Kirkland Lake Gold Ltd. (AEM) Earnings Call Transcript & Summary

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle and Kirkland Lake Gold joint conference call. [Operator Instructions] Thank you. Mr. Sean Boyd, Mr. Tony Makuch, you may begin your conference.

Thank you, operator, and thank you, everyone, for joining us this morning where Tony and I are very happy to be here to talk about our merger of equals, which puts two of the best gold mining businesses together to create an outstanding high-quality senior gold producer. So we'd like to take you through a series of slides today. In the presentation, there will be forward-looking statements. So please read the cautionary language in the slide deck, and then we've covered our legal requirements. We always do this. The lawyers always remind me to do this, and I made sure that I set that slide aside, so we could cover that at the start here. But again, we're very pleased to be here. What I'd like to do is just do a quick intro and cover some slides and then Tony will address some of the key aspects in a bit more detail and talk about the people side. But again, we think this makes a lot of sense for all of our stakeholders, as Tony will go through, not just the shareholders but also our collective employees and also the communities in which we operate and we partner with and our partners in those communities. This is all about making sure that we've created a business that continues to deliver at a high level for all these stakeholders. Just a view on how this got started, we've had a sense, as you've heard us talk about it, that the industry will likely consolidate and consolidate over the next 2 years. And what we've been saying is what's critical to that is how this happens. How this consolidation happens, will determine how successful the industry will be over the next 10 to 20 years and how much value the industry will create. And I think the industry has demonstrated a lot of discipline and a lot of focus over the last several years. And we think going through this consolidation phase that we will continue to see discipline from the industry. We have consistently said that if consolidation is to be successful, it has to focus on taking advantage of regional consolidation opportunities that drive significant synergies and that also results in the best assets ending up in the strongest hands and keeping the risk level low and the business high quality. We believe we have accomplished all of those goals with the announced merger this morning. So we're here to talk about the creation of the highest quality, lowest risk, senior gold producer in favorable jurisdictions. I think that you know Agnico in its 60-plus-year history, we haven't wanted to be everywhere in the world. We've chosen those regions where we could see tremendous mineral potential and an ability to do business. And with this combination, we keep that favorable jurisdiction profile and that low political risk profile. This will also be the lowest cost and the lowest risk growth. This will also continue to be driven by leadership in ESG. And Tony and I will discuss some of that as we go forward. The risk level is important. The industry is in a period right now where a lot of investors are indifferent about gold. And investors are looking for those high-quality, low-risk businesses that are generating significant free cash flow, and this does that, and we'll talk about how that plays out as we go forward. One of the key things that drove us to continue to discuss possibilities, which started 2 to 3 years ago was the potential for significant synergies by putting these 2 businesses together, particularly synergies in the Abitibi Greenstone Belts. And if you go from the Detour mine, south to Kirkland Lake and across to Val d'Or, this company will combine the best assets have the best cost structure, have the opportunity to drive even more synergies from those assets, not just from an operational standpoint, but also from a mine building standpoint, when you think about the Upper Beaver project in Kirkland Lake and some of the other growth projects that we have. The synergy number is $2 billion over 10 years, and we actually think we can do better than that as we get into these assets in more detail. So that's what was driving the discussions, which we've talked off and on for the last 2 to 3 years, looking at what the synergies could be and how, by putting these companies together, we could realize on those synergies and put together the lowest risk, highest quality gold business. One of the keys that I think you've seen from both companies over the last year or so, is the exploration value add, whether it's the recent results coming at the Detour of Fosterville or also with our exploration update in July, where we talked our ability to grow our mineral resource and grow our reserves at several of our producing assets, which is driving brownfield opportunities within this business. So this -- although it will be a bigger producer, it still is very much an exploration success at any of these large producers can move the needle in terms of value creation, and Tony will talk a bit more about that in this presentation. In terms of balance sheet strength, this company is extremely strong and will be -- have one of the best balance sheets in the industry. In fact, Agnico has an investment-grade credit rating, which we would expect there's a strong possibility that, that credit rating can be