank you.

Just as a follow-up for David -- and I apologize Sean, I believe you touched on this a bit but I just want to get more details on the debt repayment. You did begin to pay back again, or continue to pay back some of the debt this quarter. Is that just the excess cash that was generated with the lower low-end sustaining cost, lower sustaining capital, that was spent in the quarter? You generated, obviously, a little more free cash with that. And do you expect to continue to repay the debt at the same rate, or will it be lumpy depending on the free cash flow generated in the quarter? Maybe you can give us a sense of what we can see between now and year-end, or what those plans are?

It's definitely going to be lumpy. There was some excess cash in the quarter due to a very strong quarter. We actually have an expectation, we pointed it out in the press release, but based on success at some exploration properties, and with some good capital projects, we think there's an opportunity to actually spend more than our initial capital budget for the year. So we are probably going to be doing that. As a result, that will consume some of the forecast free cash flow for the year.

As a follow-up, Sean and David, when you look at the debt-to-total cap, you look at that level of debt that you have on the balance sheet, are you comfortable with it at these levels? It's moving into the upper-end of the range where historically it hasn't been. Where do you see that level of debt going forward, if you did, as you start to invest more capital into some of these projects in the next 24 to 36 months?

We are most certainly comfortable with the balance sheet. I describe it as neither high nor low; I think it is moderate. As Sean said earlier, we felt like we have debt capacity at this point, without threatening our investment-grade credit rating. We don't feel constrained on the balance sheet for the future growth plans at all. We feel like we have access to both debt and equity markets. So as we do generate opportunity to reinvest and improve the business, we feel like the balance sheet's there to help us do that.

Thank you very much, David.

Don MacLean, Paradigm Capital.

Good morning guys. Well done on the quarter.

Two questions. One for Alain, just a quick one on this infill drilling. How is it looking compared to the other sides? Are you getting the same kind of density as [aiming], and frequency of high-grade mineralization, or is there something different about this gap?

No, exactly the same thing. And one, we are looking the price (inaudible), and we're looking maybe that (inaudible) is something a little bit better than the (inaudible) situation that we did in the beginning of this year when you saw the 7.2 grams, and looking at the price despite a little bit above. But looking at also what we do under the lake, we have wanted to [entrance the] eastern part, and going to fall into the western part, and that may seem likely the same thing. And one thing that we did not mention, too: last year at the last station for the work we hit the fifth (inaudible), and now we are pushing to the north to find that answer, and it could be something, if the shoe holds (inaudible), and will. And could be in the footprint of the tip. (Inaudible) arrangement to the north.

Great. Okay. The second question is on the Meliadine. Maybe Sean, you can talk about what are the differences you are considering in the base case-plus scenario that will get that 10% rate of return at $1,300 to look more appealing?

It simply taking more resource, extending the mine life. So we won't add all of the 6.8 million ounces; we will mine, or put in a subset of that. But we're already seeing numbers above what we put out in the base case study on the reserves, so it is just fine-tuning that at the moment.

The investment opportunity there is really -- you've got 80 kilometers of coverage, we own it 100%. We've only drilled the central part of that, so there's still lots of potential in the district. And it's to get that production base established and that's really the focus right now. We know that if you look at some of that resource, the grade of that resource, or a chunk of that resource is as high as the reserve. There's a chunk of that resource that's in that 7-gram range as well. The resource is good quality, and so that's why we're feeling comfortable that we can get that rate of return up.

You've indicated you've got a potentially long-life asset looking at them. What kind of rate of return would you feel comfortable taking to the Board?

Well our base case is 15%, after tax, but you're one of the old guys like me, and you can remember that [we built LaRonde at] 8% or 9%. And so we don't need 15%; if it's a little bit less than that, and the theory is, is you're building a platform that's going to be a significant part of your business for a couple of decades; then we build it. And that's long-term thinking. And the reason we do it here is at this depot, is where we tend to create the most value is, once we get established, we set our teams loose on it and off they go.

And we've proven that consistently, whether it's in Quebec, whether it's in Finland, whether it's in Mexico, and although we got off to a rocky start in Nunavut, Meadowbank, we didn't quit, we didn't pack up and leave, because we saw it as a great place to do business and we saw it with a lot of mineral potential, and, wouldn't you know it, (inaudible) and (inaudible) and Jerome (inaudible) put their heads together and said, let's look beyond Meadowbank and let's see what's out there, and here we are on what could be a significant discovery.

