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

Okay, ladies and gentlemen, we're going to get started with our next big gold presenter. It would be Agnico Eagle Mines, another intriguing story, a lot going on in the portfolio. And with us today from Agnico Eagle Mines is Chief Financial Officer, Jamie Porter. And I should mention that Jamie is a bit of an outsider for Agnico. Agnico has a lot of internally developed talent, but this is 2 years into his role here previously from Alamos Gold. But I think it's great because he offers a perspective on the company that not a lot of people have. So Jamie, the podium is all yours.

Thank you very much, Lawson. And you're exactly right. When I first joined Agnico, I attended a hockey game with a number of Agnico folks. And I mentioned in a bragging way that I've been at almost for 18 years. And I think the first 3 people I spoke to had been at Agnico for at least 25 years. So it's -- I am a bit of an anomaly. There's a lot of internally developed talent, we have multi-generations that often work at Agnico, our Vice President of Exploration, Guy Gosselin is here today. He started at Agnico with 36 years ago, I believe. So -- and he's not unusual. It's a great thing about the company. So I'm going to start with just a high-level overview of Agnico, where we are today and where we're going. After that, we'll get into some Q&A with Lawson. I will be making forward-looking statements as part of the presentation. So please, I would encourage you to refer to Slide 2 of the presentation deck. But what I want to start with is just an overview of how the company has evolved over time, talk about the strategy that's brought Agnico to where it is today from very humble beginning 67 years ago to now the largest mining company in Canada and one of the largest gold mining companies in the world. Our strategy is pretty straightforward. I'd like to summarize it as regional consolidation to create a competitive advantage. So we look for regions where we see the geologic potential to operate multiple mines and the political stability to be able to do so over multiple decades. That's the focus. So we're a global company. Yes, we have operations in 4 countries. We're in Canada, Australia, Mexico and Finland, but 85% of our production and 85% of our value comes from 3 key regions in Canada, Northern Ontario, Northern Quebec and Nunavut. In those regions, we have distinct advantages, a competitive advantage that helps keep our cost low and ensures that we can operate our mines as efficiently as possible. In terms of people, again, we've been operating in those jurisdictions for decades. We have a loyal and dedicated workforce. We are the employer of choice. We've got 12,000 employees in Canada. As a result, we have some of the lowest employee turnover rates in the industry. In Northern Ontario, Northern Quebec, for example, our employee turnover rates are half of the industry average. We also have an advantage in terms of our supplier network, because of that long-standing operating history, especially in the Abitibi, in many cases, we helped our suppliers start their businesses years ago. So when there's a challenge in securing parts or supplies, we're often first in line. Given our size and scale, we benefit from economies of scale. We get purchasing volume discounts because we are the biggest buyer in those regions. And last but not least, I think you can't overstate this. The benefit of the technical synergies that we have, we've got a very strong technical team that we're able to move throughout our operations to help support and provide assistance and ensure that we're doing things as efficiently as we possibly can. Now what this strategy has created is, again, that competitive advantage where we operate, we're able to keep our costs low and ensure that in the face of rising gold prices, we're able to deliver margin expansion to benefit the company and ultimately to benefit our shareholders. And our track record shows that we've really done that. We look at this next slide, the table on the top left shows how the company has evolved over the last 20 years. Back in 2005, Agnico was operating the LaRonde mine in Northern Quebec. In 2024, we were operating 11 mines across 4 countries. Over that period, production has gone from 240,000 ounces a year to almost 3.5 million ounces last year, an increase of 14x. But most importantly, production per share has increased by a factor of 3 over that period. And that's something that very few of our peers can attest to, increasing and adding value per share, production per share, reserves per share over time. Obviously, the fact that the gold prices increase means our financial results have improved. Our EBITDA on a per share basis is up tenfold over the last 20 years. We've been paying a dividend for 40 years. Over that time, we've returned over $3 billion to shareholders and the dividend is up by a factor of 50 over the past 2 decades. So tremendous value creation over the long term, a focus on per share results. That influences every capital allocation, every investment decision that we make, that focus, again, on per share value creation. If you look at the chart in the top right, this shows our quarterly production and cost performance over the course of the past 6 quarters. What you'll notice is that is remarkably flat. Our business is based on creating a stable, reliable operating platform, and we've been delivering on that. We hit our quarterly numbers. We hit our quarterly costs. Q1, we had another great quarter to 874,000 ounces of production at all-in sustaining cost of $1,189 per ounce, below the low end of our guidance. So we had a really strong start to the year and look forward to continuing that operational success throughout the remainder of 2025. The bottom right chart here, we show the benefit again of the rising gold price by keeping costs in check. Our cost guidance has increased by 3% in each of the last 2 