Agnico Eagle Mines Limited (AEM) Earnings Call Transcript & Summary

Good morning. My name is Michelle and I will be your conference operator today. At this time I would like to welcome everyone to the Agnico Eagle second Quarter Results 2023 Conference Call. [Operator Instructions] And now I will turn the call over to Mr. Ammar Al-Joundi. You may begin.

Thank you very much. And good morning, everyone. Before we jump in, I would like to point out that we will be talking about some forward looking concepts and some documents at the beginning of the package that you might want to go through. We have our team with us today. We're going to be talking about the quarter and a very good position to answer questions afterwards. But really today there are only 3 key takeaways that we'll go through. One, we had a very strong operating quarter consistent performance by the team across all the sites and I'm proud to say now for several. 2 excellent progress on our Abitibi optimization programs. As many of you know, we have a very ambitious program to consolidate and optimize our Abitibi platform. We believe we have the potential to add several hundred thousand ounces of additional production. And we've made some good progress on that and we'll talk about that and where we are. And the third point is we've had some excellent exploration. All of these results are in places we already operate. We have infrastructure, we have teams and we have the capacity to utilize and leverage off existing infrastructure. These are not exploration results at the top of a mountain range in the middle of nowhere. These are in our backyard and they were so confident that we've increased this exploration budget, putting us over $300 million this year, demonstrating again the confidence we have in the business. [Audio Gap] it's just hitting some highlights record quarterly production. Costs, $840 cash costs at the bottom of our guidance range. All with another quarter of exceptional safety performance. I'm proud to say that we have now had the year ever in the 66 year history of the company. There is nothing more important than the safety of our people and our communities. And I've said it before, I'll say it again you cannot have that kind of safety performance without excellent operating capabilities and you can't have the kind of operating results we've had without that type of safety performance. That's all led to impressively record quarter talking about our financials later on. So hitting some highlights. Payable gold production of 873,000oz. Good cost control all in sustaining costs of 1150 an ounce. Cash costs of $840 an ounce at the bottom end of our almost $1 billion of operating cash flow this quarter. Just getting into a few more, just frankly, I'm quite proud of this, so I'm going to hit a few points. Malartic produced its 7,000,000th ounce since we've had it in 2011. We've updated the talk about that, but just some highlights. An additional 1.7 million ounces additional 3 years out to 2042. And most importantly, still open at depth, still getting some very good exploration results in geologic upside. I mentioned on a call this morning, [Audio Gap] was discovered by the Gold Brothers in 1923. So that mine has been around for 100 years. It's got a mine life out another 20 years. It's still open. It is just a great example of putting yourself in the best places in the world until -- and political stability 100 years and plus. Detour Natasha's going to talk about some of the great progress the team has made there to [indiscernible] proudly record quarterly mill throughput at Detour. At Goldex record quarterly mill throughput since the restart third quarterly mill throughput record skip tons record underground development. The team there has really frankly delivered on that mine great ore body great operating team. Meliadine record monthly mill throughput in May and Meadowbank record production for this -- for the one of the safest quarters in the company's history. I'll address the question now because we'll get it later, I'm sure with the very strong being asked, are we going to update and improve guidance? What I would say is it's very early. We've only had the first 2 quarters, but I will say we are clearly off to a very strong start. We are clearly tracking production that would be above the midpoint of our guidance and we are clearly tracking costs very well relative to our guidance. So an excellent start of the year. We're very confident and we're confident going forward. Next slide. Actually keep it on this slide here. So if we do the update on the key drivers about it, I'll just hit a few points. As I mentioned, Canadian Malartic, we updated the internal study in June. We talked about the additional ounces. The really what's exciting more than anything is the significant geologic upside that we continue to see there. That is a fantastic asset. At Detour Lake, Natasha is going [Audio Gap] the great progress we've made, but also Guy is going to talk about some of the exploration results to bring in potentially underground ore. Remember our objective at Detour, our vision is to try to get that to 1,000,000oz a year. This is a view that is still going to be increasing. And to get it to 1,000,000oz a year, it's going to be a combination of increasing the mill throughput and bringing in higher grade ore from the underground. And we're working on that and we'll be looking to give some updates in the first half of next year. For assets, good progress. Looking at the potential at Macassa, the upper zones in Amalgamated Kirkland, we're doing our work on Upper Beaver. We're doing our work at Wasamac. As I remind everyone the opportunities there are not just the base case standalone for those projects, but what we're working hard on is can we develop those assets without having to build additional mill capacity and utilize existing infrastructure, mill infrastructure and tailings infrastructure at either Malartic or at LaRonde. As a reminder, each have a potential for between 150 to 200,000oz a year. Amalgamated Kirkland and the upper zones at to 40,000oz a year and that's progressing well. So just between those projects, we have the potential for an additional 350 to 450,000oz a year using existing infrastructure which reduces our permitting risk, which reduces our environment -- increases our return on capital. That's something we're very focused on and that doesn't include other projects. For example, at [indiscernible] flow for at some point at Malartic. Now before I turn it over, we're also getting questions on how are these how are these studies going? Frankly, they're going well. There are no delays whatsoever. We expect to start to come out with some guidance in the first or second quarter of next year. But understand something as simple as, you know, the underground at Malartic, it just takes a lot of drilling. These things just take a little bit of time. And frankly, I'm very impressed with the way the team is working and the progress made. And again, we expect to lose in the first or second quarter next year. You know, not everything is probably going to work. But but things are looking pretty well so far. So with that, [Audio Gap] to Dominique to talk first about Odyssey.

