Agnico Eagle Mines Ltd (AEM) 2016 Q1 法說會逐字稿

Good day and welcome to the Agnico Eagle Mines first quarter 2016 conference call. (Operator Instructions). 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 welcome to our first quarter 2016 conference call also our annual meeting this morning. So you are certainly all invited. It is at 11 o'clock at the Sheraton center. We will have all of our key operating technical and exploration teams on hand with some drill (Inaudible). So if you are available and in Toronto you are more than welcome to come. Also as we go through the slides here, I would just like to make everyone aware that we will have forward-looking statements and just to be forewarned and cautioned.

Going over the quarterly numbers and highlights. We continue to make very good progression on several fronts on production, on cost, on exploration and development and on financial flexibility. Our quarterly production was 411,000 ounces at cash cost of 573. Solid contribution across the board we'll get into some of the details in a minute. Of particular note is the continued very good cash generation coming out of our operations in Mexico at very low cost. Cost of $364 on a cash basis to produce an ounce of gold. As a result of the strong performance in the first quarter, we expect to be at the high end of our production guidance for 2016. Which is 1.565 million ounces.

We have had some again good drilling results. The results continue to come at several of our projects most notably at Amaruq and in a new project in Sweden called Barsele. So we will give you some updates on that and that will be of particular attention at our annual meeting where we have our exploration team on hand with some drill core from some of those projects. And as we indicated the solid performance in the quarter again helped us to continue the move towards improving our financial flexibility that we have been able to do for the last six quarters and we have seen a further reduction in our net debt by $89 million in the quarter. And we declared a quarterly dividend of $0.08 per share, so that is now the 34th consecutive year of paying a cash dividend out of Agnico.

Looking at some of the sites in a little bit of detail. When we look at the operating margin at LaRonde, LaRonde for the first time in many, many years has the single largest operating margin of any of the mines. So we can start to see the impact of opening up the lower mine and accessing the better grade material at LaRonde. You see that in the production and the unit cost which is reflective and moves down to the operating margins where the mine generated almost $50 million U.S. in the quarter. Good performance at Goldex as they are exceeding their feasibility study mining rates and development rates and costs. And as we mentioned, very good operation performance out of the southern business generating $66 million U.S. in operating margins. Our financial position, as we mentioned, our net debt was reduce it is now $923 million at the end of March. We made debt payments of $55 million, so good flexibility going forward and a very manageable debt maturity schedule.

As far as earnings go, very similar realized gold prices from a year ago quarter. Similar production, a little bit more ounces this year, a little bit lower costs. Earnings generally the same as is operating cash flow per share. At LaRonde as we said, a very strong first quarter and good operating margin. I think the key for us at LaRonde is that we made major investments over the last several years which has now put us in a position to access more of the higher grade ore. LaRonde will be a key building block going forward as we start to mine more tons in the lower mine and start to move up towards the average reserve rate at LaRonde of 5.3 grams per ton.

We're studying, as we mentioned before, reopening the Bousquet area, and that has the potential to add 40,000 to 50,000 ounces a year. So going forward the LaRonde complex certainly as the potential to produce in excess of 400,00 ounces per year. And I should congratulate the LaRonde team. Next week they will pour their 5 million ounce. So congratulations to the team. That is a remark able technical achievement when you think that years and years ago it was only a million ounce deposit, it was relatively shallow. They are now developing at 3 kilometers underground and getting very good performance. And of note the reserves in resource left is still 5 million more ounces, so more to come and better grades. So LaRonde's best days are still ahead of them after a long and successful history.

At Canada Malartic continued steady progress we are seeing on all of our optimization efforts, that is reflected in good solid production numbers and very good cost performance. Of note was the drilling on Odyssey, and we continue to intersect the zone at Odyssey. We would expect to be in a good position to put out a resource on Odyssey before the end of this year. It has similarities in terms of thicknesses and better grade than Goldex. And the intention when we got involved with our partner Humana with the Canadian Malartic opportunity was certainly we had a sense that the Odyssey could be an important component to that mine and that property going forward. So we are certainly starting to see that. And as we look at Canadian Malartic we expect the ounce output to continue to rise steadily as we slowly and gradually increase tonnage (Inaudible).