years, while cost inflation is running closer to 7% to 8%. So we've been able to do better than the rate of inflation, and as a result, ensure that, again, that margin expansion accrues to the benefit of the company and the benefit of our shareholders. So one of the top questions that we get in investor meetings these days is with respect to capital allocation. In this period of high gold prices, what are we going to do with the excess free cash flow relative to what we would have budgeted say, a year ago? At current spot gold, we should free cash flow north of $3 billion this year. So we're generating tremendous returns. And our focus is on ensuring that we continue to distribute a significant portion of that directly to shareholders. Over the last 15 months, 42% of the free cash flow we've generated has gone back to shareholders through the dividend and the share buyback. If you look at the other 58%, majority of that has gone to indirectly benefiting shareholders by strengthening our balance sheet. We started last year with a net debt position of $1.5 billion. As of the end of Q1, we're basically breakeven at cash net debt, and I anticipate being $1 billion of net cash by the third quarter of this year. So we're generating tremendous free cash flow. We're doing a little bit of everything. We're continuing to deliver strong returns to shareholders. We're strengthening the balance sheet. We're reinvesting in the business. We have a record exploration budget this year, $525 million and a record capital spend as we advance some of our key capital projects. In terms of the portfolio where we're going, I'd say the company has never been in a better position. We have 5, what we call key value drivers. These are big expansion or new development projects that will help propel the company into the next decade. We currently have a relatively stable outlook. We've got flat production around 3.4 million ounces over the course of the next 3 years. In 2028 and '29, we're working on stabilizing that so that we're flat until the end of the decade. Starting in 2030, we're going to see a step-up in production as we bring some of these expansion and new development projects online. And I'll just walk through them briefly, and I'm sure the Q&A with Lawson will get into them in a bit more detail. But Detour Lake, the largest open pit gold mine in Canada. We're currently operating our budget for this year to produce at a rate of about 720,000 ounces a year. We put out a study in June of last year that shows expanding this operation to 1 million ounces per year by 2030 and being able to sustain that level of 1 million ounces a year of production for a minimum 14 years. Now just for context, at 1 million ounces a year and current gold prices, Detour generates $1.5 billion a year in after-tax free cash flow. So this will be one of the top 5 largest gold mines in the world, one of the most profitable, and it's located Northern Ontario, 10-hour drive from our head office in Toronto. At Canadian Malartic, we have similar potential. Canadian Malartic is a bit different in that we're transitioning from what was Canada's largest open pit gold mine to what will be Canada's largest underground gold mine. So we're going from mining 60,000 tonnes per day of relatively low grade 1 gram per tonne material to mining 20,000 tonnes per day at 3x the grade of 3 grams per tonne. So our gold production stays effectively flat at about 600,000 ounces a year, but we're opening up 40,000 tonnes of daily excess build capacity. And we have a vision to fill that mill through a combination of a potential second shaft in the processing of satellite deposits to get production at Canadian Malartic up to -- approaching 1 million ounces a year by the early 2030s. So you look out to the early to mid-2030s, we've got 2 mines in Northern Quebec and Northern Ontario that combined are producing 2 million ounces of very low-cost production. Beyond that, at our Upper Beaver project, which is a stone throw away from our Macassa Mine at Kirkland Lake, working to build a brand-new mine, a new mill that will produce about 230,000 ounces of incremental production. We're still in the stages there, we're thinking an exploration shaft do ramp development do some bulk sampling, but we expect a construction decision for that project in 2027 and could see first production by 2030. We move north -- to the northernmost part of North America, our Hope Bay project. We purchased off of TMAC Resources back in 2021. It was operating at the time at a rate of about 120,000 ounces a year. We made the decision to shut that project down and focus on exploration to delineate a more significant potential mine plan. Our view, given our operating expertise and of it is that you need scale, you need for this project, 400,000 ounces a year for 10 years, and we wanted to have that runway before we sanction the project. We think we're there now. We're working on detailed engineering. And in the first quarter of next year, we'll be announcing a construction decision on that project. Again, 400,000 ounces of new production in and a bit offsetting depletion from our Meadowbank mine. And last but not least, we have a 50-50 joint venture with Teck in the state of Zacatecas, in Mexico, on a zinc copper project called San Nicolás. We're in the permitting phase currently. We'd expect to receive the permit later this year. At the same time, we're updating the feasibility study for this project. So the potential for a construction decision at San Nicolás later this year, early next. And again, production of about 200,000 ounces of gold equivalent in the early part of the 2030s. So these 5 key value drivers combined for an additional 1.2 million ounces of production. We will have depletion from some of our other assets along the way. But again, we've got a balanced production pipeline over the next 5 years with a step change up to potentially 4.3 million ounces in the mid-2030s. So with that, back to Lawson.