Thank you, Ammar. Odyssey project if we put it in perspective the first hole where we discovered the scene in 2021, we released our first study and we just updated that one last June. Very good improvement with by 3 years. So we have now in front of us a 20-year life of mine with 8.5 million ounces on the production plan and this is just the beginning as more potential to just increase those zones and eventually maybe also on the regional aspect too. The -- maybe one important point about that update is we de-risked the project with now in 2020 we had 5% of the ounces which were under indicated resources. Now we're up to 50% and the grade is still there. There's no discrepancy. The team are happy about that. And also we have now 60% of the surface construction completed in the last 2 year and a half, which was not the easiest year to do that. But I need to say the fact that we were in B2B, the fact that guy is good leaders with experience to deliver that this have been done very well done in those years. And I have in the room here Serge Blair and Daniel Parry, which are 2 leaders, key guys which have worked on that. We are now going to reduce the pace of the construction is going to decrease from 400 to 150. So it's going to be easier pace. And now we're getting into the next phase which is sinking the shaft. But overall at the current gold price, the value of the project is $2.5 billion with a 33% return on investment. An update on the ramp up is going on track. So the team did over one kilometer drilling last month. Now in May, it was a record. So we are now at 600 million of production from the Odyssey South Zone, which is the first one we're going to mine there for the next 3, 4 or 5 on track with that. Maybe a good news on the reconciliation so far. We talked to you about the internal zone, which was something difficult to see from the surfaces or to understand from the surfaces. Now we're touching it and we see that there is upside through those zones 27, but it is still early. We're defining the infill drilling program right now to better understand those zones. The first gold was supposed to be 30 tonnes at 2.6, 8.9. So this is a great bonus that we had. The next important phase also is all the shaft sinking. So to access the east go deeper. There's 2 things we need to bring the ramp and to build all the infrastructure and to start to develop the first pyramids. We also need to sink the shaft. So it's a 1.8. We have 76 meter done and we need we are also in the step that is now back to the or we're just initiating the full cycle. We took the first 4-meter bench last week and the next one is coming in the coming weeks and we start to installing the SEALs. So that's a good news. That was an important step and in the past year was to achieve that. So everything is on track on that side. There's we add up to 16 drills on the plotter. So as you could see, we're still drilling intensively. In the past year we've put emphasis on to doing conversion again to de-risk that study. But now we're turning back to do more exploration and potentially add resources. And on top of that we need to recall that the mill have a 40,000 ton per day capacity still available. And so we have homework to do to bring some ounces through that mill. So on that, I will pass the microphone to Natasha.

