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

Thank you, Matt, and hello, everyone. It's great to be here. Forward-looking statements. Look, I've got 20 minutes, and I want to spend some time with Matt later. So I thought about what's the most important message I can give you. If I've got 10 minutes up here, there's really only one thing I want to focus on that matters to you, our owners, and that is how are we going to make you money over the next 10 years like we have in the past. And it's really about -- if you take a look at this picture, look at the box on the right at the top and focus on gold production per share. That is going to be the theme of my discussion today. So Barrick, it's nice to see. I just want to make a quick call out to Mark. I worked with Mark for a long time. He's a great guy, and congratulations, Mark, on the new position. I wanted to make sure I said that. So Agnico, we've been around for 70 years. Our strategy is a little bit different than most of our peers. Our strategy really is to focus on regions that have the geologic potential for multiple mines over multiple decades and the political stability to allow us to operate multiple mines over multiple decades. Now this strategy gives us advantages operationally. We know all of our suppliers. We know all the contractors. We have somewhere between 1/2 and 1/3 the turnover rate of our peers. We are the #1 customer for our suppliers. We produce more gold in Canada than the next 8 companies combined. It doesn't give us just an operational advantage. It gives me and our team a capital allocation advantage. When my team comes and says they want to build a second shaft at Malartic and they give me a price, it's the same team that just built the first shaft at Malartic. When we build a water treatment plant at Upper Beaver, it's the exact same water treatment plant that we've built a dozen times for a number of our mines. So does this strategy work? If you take a look at the bottom right chart, it does work. Our compounded annual return over the last 20 years is 13.5%, double the industry average. Now how have we achieved it? Remember, I said the key I'm going to focus on is how are we going to make you money. And by definition, that's money per share. So if you take a look at the chart right above it, from 2005 to 2025, and we all talk about growth. We have grown from 240,000 ounces a year to 3.5 million ounces a year, a factor of 14. That's pretty good. But honestly, you don't care. We don't get paid to increase production. We get paid to make you money per share. And one of the ways we do it. And the reason we've had double the return of our peer group over the last 20 years is the line right below it. We've increased production per share by a factor of 3. That's hard to do. It's not hard for me to issue shares to buy a company and say I've grown production. What is hard is to be able to grow production per share, that's discipline. And that production per share, when you add it to the increase in gold price, our earnings per share are up almost by a factor of 20. And our dividends, which, by the way, we've been paying for 43 years, are up by a factor of 50. So the theme today is going to be continuing production per share that we've delivered over the last 20 years. And what I'm really proud of is that we're going to continue to grow production per share over the next decade. And I'm going to show you explicitly which projects are going to do it. And what I want to do is show you pictures to demonstrate that these projects are actually happening now, and they're going into production starting in 2030. So these 4 projects alone, and there's others are going to add about 1.5 million ounces of additional production, 1.5 million ounces of additional production, and at these gold prices, that's going to be additional production per share. A big mine, a big mine is 500,000 ounces a year. So just these expansions and growth are going to be 1.5 million ounces a year. And we're going to go through them. I'm going to start with Hope Bay. Hope Bay is going to be our fourth mine that we've built in Nunavut in the last 20 years. It's being built by the same team that built the other 3. And by the way, how did we grow our production per share over the last 20 years by building 11 mines. We know how to build mines. We build our own mines. When I build a mine, when we build a mine in Ontario or in Quebec or in Nunavut, it's the same engineering team, it's our engineers. If I had to build a mine in Papua New Guinea, I don't have engineers in Papua New Guinea. I'd be hiring Bechtel or [indiscernible], and that would make sense. Agnico Eagle, we build our own mines. We're building Hope Bay. I was up there 2 weeks ago. It is going to go into production starting in 2030. It is going to be between 400,000 and 450,000 ounces a year, and it is going to operate for decades. And we are just in the first 12 kilometers of 2 parallel 80 kilometers zone [indiscernible] yesterday that Boston 80 kilometers south, he hit yet another hole, it was 17 grams over almost 7 meters. We are going to be operating there for decades. And what I want to show, if I can go backwards actually is take a look at the pictures. I really told our team -- this isn't just promises, this is actually happening. Take a look at the pictures. On the top left, you'll see 3 squares that camp is already 500 people. That's a brand-new camp. It's going to be another 500 next year. You take a look at the right -- that's the upgraded port facility. Take a look at the bottom left that's the patch 7, the new underground portal. Take a look at the bottom middle, that is the foundation for the new power plant. Take a look at the bottom right, that's a 5.5-megawatt wind mill. This is happening today. If we take a look at Canadian Malartic. That mine is going to be adding an additional 300,000 to 350,000 ounces a year. This is a mine that has been around since 1923. We have discovered in the last 10 years alone, 22 million ounces. 22 million ounces in 1 mine that is going to be 1 million-ounce a year producer. This is a mine that's operating. And if you take a look at the expansion, look at the bottom middle picture, you see the head frame is in place. You see the pace plant is in place. The operations center is in place. We're already 1.6 kilometers underground on the shaft ahead of schedule. We're ahead of schedule on the ramp. You can take a look at the right, the production hoists are in place. Again, this is going to be -- sorry, this is going to be another 400,000 to 500,000 ounces a year, and it is happening now. We're building it today. If we take a look at Detour Lake, this is a mine that has been around for decades. Detour Lake is the largest gold mine in Canada. Malartic is the second largest gold mine in Canada. In the last 5 years, there has been 20 million ounces of reserves and resources added at an average cost of $10 an ounce. And by the way, that 23 million ounces that was added at Malartic was also at about $10 an ounce. Between just these 2 mines, and so this is go to the best places in the world, and try to build a competitive advantage. You have 2 mines in the best country in the world to operate a mine. And in the last 10 years, you found 43 million ounces, reserves and resources. These are going to be 1 million-ounce a year producer. Now to put that into perspective, in the entire world, there are 4 mines that produce 1 million ounces a year. One's in Uzbekistan, 1 is in Indonesia, 1 is in Russia. The only complex in the Western world is Nevada gold mine that produces more than 1 million ounces a year, and that's 5 mines spread over 200 kilometers. Agnico Eagle starting in the early 2030s is going to have 2 of only 6 million-ounce producers in the world, and 2 of only 3 in the Western world, they are 100% owned by Agnico Eagle, and they both are going to produce over 1 million ounces a year for decades in the safest jurisdiction in the world. And by the way, they're both open. And you can see at Detour, we're well underway in constructing the underground portal as well as the conveyor system. So I'll switch now to Upper Beaver and I'll try to go quickly. Upper Beaver is going to produce 200,000 to 220,000 ounces a year. It's in Ontario, it's in our backyard. Again, this isn't just a long-term promise. You can see the head frame. We're already down 750 meters on the ramp ahead of schedule, I should say, on the shaft ahead of schedule. We're also ahead of schedule on the ramp. What I'm trying to demonstrate here is getting back to this production per share, we are going to deliver this 1.5 million ounces of additional production, and it's happening today. So prices with the strength of the business, we're able to do everything. We're able to build these projects. We're able to strengthen the balance sheet. We have strengthened the balance sheet by $4.5 billion over the last 18 months. We've delivered $1 billion directly to our owners in the first 6 months of this year. We're able to build these projects, buy back shares at the same time. So again, when we talk about production per share, not only are we able to build these projects. But in this environment, not only were we able to self finance them, we're buying back shares at the same time. And then I just want to quickly point out that we haven't finished. We haven't included San Nicolas, we haven't included ham and reef. We haven't included our new [ ECR ] acquisition. Those 3 -- just those 3 are in the neighborhood of another 750,000 to 1 million ounces a year gold equivalent. So wrapping it up, Agnico, our business has never been stronger. Our pipeline has never been stronger, and I'm going to finish where I started on production per share and why it matters so much to us. Everybody in this room is interested in the gold price, and you want to get leverage to the gold price. Why would you buy a gold equity? You can buy an ETF and take no risk. If you buy a gold equity by definition, you're taking a little bit more than an ETF. And the only reason you buy a gold equity is because we give you more leverage than an ETF. Now the traditional way that we think about leverage to gold price is when the gold price goes up, if we deliver the production we said, if we control costs, you get that leverage. Now Agnico has delivered on its production guidance as far back as I can remember. Our production costs are about $300 an ounce below our peers. But what really has differentiated us is that extra level of leverage that we give you in that if you had bought an Agnico share versus an Agnico share now gives you 3x the amount of gold that you would have had 20 years ago. That's who we are. That's what we do. We're in the strongest position we've been, and these projects are moving ahead and frankly, coming along pretty well.