Fantastic. Jamie. Make all space for you there.

Thank you.

Sort of connecting the dots from everything you just said and just in the context of you having this bit of an outsider's perspective, what do you think really differentiates Agnico Eagle from peers?

So I think apart from the strategy, a big factor would just be the culture of the company. I came -- I spent 18 years at Alamos Gold prior to Agnico, very much aligned, very similar value set, very similar strategy, focused on low-risk jurisdictions. But really, it's the people at Agnico that I think make it a very special place to work. Sean Boyd, our Chairman spent a lot of time and still spends a lot of time on maintaining that culture. It's one of collaboration and ensuring that everyone works together. There's not a lot of politics. There's a real focus on ensuring that everyone swimming in the same direction. And with respect to the business, there's a lot of focus on the technical. Our view is that before we make an investment with our shareholders' money, we want to make sure that we're going to make the right decision. So we try to gain a knowledge advantage. And that's -- you can see that through our investment strategy. I mean we have over 60 companies that we have investments in. The strategy is really get in early to projects that we see having potential, get a very strong technical understanding of the merits and the potential of a project before we move forward. So Agnico is very much an operational and -- an operating an exploration company. And I'm fortunate in that my role as CFO, the rising gold price environment, I've been able to -- we've been able to report very steady consistent production results and pair that with excellent record financial results.

The financial results have certainly been impressive. When I think of the last period where Agnico was delivering really exceptional growth in financial results, it was that period alluded to where you built 5 mines. During that period, the approach to the dividend was slightly different to today when you're generating significant amounts of free cash flow, and that was -- it was a bit of a progressive dividend. There was a few moments where the dividend was increased multiple times during the same year. Fast forward to today, the approach has been one of supplementing the dividend that was originally set in 2022 with share buybacks. When you think about all the free cash flow you're generating, is there room to balance a more progressive dividend policy with the share buyback program?

Yes. I think at these gold prices, there absolutely is. I think historically, if you look back at the gold industry, probably 90% of the overall direct shareholder returns have been through the dividend and around 10% through share buybacks. I think there's room certainly at Agnico for that to stabilize a bit for the share buyback to catch up. The dividend was set at an annual payout of about USD 800 million back in 2022, at $1,800, $2,000 gold, that was a healthy amount. These gold prices, I think there's definitely room for the dividend to increase, and we'll be evaluating that later this year.

I wanted to ask about Canadian Malartic, Odyssey that huge complex. You guys have generated an enormous amount of value there. There's this issue opportunity where the open pit mill feed will fall off, you're currently processing ore at a rate of 55,000 tonnes per day. The plan is to ultimately supplement and replace that with a mix of underground and open pit ore, kind of the blue sky vision has been, you take the 1 gram per tonne that you're now putting through the mill, which is generating about 650,000 ounces a year of gold production and you double or triple the grade. I mean, is that a potentially sustainable outcome for this asset when you look out to the next decade? So an asset that could be generated in the range of 1.5 million ounces?