upgraded on a successful completion of this transaction. So what we've really done here is we've built from a Canadian perspective, a Canadian mining champion that has a solid base of high-quality assets. It has an experienced management team that has proven its ability to drive per share value over time. And it's a company that's well positioned to take advantage of additional opportunities that present themselves at the right time with the right value proposition. So that's why we're extremely excited about this transaction. I'll just briefly run through some of the key metrics and some of the focus. And then Tony will get to a discussion on the people and how this all comes together in more detail. On Page 5, we see some of the key metrics compared to our peers, whether it's all-in sustaining costs on a pro forma basis for 2021. Being the best in the business, strong operating margins among our peers. Production strength among the peers, ability to continue to grow that production, Tony will talk about that. And as we said, reserves are important. We've got a large reserve base and clearly a large, combined resource base that we expect to see continued growth in reserves as we continue to focus on exploration. The 2 companies spend an awful lot on exploration, we'll redefine those programs as we move forward on this. But it's all designed for additional conversion of reserves from resource but also to grow the overall resource envelope. We've seen that at Detour. We've seen that at Canadian Malartic. We see the ability to continue to do that, LaRonde and Meliadine. And so there's lots of opportunities within the portfolio. On Page 6, essentially, what we're saying is the strategy that both companies have employed has worked. There's no need to change it. So it's like-minded per share focused, a focus on low-risk assets, but focused on geological opportunity and focused on putting capital to work to realize on that geological opportunity. So that's critical to the future of this company. And we've got some slides there that show the new Agnico's ability versus peers to create value over time. And that strategy will continue to be employed within the combined company. On ESG leadership, Agnico ranks very high in ESG, but I think a couple of metrics, which are a focus of generalist investors and all investors of the space are greenhouse gas emissions and water consumption. We rank very, on a relative basis, low, in terms of those key metrics. Kirkland does as well, given the way their assets are powered in terms of hydro power. So we have an opportunity to continue to improve on an already strong position relative to our peers. And Tony will get into -- they do a lot of work on the indigenous file particularly in Ontario. We do a lot of work in Nunavut. We're leaders in that regard. And the strategies that both companies have are industry-leading in terms of dealing with communities and indigenous groups and that will continue as we go forward. So there's an opportunity as we combine to continue that ESG leadership over greenhouse gas emissions, water consumption and relationship with indigenous communities. On Page 8, we have the rankings. We both committed to be net zero by 2050. I think you've heard Agnico talk about initially at Hope Bay. We now have a memorandum of understanding to build the initial wind turbine there. So that's the first step in taking advantage of technology to lower the environmental impact that our operations have on the communities, and we'll be very focused on those opportunities and have the financial firepower to make additional investments in that capacity. In terms of management -- before I turn it back over to Tony. In terms of management, I think that's one of the things we liked from the start is like-minded similar strategies, focused on per share value creation. And I think one of the opportunities we see, particularly on synergies is given our longer history being around for 60 years and some of the levels of complexity of our mines at places like LaRonde, we have an ability to -- and this is what's driving some of the synergies apply some of the skills that we've developed being in business longer than our partner, Kirkland Lake, and bringing those to bear in terms of advancements in innovation and in skills on the Kirkland Lake asset. So this only strengthens our ability to grow the company, focus on that per share value creation. And some of the key positions, that I'll serve as Executive Chair focused on sort of strategy and culture. Tony will be the CEO, running the business, working with Ammar Al-Joundi as the President and Ammar as many of you know has been with Agnico for a number of years prior to that with Barrick has experience in the financial and operational side, and he'll be working closely with Tony to see that we meet our objectives and continue to focus on that. per share value creation. Jeff Parr will be the Vice Chair. He's currently Chairman of Lake; and Jamie Sokalsky, who was the former CEO of Barrick, and is on our Board will be the lead director. So lots of talent, lots of skills, lots of experience, lots of credibility among the board. We'll be shrinking the Board to 13 members, Agnico will have 7 Kirkland Lake will have 6, and we think that's a good size going forward. and is good corporate governance. So I'm happy to turn the rest of the presentation over to Tony. And at the end of that, we'd be happy to answer any questions that you have. Tony?