That's long-term thinking and so IRR is always at a point in time, and it's a mathematical number and all of those moving parts do move and do change, and we've experienced that over a long career and LaRonde is the best example of that. It's turned out to be a world-class deposit.

Alain Blackburn is there as the mine geologist, followed by Marc Legault, followed by [Yves Joslain], and all that good thinking resulted in us developing that (inaudible) deposit. So as Mr. Penny used to say, if the gold is not there we can't put it there; if it's there we're going to find it. And we look at none of it as a perfect example of that and we think there's lots of gold there and we've got the smart people that are going to find it.

Lastly, on that same topic, on Nunavut within the context of considering new opportunities, would you consider increasing your footprint in Nunavut or would you like to diversify elsewhere?

That's a good question. That's long-term thinking. We have a huge land package now. We've got 115,000 hectares around Amaruq. As we said, the [trend] that Meliadine's on is 80 kilometers. We're certainly aware of other opportunities in the region, but it's really how much can you take on? That's a question of, should we be inventorying projects that look good.

So we haven't answered that question yet, and if Nunavut is a place that's on some marketing goal, in his team's list in terms of evaluating projects, absolutely. As is other parts of Canada, as is Mexico, as is other parts of the South. So we just look and try to find good opportunities and not to be focused too much on the place like Nunavut.

You don't get these 90%-off sales very often in your lifetime.

Okay. That's great, thank you very much, guys.

Patrick Chidley, HSBC.

Hello, everybody. Just to make this a quick one.

Just a question on Meliadine, just coming back to the discussion of moving ahead with that project and what the synergies might be. Is it absolutely certain that you need to build a plant there? Or are you thinking of other more innovative ideas in terms of shipping or barging or something like that?

We are thinking about options and alternatives, but do those things come together in time? And that's the real question we have. We certainly look at building a road, or looked at the possibility of building a road from Rankin Inlet to Baker Lake, which would then connect to Meadowbank. But the question there is, if we're going to potentially -- if Mammoth Lake turns out to be an additional source of ore, then between Amaruq and Mammoth Lake then we have enough to supply and utilize the full capacity of Meadowbank.

So the question is, more long-term, do we want two processing facilities that can be fed, and use the innovation group and the technology group to find ways to transport that ore other than a boat, which is what we are also looking at. But I think in terms of innovation and things that would improve the cost structure there, I think the one that has the most potential is on the energy side. That's what we are focusing more of our attention rather than on the transportation of ore side at the moment. And looking at generating hydro power. We are looking at LNG, and those are the things that can have more of an immediate benefit and would certainly help something like Meliadine.

Are there real hydro power opportunities in that region?

There could be, the Nunavut government is certainly looking at them, as are we, and I think the horse that's ahead in that race would be LNG at the moment. And so those are things that we know the Quebec government is looking at. And the Quebec government is looking at in conjunction with business groups in Quebec to take that LNG over the top of Quebec. And that's pretty close to Rankin Inlet, it's just across Hudson's Bay.

So there's a number of things. I think that's an important point, and it is a good question, is that you look at Nunavut today, it is not going to be the Nunavut five years from now, or 10 years from now. It will be easier to do business there because the two questions they are working hard to resolve is infrastructure and energy. And energy probably is the most important work right now. That not only affects businesses, but affects the communities. Communities are generating power from diesel; it's not the most environmentally friendly way to do it, and there are other options that a lot of people are working pretty hard at, and that's another reason -- not just mineral potential -- that gets us excited, but we can see technology that isn't that far away that can certainly help lower our cost structure up there and improve our business.

Right, makes sense. Thanks, Sean.

There are no further questions at this time, gentlemen, I would like to hand it back over to our speakers for closing remarks.

Thank you, Operator and thank you, everyone. And you are all welcome to join us at 11:00 and there's a lunch following. We have all of our exploration teams here and they've got core and they've got maps and they would be happy to chat about what they are thinking and how they are going to move some of these things forward. So thanks again.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your lines and have a great day.