Thank you, Dom. Slide 9. The slide highlights the evolution of Detour and the journey that it has been on to make operational improvements on all fronts actually from the mine to as well. The culture of Detour has always been one that focused on safety and on minimizing our footprint, but also one that focuses on cost control and value generation by just going back to basics on how we operate, by assessing innovative approaches, by constantly pursuing efficiencies, by empowering our people. As you see here, there are some initiatives that the sites has successfully achieved and what we've shown here just scratches the surface. The bottom line is that you can see that we have a track record of delivering improvements and these improvement initiatives is an ongoing process. And so we continue the transformation of Detour into one of the world's largest and most profitable gold mines by assessing the potential like ounces annually. As you know, this comes in the form of 2 main projects increasing the mill capacity and assessing the underground potential. As Ammar mentioned, both are currently ongoing, but from a male tonnage perspective as shown on the graph, we have steadily been delivering year over year and growing mill capacity by 5% on an annual basis. This past year we have completed the installation of the screens on the secondary crusher and we believe that we can add an additional and as mentioned before, we're also advancing several projects to improve the runtime and sustain throughput of 28 million tons by 2025 or the tons per operating hour improved significantly. And combined with the high mill availability, the mill recorded its best quarterly mill throughput and so we're looking at small modifications in different areas. We're looking to improve the efficiencies of the side discharge screens, we're looking at small changes to extend system to -- so that it operates better and more efficiently in the winter. We're relocating some of the pipelines in the mill to maximize efficiency of pipe replacement. In parallel, we're also assessing a few projects to potentially exceed the mill throughput beyond 28 million tons a year. And we're going to be trialing the ore sorting and we're going to be working on an expert system like we have at some of our other mills. And then in terms of the underground study, we're continuing to advance this that was completed earlier this year. And as Ammar mentioned, we expect the report and the results of the study to be shared with you sometime in the first half of 2024. But in parallel, the exploration team is continuing to carry out an aggressive drilling program at Detour and Deb will be expanding on this. But before I end, I just want to commend the sights on an incredible quarter and a year so far. So on behalf of Dom and myself, thank you. Your passion to continually look at ways of improving and optimizing our business not just at Detour but at all our sites and for making our jobs a little bit easier.

Thank you, Natasha, and good morning, everybody. So to continue at Detour on page 10 of the slide deck, we continue to see excellent results below the win. You know, to get to an underground resources model, reduce the drill spacing over that large area. You know, we look at the scale where we continue to get good results up to 2 kilometers away from the pit. So based on those good results we've been getting year to date and I'm not going to go through the long list we've seen in the press release, but those are the kind of grade and widths that, you know, makes it at first sight for an underground scenario continue to advance. We're currently ahead of schedule with the drilling. We see unit costs that are better than expected with good productivity from the -- on our drill over there on our drilling program. So we're planning to add as part of what Ammar mentioned, you know, an overall addition of 32 million, a portion of that 5 million is to carry on drilling at the same pace with those ten drill rig. And in order to be in a better position by year end to provide sort of a first overview of what could be on the ground resources for building our business case for the underground project. At larger scale, I would say if we go to next slide 12 on the overall the rest of the portfolio, we've seen overall very good results on several assets. For example at Meliadine during Q1 and Q2 at Depth, you know, at some of the deepest drill hole ever drill at Meliadine that support, you know, that what we believe that the deposit remains open has significant upside. It's one of those that we see a very good potential for reserve replacement. So we want to be a bit more aggressive. So, you know, we want to add to the budget that was approved, adding another 25km of drilling and also extending that drill platform to the east so that we have a better understanding of, you know, how much we can continue to grow Meliadine. Moving to Kittila, we've seen again some very good results close to the empty rural infrastructure. Those are very near-term opportunity where we can quickly bring additional resources, bring them to reserve very close from existing infrastructure, technical drilling closer to surface. We've encountered some of that parallel CCR zone in an area that was previously in a maybe not understood properly. We've started to understand the CCR zone about 6 or 7 years ago at a certain depth and now we realize that some of those drill hole closer to surface we'll potentially stop a bit short. So now we are reassessing what we have -- we left any of those potential parallel structure in the upper part as we already have all of those infrastructure over there which could provide additional flexibility for the team over there at Kittila. Moving to Macassa continue to get good result in the extension both of the main break and the South Bank complex. But more importantly now that we have, you know, shaft number a much, much better, you know, capacity both with the ventilation access and everything. So now we are starting to put some long-term thinking and establishing long term exploration platform like we did back in the days at Lawrence. So establishing long term exploration shaft 4 because we know that the deposit remains open at depth and all of those zones. So it opened up our shaft number 4 infrastructure, a very good playground to think long term at Macassa. And maybe to wrap up on a little bit on Malartic that Dominic cover and you want to continue to add additional drilling in the second half based on the good results that have been delivered. We see again mitigating the opportunity to, you know, continue to grow. We just took about 9 million ounces out of the total, 16 million ounces. So we see the opportunity to continue to convert the remaining resources that are currently not in the plan and bring them into a future update of the project while we continue to grow the footprint of the deposit that continue to be open laterally. Each quickly obeyed. This is another one where we took sort of a state gate approach. We were basically starting with a budget for the first result we've seen both at the risk and more recently at Madrid. And I think this is why we see maybe a change in a dynamic. We always knew that and laterally now we are seeing, you know, excellent grade with good thicknesses at depth that shows that, you know, the structure seems to be maybe better visible gold and with large step out that we've conducted like that 105 which is 500m step out below. So we see excellent to significantly grow. So it's going to continue to take time to bring it to resources. But now we see, you know, what we believe when we did the acquisition that we can sit and identify higher grade source of ore. So those things are unraveling as and we're pleased with the results so far which convince us to add another $14.5 million for the second half of the year and on that I will be handing over to Jamie I think.