Okay. Thanks, Sean, and thanks, everyone, for being here. And I'm on Slide 10 in the deck, maybe before I get too involved. I mean, I guess the big part what we're working to accomplish. And we put it in a quote in the press release. And I mean this is a merger that's being put together to create a strength on strength, as we talked about. It's 2 companies, nobody is trying to fix a problem here. We're trying to create a better company, a better company for our industry and to really create a lot of value for people from -- and communities where we live, where we work and we really make a difference in the regions we operate. Slide #10 gives a sense and you might look and say it was 11 mines as 4 operating jurisdictions. But there's a lot of really, really good people working here. I've been to a lot of the mines. We've got 11 mines, but they're run by people in the area the quality of the people, the quality of the asset is second to none, and the standard of work is special. And like as Sean mentioned, the cultural fit in terms of the -- whether treating your own people, but the people in the communities where we work, it fits very well. There's a lot of respect for responsible mining. We're here to be create a sustainable operations that will be here for a long time. And I think you'll get to see that in some parts in the slide deck. If I go to Slide 11, we talk about that we combined 2 of the lowest risk businesses in the gold space, in terms of making the new company or the new Agnico Eagle Mines. Although Agnico and its own right has created a special brand over the years and we going to continue to build upon that. And definitely demonstrate that continued leadership in the areas of that Agnico has focused on, whether it's people, operational excellence and really leading in terms of how we move forward in terms of how we develop mines, how we come into regions. And as I talked -- I've mentioned before when the Kirkland Lake Gold where you got the chance to be a company that people want you to work, communities want you to be there, communities and countries want you to be there to develop the mines and create value in those regions because we're -- because we know how to do things and do things right and make a difference. There are a couple of things on this slide that I think really stands out. When you look at -- it's not just about the merger and creating this Canadian gold champion because it does create a significant Canadian producer. And you can see this slide in terms of production from Canada, where you can take all the next 10 companies combined and they don't produce as much gold as the new Agnico Eagle will produce in Canada in a very lowest jurisdiction. And the big part of that, the important part of that is not to say when we talk about low risk, it's also in regions where we understand the business -- we understand the geology very, very well. We understand the people and how to work in these communities. We understand the climate. We understand the regulation, and we're part of it. And I think the value creation that can come from that, it's hard to quantify. I know on Slide #11, we give rundown in terms of synergies and expecting $2 billion of pretax synergies over the next 10 years, and Sean made reference to this. And this seems like a big number, but when I look at it, it's really -- there's probably significant more opportunity that can be created and whether it's through operational synergies and just the meshing of ideas of people being able to explore more aggressively being able to develop and -- more qualitatively in terms of what we try to do. And really in terms of optimizing, taking advantage of technology -- and I think fundamentally, the strength of the balance sheet would be very important. Slide #12, just breaks down when we talk about consolidation, and there's been a lot of consolidation really between Kirkland Lake Gold and Agnico Eagle, prior to us getting here. If you look at the new Agnico Eagle going forward, if you go back to the last 5 years, it's really -- you've taken -- you've got one company that -- with previously 7 corporate offices, 7 companies. So it's been consolidation at the corporate level, consolidation of businesses, less head office, et cetera, that really focused on driving value for shareholders. And then when you look into the regions where we operate and specifically on this slide, the Abitibi Greenstone Belts that you can see where the mines are -- the properties are the mines are. We have the strategic locations with mills in these regions. And as we talk about, just in the Abitibi alone, just between Northeastern Ontario and Northwestern Quebec, you have the opportunity to produce 1.9 million ounces a year. And in this region in Northeastern Ontario, Northwestern Quebec, mined in remaining gold production -- mine the remaining ounces of gold produced over 250 million ounces. And I'd say there's still some significant exploration upside to have to find a lot more. So it is one of the best parts to be in the world. Slide #14 is showing the sort of rundown of some of the mines and the combination of mines in various different regions. I did visit a lot of the mines that have been -- to the mine at Amaruq and Meliadine up and Nunavut. We've been to Kittila, been to Goldex, seen the operations and see how things work. You can see a lot of complementary skills and a lot of areas where there's skill sets and people. And one thing we don't really talk enough about here in terms of the synergies, it's just the synergies of the people and the scale of being able to put people take advantage of people skilling that intellectual property in terms of even advancing Detour Lake faster and Macassa faster and even the ability to explore in different areas. You see -- you have to see the different deposits, say, within the Abitibi, different deposits in Northeastern Quebec and be in Northeastern Ontario, what's being exploited, what's being discovered, what's being mined and saying, geez, from an exploration point of view, those other deposits are in both regions. We just got to start looking for them. So I think there's a lot of opportunity to grow value in the company, and we get pretty excited in terms of what can happen I know that there's upside in life extension at Kittila. You can see Meliadine is definitely poised to be there for quite a long time. we know Macassa what we're trying to build in terms of long-life assets, same as Detour. So you have here, in the company, a significant number of mines that are all 20-plus year mine life that we can have the ability to even grow further than that. Slide #15 gives some breakdown a little bit in terms of where