Yes. I mean our -- we have a vision to 1 million ounces. There's -- I'd never say never. This is certainly the potential for more than that. We have a current mine plan out to 2042 based on the first shaft that stabilizes production at 600,000 ounces a year. The deposit underground at Odyssey has gone from 0 to 18 million ounces over the course of the past 8 years. So there's -- we've had tremendous exploration success. We're adding ounces at a discovery cost of $10 an ounce. We see the potential for a second shaft. We're studying that now. That could get production at the Canadian Malartic complex up to 800,000 ounces a year. Beyond that, we acquired O3 Mining in December, we closed that in March. That has the potential to be mined as a satellite deposit and bring in another 100,000 ounces a year. And last but not least, we have our Wasamac project, which has the potential to bring another 100,000 ounces a year. So that's how we get to 1 million ounces by the early to mid-2030s, but if we keep having exploration success at the rate that we have, there's always the potential for a third shaft. I mean you look at Macassa, there's 4 shafts there. LaRonde started 37 years ago, with an 8-year mine life, it's been expanded 5x and has produced 8 million ounces of gold. So there's lots of upside potential at Canadian Malartic and that will continue to be an exciting evolving story.

I wanted to also ask about M&A. And actually, guys, if the audience has a question, we're happy to take one. There is a question right here. If this question isn't about M&A, I would like to ask about M&A before we wrap things up.

Not directly, M&A. Jamie, thank you. Just wondering, as you look at the growth projects in the portfolio there, just interested in what gold price you're kind of building those projects for, when you optimize the scope to cut off grades and capital versus operating all that sort of stuff. Gold price hard to predict, what price are you kind of trying to build these things for?

Yes. So the studies on all 5 of those projects were completed at a gold price of about $1,800 an ounce. And each of those projects has a 15%-plus IRR at around $1,800 gold price. So obviously, current spot gold prices, the returns are 30% plus. The gold price could drop $1,000 tomorrow, and it doesn't impact our ability to move forward and advance those projects at all.

Jamie, speaking of regional consolidation, one area that Agnico is not in is the Yukon. And there might be a company here trying to sell a project called Coffee in the Yukon. And then you also have the Eagle mine and which I understand PwC wants to find an operator to get that running again. So 2 assets in the Yukon. I just wondering what your view of that is, given especially Agnico's outstanding operational experience in the Arctic?

Yes, it's a good question, Mike. I mean we have -- our job is to look at everything. And obviously, we evaluate all assets that are available for sale. Again, everything that we consider in terms of external acquisitions, external M&A, we have to weigh against the portfolio of projects that we have internally. And that's the lens through which we look at external M&A. And the Yukon at some point in the future, could be another region for Agnico, but I think for the short term, we'll continue to be focused on the key regions where we already operate.

And Jamie, just to wrap things up. I don't see any other questions in the audience. Following up on the M&A theme. So you guys took a 50% joint venture interest in the San Nicolás mine with Teck, you're earning into a 50% joint venture interest. You took a 13% interest in ATEX mining, which is effectively a copper development firm in Chile, there's a history of mining zinc and copper at Agnico Eagle and Cobalt, the name. Could that be a sign of a potential pivot or a recentering of some element of growth on to base metals at Agnico?

Yes. So our strategy with respect to other metals is a bit unique in that we're somewhat metal-agnostic. We -- if we have a competitive advantage or operating expertise that we can lend to a project where we can generate outsized returns, we'll consider investing in a project that's in another metal. ATEX is a bit different. That's a very early stage exploration opportunity where we wanted a seat at the table, wanted to get a better sense of the jurisdiction. Chile could well be a jurisdiction for Agnico 5, 10 years from now. And that's just part of our strategy of getting in and learning about a new jurisdiction of project before we make any kind of decision. But we're 98% -- 98% of our revenues in gold. And even with San Nicolás fully wrapped up operational, we'll be 94% gold by revenue. So that remains our focus. We'll consider other metals. If they're in our backyard, and we have a competitive advantage. San Nicolás is exactly that. I mean, our gold business was in decline in Mexico. We had great people, a 20-year track record of operating in the country. Teck didn't have in-country resources, so it was a partnership that just made sense.

Perfect. Jamie, thank you for being here. Thank you, everyone.

Thank you.