Yes, just some brief comments on the financial results for the quarter overall as Ammar summarized up front, just a phenomenal performance from an operating and a deflected 100% of Canadian Malartic for the second quarter. In terms of operating margin again close to $1 billion of operating margin with very strong contributions from -- in great shape relative to guidance. We came in at $840 per ounce total cash cost, which is $25 below the midpoint of our guidance and our weakness in the quarter relative to what we'd guided, but also the strong operating performance really helped to ensure that we had a strong quarters where they've actually been fairly stable or in decline. We move over to the next slide, just some financial highlights here on Slide 14 earnings. Our adjusted earnings per share were $0.65 in the quarter. Again, part of the acquisition of the other 50% of Canadian malartic with great financial shape. And with that, I'll turn it back to Mark.

Congratulations for already delivering the highest cash flow record ever for the company. We know that was mostly you gold company with superior leverage to gold, but not only superior leverage to gold but importantly superior leverage to gold on a per share basis. And this based on 2 key factors. Well, several a few key factors. One a leading position in what we strongly believe are the one obviously the geologic potential, but it has to have the geologic potential for multiple mines over multiple decades. And 2 associated with that, the political stability since 1923. When you look at Detour originally as an underground mine going to Canada's largest open pit mine, going back potentially to an underground there, tremendous. But there an established camps where we've been for a long time. This strategy works. It's worked for years And we think it's even more this business largely on demonstrated technical skills. All of these projects we're working on, team talk about some of the things they're working on. We have an excellent technical team. We delivered these results. Let me step back. The team delivered in Ontario and Quebec. We had the earliest and longest caribou migration season that we've experienced and none of it. That's a good thing. It shows that with those challenges, we're going to continue our emphasis on per share metrics. We're going to continue to understand that if you want to be in a region good at ESG, you can't just be accepted in the community. You have to be part of the community and that's what we've always done and we're going to continue to investments based on knowledge and diligence. And we're going to continue to return capital to shareholders. Building on people at meetings mentioned that Agnico Eagle is the sleep well at night gold stock. And I and I would say that I hope that even with the challenging demonstrates that we are in fact the sleep well at night gold stock and so with that operator, I'd like to turn it over to questions.

[Operator Instructions] First question on the cue comes from Ralph Profiti with Eight Capital.

Ammar, 2 questions from me. Firstly, there was some discussion production 2024 to 2027. Is that dependent on sort of a successful surface exploration drilling program or will we need to move more towards an under [Audio Gap].

The internal zone were originally recognized from surface drilling, but you know, they are a bit different in nature than the Odyssey South and Odyssey North that sit there in filling and bringing the Odyssey South into production. And now we get to better understand the shape of those. So we took a conservative approach so far, you know, showing up as an incremental done and we see more of that that will show up as you know, production will take place and we're going to get a better and more development and you're going to see them showing up progressively along with -- in the life of mine.

And one thing and maybe Dominique, you can mention on this the team and it's a good [Audio Gap] better able to exploit the additional ounces to the extent that they're there. Dominic I don't know if you want to.

I guess I've explained it well enough.

Terrible. Well, maybe a question for Deb and Natasha. On first onset, does the nature of the mineralization show favorability to ore sorting sort of be more amenable in the underground scenario versus the open pit or both?

Hi, Ralph. I'll start and then I'll let phase 2 trial. But we are looking at about 1.5 million tons of material that we plan on trialing this year, majority of which is.

Yes I will step in. Listen, the proposal is to use marginal or on stockpile mainly and just do an upgrade in the next let's say [Audio Gap]. You know, in order for updated study so.

40,000oz, give or take 10,000. We'll have an update on the [Audio Gap].

On the quarter and Jimmy...

Stone and therefore depreciation update it.

Would be towards the end of the year.

Yes, so I think our forecast and then also on Detour I remember in the past and the discount [Technical Difficulty].

Yes. [indiscernible].

With what you're seeing today, one asset that you didn't, [Audio Gap].

Continue to drill and obviously nothing like this one is only [Audio Gap].