we see some optimizations, whether it's -- and again, without getting too much into it in terms of asset improvements, and I talked about the cross-pollination of best practices, but taking advantage of people and intellectual property as well as being able to take leverage things like technology, bringing smart mindset to the operations, taking advantage of development capabilities within the companies and our exploration strength. We have the opportunity for as we talk about smart growth and one really key, whether we want to call it a synergy or business opportunity, it's Kirkland Lake itself. And this will have a significant benefit to the Kirkland Lake region with potential to grow with using the existing assets and asset base, operational base between the Holt mill and the Macassa operations in Kirkland Lake and combine that with Agnico Eagles operations and deposits in the region, we can build definitely a whole another production center in Kirkland Lake. And then we talk about the technology acceleration. And really, that's -- in terms of moving forward, that's -- there's a lot of exciting things and there's a lot of value that's going to be created by -- to -- first of all, bringing the platforms in to be able to automate the operations better, to digitize, get more involved in the equipment. And then one of the things that really seen within Agnico Eagle and the operations gives the overall machine learning, the AI that's being adopted and being able to leverage that in terms of what we can do in building -- like we talk about building smart mines and being able to really make things -- the mines a better place to work. And it ties into a lot of our ESG initiatives, a better place to work for people, a better place for shareholders to invest in because not only are you going to see improved returns on that from people, but also from a responsible and creating a social license for long term, be more responsible to -- in meeting initiatives, whether we talk about greenhouse gas initiatives of water management, but also in terms of social license and how we can really leverage is to help the people in the regions where we work, and where we are to improve their lifestyle. Slide #15 gives some sense on some of the growth. And we have significant growth over the next -- just over the next 2 years in terms of what's happening where -- you can see with some of the areas within -- we know the growth but we talked about the growth within Kirkland Lake at Detour and Macassa #4 Shaft, once it's get completed. But there's significant growth coming out of the Agnico assets mainly Canadian Malartic as well as Meliadine and Kittila. We have in terms of growth, it's not just about growing production at the expense of margin. It's also -- but you can see -- and you'll see in this business is that we can continue to improve margin because of the investment into the operations, being able to continue to lower costs as a business. And fundamentally, it's about how do we improve the return on the business side, so that -- and put the investment in to invest in growth. And growth in the business, which gives growth and shareholder value either through share appreciation and talk a little bit more about shareholder returns. Slide #16 gives general outline of some of the list of operations gave a sense of the organic growth. And you can see there's organic growth within each of the operating mines as well, there's a significant pipeline of projects that can be developed. And in terms of scale, you get the sense that this company can not only demonstrate 10 to 20 years of production sustainability and production growth. And with new operations, even demonstrate that beyond 2040, will still be around and not just at the expense of cost, not at the expense of return for shareholders. Slide #16 (sic) [#18] is showing the operating margin. Now definitely, operating margin, a lot of it is driven by gold price. And we recognize in our industry that we are price takers, we're not price makers. But if we -- by the combination of the company, we focus on and we talk about the synergies and the new value creation, we focus on what we can control in terms of our costs, bringing our costs down in the business and being able to invest in new value in the business. So grow production at higher margins is way we go. But we see ourselves being able to take this company somewhere around cash cost of $700 an ounce all-in sustaining costs somewhere around $900 an ounce, being able to -- with synergies being able to pull that down $50 to $60 an ounce. And then that, combined with further investment and potentially new growth and new discoveries or new initiatives that can be implemented over the next year or 2 as we unlock the people and really take the ideas we have here and put them out and not just to the couple of hundred people, about 50 or 100 people in the corporate group but down into the 5,000 or 10,000 people within the company, the value that we can create will be special. Sean talked about a few areas where it's important from how we create value in our industry and definitely operational excellence and that we talk about operating costs and cost and margin are important in our industry. And that -- and having the operating margin is important because then we can invest back into the business, back in this both in terms of investing in sustaining CapEx, growth CapEx and investing in exploration. Slide #18 is really giving a sense -- sorry, #19, gives a sense on where -- what's been the track record in terms of growing reserves and resources. And the combined company of Kirkland Lake and unique to new Agnico Eagle is really the only major gold company grown reserves over the last 10 years. We have a strong commitment to exploration. We're not going to lose that commitment to exploration to understand that that's a key part of driving value. And I can say that after reviewing and looking at the assets within Agnico Eagle, whether you're in Finland, whether in Mexico, whether in Nunavut and in the Abitibi, and that combines with the excitement and the exploration upside at the Kirkland Lake assets. You can see that there's significant ability to continue to replace reserves and even grow reserves and resources and new discoveries over the next few years. And so in terms of where we drive shareholder value, the first one for slide previously, where we talked about margin and operational excellence in terms of margin. That's number one, definitely, that grows value for shareholders. Second part, as we talked about, is in terms of investing in exploration, which combined supports longer life for assets and which supports also growth in production, which