At Goldex as we said it is performing at levels much better than in the feasibility studying. Both on mining rate the feasibility suggested 6,000 tons a day. It is closer to 7,000 tons a day now. The development rate is far in excess of the feasibility as is the cost per ton. As you recall we were estimating a few years back that it would Canadian CAD40 a ton. It is mid CAD30 dollars a ton Canadian. We expect to steadily increase output at Goldex given the fact that we can mine at a higher rate and the fact that we are developing the lower part of the mine at a faster rate. And we also have the (Inaudible) deposit, which is within 30 kilometers which we continue to study. Goldex will be an important part of the our production profile and our growth as we go forward because it is a low cost growth and it is an asset that we still will continue to drill and it has a sizable resource that we expect to be converting into the mine plan as we move forward.

At Lapa despite the short life, the team continues to perform well. There is some potential to add a few more ounces as we move through the balance of this year. But the Lapa as we mine out that area as we said it opens up an opportunity for Bousquet at LaRonde because we have excess capacity and will have excess capacity at the LaRonde plant when we stop the direct shipping of ore from Lapa.

At Meadowbank steady production. We have a few opportunities maybe to extend Meadowbank further towards the end of 2018 maybe at 20,000 ounces or so. All important because it is cash flow that we don't currently have in the mine plan. So continue to focus even though there is three years left or so to try to optimize that asset But more importantly we have continue a heavy drill program at Amaruq. We continue to get good results, and good results at Whale Tale where we are encounter better thicknesses which is important for the mining rate there. As everybody knows we have the large Meadowbank which will be available to us by the end of 2018. So the thicker the deposit is at Whale Tale the higher the mining rate to take advantage of the available capacity at the Meadowbank plant. We have seen some very good success at the V zone at Amaruq and we have moved some of our drills from other parts of the property onto the V zone given what we are seeing in shallow drilling, higher grades of visible gold. We will have some core from the V zone at our annual meeting.

But as far as the Amaruq project goes we have begun the production of the road. We are using the waste from Meadowbank as the roadbed material. So that is progressing as planned this year. At Meliadine we to work on the study within weeks certainly by the end of this quarter, we should receive the final permit which is the A-water license, so Meliadine will be fully permitted. We continue to update the study by incorporating subsets of the large resource into our economic studies and we expect all of that work to be completed before the end of this year, which will help us to allocate capital in Nunavut, and we look at Amaruq and Meliadine as one platform and will allocate capital based on Nunavut being one platform that we expect to be around for multi decades.

At Kittila a little bit of lower grade of higher tonnage at the mine. The deposit almost8 million ounces and still open. We are seeing we have a bit of a backlog in processing drill results at Sisar, so we will have more results coming out in the second quarter likely in July on Sisar. We are looking at ways to incorporate Sisar into a new mining plan at Kittila along with the upper and lower Rimpi zones which are slightly thicker and better grade than what we are currently mining. So there is good potential. The team at Kittila because we can process more ore, there is opportunity in the plant if we can increase the mining rate then we can do better than the 200,000 ounces we expect to average over the next five years. So there is still more growth to come at Kittila.

We have been looking for a number of years since we first got involved in Finland over 10 years ago for another opportunity beside Kittila. Although we have a large land package around Kittila and have added to that land package over the last years, it wasn't until the last year or so we were able to find something that we could get exited about and that is Sweden called the Barsele project. Has some similarities to Goldex in terms of grades and thicknesses and the large nature of the structure. So we have had a successful start for our drilling program and we believe we have connected the central zone and an additional zone there with good thicknesses and good grade. So off to a good start there, and we will continue that drill program and see how things turn out over the next several quarters.

In the southern business as we said the operations are performing extremely well. At Pinos Altos we have commissioned the shaft and the ore handling system is scheduled to be commissioned in the second quarter. So a lot of that investment in the underground infrastructure will position the mine going forward to manage cost in the underground and improve the mining rate in the underground. At Creston Mascota good steady production. We have recently acquired a new project right between Creston Mascota and Pinos Altos that almost lines directly up between the two mines. We are exited about that. We have known about that for years and years. We just concluded an agreement with the owners of that property and will begin to drill that soon, and certainly has the potential to be a near surface source of open pit material.