Thanks. Your mic depth. So maybe we'll go have a seat over here and have a few questions. So maybe I'll start with 1 on capital allocation. You talked about the buildup of net cash on the balance sheet and a pretty healthy capital return, but where do you see incremental attractiveness to spend? Is it potentially incremental returns to shareholders or M&A or more growth?

So my -- our job is to make you money. You give us money to look for opportunities to invest in the gold space. So do we have an advantage in being able to identify opportunities and then to be able to assess opportunities. And because our strategy, Matt, is that we Frankly, we know every junior in the areas we operate. We know what it costs to build mine. So we're well positioned to identify opportunities. We're well positioned to assess them, and importantly, we're well positioned to execute on them, and you've seen that. You see this in the 20-year track record, and you're going to see it over the next 10 years. Now to your question of capital allocation, we're in a situation right now where even though we have the best pipeline we've ever had, we're generating excess cash. In the last 18 months, as I mentioned, we strengthened the balance sheet by $4.5 million. We've increased our dividend. Again, we've been paying a dividend for 43 years. The truth is if gold price stays where it is, even if we build all of this, we're going to be returning more cash to shareholders. It's your cash. I don't believe in holding your cash, and it will be returned to our owners.

Okay. I also had a question, your Canada's largest mining company, and you had a piece in the financial post a couple of weeks ago saying Canada needs accelerated decision-making, needs community and workforce capacity and infrastructure spending. Can you talk about the motivation behind that piece? Are you feeling that things are moving too slowly or what were you trying to signal to the government?