At La India lots of upside there. Still very good solid production, very good cash cost performance. We have been consolidating our land position there over the last couple of years and we are going to pick up the pace of exploration around mine sites. In fact, the strategy in Mexico now is to increase our exploration budget right around existing mines. As we have consolidated land positions as we have gained more surface rights we are in a position now to drill some target that we have known about but haven't been able to drill and we are exited about that potential.

El Barqueno we continue to drill. We expect to update that resource for the end of the year. We have discovered 2 new areas of mineralization on the project. And we have some surface rights to tidy up in those areas before we can really talk about it. But it is still a very prospective area for us with a large drill budget. Lots of drills going there and we believe that project will continue to grow and there will be open pits near surface mineralization available to us in the mine plan. So that is it for the formal part of the call. We would love to open up the lines, operator, for questions. We have our full team here including our exploration group. So we would be happy to answer any questions.

Thank you. (Operator Instructions). We will now take our first question from Stephen Walker of RBC Capital Markets. Please go ahead.

Thank you. Good morning, everybody. First on the operation there was some unscheduled maintenance at Meadowbank with the front end of the plant by the looks of it are conveying. Can you talk a little bit about whether that is just a short term or structural problem? And then, secondly, material handling at Pinos as you went underground similar question presumably that is just a short-term issue?

I'll talk about the Meadowbank part and then we'll take over the second part of the question. I think we had a failure on the main shot from the secondary pressure that took us about eight days to repair. Things are basically back to normal.

As far as Pinos Altos we have in the past and it occurred this quarter as well a little bit of clay getting mixed in with the ore and that causes some upsets in the mill. That was earlyin the quarter. And it is just a learning curve. Once we figure out how to blend the ore which we did do by the end of the quarter things are running quite well.

Thanks for that. And Sean, just to follow up on something you said in the V zone up in Amaruq. Is this potential for starter pit material is this something that could come into a mine plan in 2018, or is it again just better understanding of the geology and the resource potential?

Stephen, it's Alain. As you know, we did cover Amaruq in (Inaudible) and we move after in 2014 (Inaudible) on that sector and we recognize the V zone as more a flat (Inaudible) going to the south and joins together (Inaudible) we had to drill between B zone and (Inaudible) We have to drill a lot this summer and to understand better the system because it's like forward based (Inaudible) And we were looking higher grade and we have to fill that sector. It's like a panel of 800 meters by 400 meters but we have to fill the hole to recognize the grade. We can tell you [indiscernible] we saw just a couple of weeks ago like a ring of 1 centimeter large gold, and we have to recognize the real grade on that zone is firstly so early for us and how we will understand (Inaudible).

Stephen, Even there's certainly lots of exploration potential but timing will be dictated on permits and we have permitted Whale Tail. That's the focus is to permit the Whale Tail pit. So we still need to do more drilling on V and then we have to amend the permit. So that would really dictate the timing but we're certainly excited about it and we're excited about its location. We're excited about the fact that it may trend and connect with Whale Tail and we're excited about the visible gold that we're encountering. But in terms of timing that's still a question because of the permitting.

Great. Thank you, Alain and thanks, Sean. One last question if I might on currency hedging. You have got obviously major projects in Canada, Mexico and in Finland. What are your thoughts in locking in some of the currencies here as you go forward to help you lock in returns on these projects which are obviously impacted significantly by currency moves?

Steve, we do have about 21% of our Canadian dollar exposure for 2016 hedged in the form of costless collars with bottom of that being about 127. As far as protecting those projects further, that's something we're very interested in doing. Our policy is to buy depths. We'll probably do that as those projects develop over the years. It would be nice to be able to make sure that we at least help them on the cost side versus in the startup phase. So that's something we're actively monitoring and looking at doing.

Thank you, David. That's it for me.

Our next question will come from the line of David Haughton of CIBC. Please go ahead.

Good morning, Sean and team. Thank you very much for the report. Going to Malartic, just wondering where you are standing on the permits to extend the throughput beyond 53,000 tons a day on the permitting side and whether you think the mill is capable of sustaining that level or better?

First, the permitting is moving as per schedule. We're hopefully going to see going into hearings in June. There's no real surprises on that and the second phase is getting impact up to 55,000 tons per day, although it will be part of that critical permitting process. I think at that stage, we will reach the installed capacity overall (Inaudible).

Okay. Sorry guys. It seems to be a very bad line. It is hard to hear you and it is breaking up. I'm not sure if it is me or your end. But just continuing on back to Amaruq, that (Inaudible) do you think that we have some sort of connection between the Whale Tale and V zone? Are there a bunch of (Inaudible) kind of veins that you think could fill in that gap or is it too early to say?

Hi. It's Bill speaking. So what we see it appears to be that we have in Whale Tail, it's more kind of [indiscernible] whereas the V zone is kind of more vein type mineralization with three gold in it. And we do see them either combined or having let's say in some cases, we either have only the vein type be it some towards the east whereas in the Whale Tail area, it's more on the (Inaudible) information type of system. But we see both joining and existing in the same area. And laterally, the V zone system is wide open to the east and this is currently what we are beginning to see how large it is and how we can have a better understanding of the stacking of vein. Because as you mentioned, it's potentially a (Inaudible) vein that we need to have (Inaudible) and the resources information.

Okay. And with the recent drilling, it seems to show very good thickness. There are some really spectacular kind of holes. Just wondering - I know it's pretty early, if that's shaping your mind as to what kind of mining rate you could have at Amaruq to feed that mill?

Don will take that.

I guess we're educating on various aspects and the study parts about mostly concentrated is based on the satellite bit. I think some of the satellite bit scenarios that we're looking at now over a five, six-year period with the current resource could look probably filling in the neighborhood of 9,000 tons per day.

Okay. That's very promising. The last guidance we had was more like six, so that's very encouraging.

Right now I think when you remember back, those sort of rough estimates of six were driven off of the resource update midyear last year, and that was one of the resources that was based on being very conservative in terms of the size of the blocks in the model. And when the exploration team drilled on the opposite direction and confirmed better thicknesses, then we were able to incorporate better thicknesses into the model and that's allowed us to look a higher mining rate than we saw a year ago.

Okay. With the recent drilling it seems to show very good thickness there, some really spectacular kind of holes. Just wondering I know it is pretty early if that is shaping your mind what kind of mining rate you could have at Amaruq to feed that mill?

I guess we're entertaining various aspects on the study part, but mostly concentrated at this stage on the satellite. I think some of the satellite scenarios we're looking at now over a five, six year period with the current resource could look at probably milling in the neighborhood of 9,000-tons per day.

That is very promising. The last guidance we had was like six so that is very encouraging.

Right now I think when you remember back, those sort of rough estimates of six were driven off of the resource update midyear last year, and that was one of the resources that was based on being very conservative in terms of the size of the blocks in the model. And when the exploration team drilled on the opposite direction and confirmed better thicknesses, then we were able to incorporate better thicknesses into the model and that's allowed us to look a higher mining rate than we saw a year ago.

Thank you very much. I will leave it there.

(Operator Instructions). Our next question will come from the line of Michael Jalonen of Bank of America. Please go ahead.

Hi, Sean. Just following up on David's question, 9,000 tons per day for Amaruq sounds outstanding but begs the question if it's getting bigger, is a mid-2019 startup still in the cards or do you need more time to find out how big this will get with the additional permitting? I was wondering if things will get stretched out a bit.

The permitting is ongoing. We have had discussions and approach with the ministries that are showing good confidence level on the timing of the permitting process, and at this stage for 2019 everything seems pretty possible and on schedule.

Thank you.

Gentlemen, there are no further questions at this time. I'd like to hand it back over to Mr. Boyd for closing remarks please.

Thank you, operator, and thank you everyone for tuning into the call. For those of you who are in the area, we'd love to see you this morning, 11 o'clock annual meeting Sheraton Center. Thanks, again.

This concludes today's call. Thank you for your participation. You may now disconnect.