again creates value for shareholders. And then Slide 9 -- sorry, Slide #20, where is the other aspect where we've been focused on and really you got 2 companies that have had a similar value proposition in terms of providing return to shareholders though -- in terms of Agnico through a strong dividend and a growing dividend. It's been growing year-over-year. In Kirkland Lake, we have introduced a dividend and then growing dividend and combine that with our NCIB, an industry leader in terms of shareholder return over -- since 2020. The -- I think a fundamental part, Slide 21 gives a sense on the balance sheet. And this is important because -- I think, it's important for shareholders to understand. And again, and in the track record of both companies, we've been growing value of the company, growing value and NAV per share set there, but we haven't been issuing shares. And fundamentally, the focus has worked within the finance -- the company, the financial growth of the company, to finance the return to shareholders through operational performance through the business. And we have a strong balance sheet. So you get a sense with a strong balance sheet, the company has no financial weakness in terms of being able to move forward both with -- in the current plan and the current growth plan, but also to execute new strategy as we move forward. And I think that's important for shareholders because you get to -- we're not here to dilute shareholders. We're not here to just create a lifestyle for ourselves. I think I've seen that definite fit within Kirkland Lake and Agnico Eagle in terms of the -- where management and the people in the company all here to create value going forward, and value for all stakeholders and including the shareholders. Slide #22 just summarizes a little bit of the structure of the transaction. I think Sean mostly went through some parts of it. So I'm not going to spend a lot of details on it, but I think a couple of main points is, yes, we are merging the companies together to create a stronger company and a company like Agnico Eagle Mines. And I think Agnico Eagle has always been a brand that's been well built up over the years in a company that definitely has a strong track record of value creation over the last 25 or actually 60 years. We're going to -- I think this only complements that, that gives the ability to continue that. I've said in the past that in terms of trying to build Kirkland Lake Gold or build companies of my own self, you always aspired to try to build a company like Agnico Eagle. So I think proud that we have the opportunity to be part of Agnico Eagle in terms of what we can do going forward. We are going to be complementary management from both sides, taking strength in management on both sides, really leveraging that in terms of what you can do from value creation. There is a merging of the Board. We talked about -- and Sean mentioned about what's going to happen at the Board level, I won't go in much detail. But I think the biggest thing is you're going to have a strong company, a strong merged company together that can really take the combined strength of both without changing the culture, without changing the -- how you wanted the ethics, the morals and how the company move forward in terms of creating value for shareholders. So Slide -- the last slide in the deck Slide #23, I think just to summarize here, maybe I'll just say -- this is a merger that creates the new -- the newest and what we feel is the highest quality senior gold producer. It's a merger and we can talk about it. It's a defining moment in the gold space and definitely in the Canadian gold space. But I'd like to think that this is -- forget about the fact that we're the -- we're gold mining companies. I think this is a merger that in any aspect, in any industry within any region in the world but within Canada, I think it's the right kind of thing to be doing. It's how you take strong companies and put strong companies together and create an even stronger company. And I think the -- as much as we might sit there and give you a sense on what we can do from synergies and opportunities and capital returns and how we can make a difference on social license and ESG and in terms of transforming the industry going forward, I think there's as much as we can talk to you about and give you a sense of it in the next few days, I think over the next 6 months or a year or 2, you're going to see even more excitement happening. Again, as we take advantage of the 10,000-plus people within the company and what they can do and what they can bring to the table. So with that, I'll -- thanks, I don't know, Sean, we can turn it over to questions.

Thank you, Tony. And operator, just before we get to questions, I'll just add a couple of points, and that's that both companies do not have to do this. I think both companies sort of worked hard over the last 2 years to understand whether this was the right thing to do for all the stakeholders. And determined that the strategic rationale made sense in terms of creating the lowest risk, highest quality senior gold company that made excellent sense. The industrial logic was there on the synergy side with us looking at about $2 billion in synergies over the next 10 years. As Tony said, we believe we can do better than that as we get into the operations in more detail and in more depth. I think that will be important. And that's what really we believe shareholders are looking for. They're looking for the industry to combine in a way that unlocks value, that adds value for shareholders that adds long-term value that creates the platforms that, as Tony said, will be here for decades. And we believe that this has done that when you look at the exploration upside, the brownfield opportunities, the project pipeline that's available and the ability to invest in the future of this business in a way that still drives significant net free cash flow so that we can improve the returns to our shareholders. So essentially, that's what this is all about. We've listened to shareholders. We've listened to people that invest in this business on what works and what doesn't work and what they're looking for. And we've had the opportunity, although it's been early to hear from some shareholders this morning. And the response has been extremely positive because they've touched on all the points that we've just touched on in terms of what they're looking for in consolidation. And one of the big shareholders in both companies, Joe Foster, is essentially saying that these are the types of deals that the industry needs to see. So as we said at the start, we believe that the industry will consolidate. I think we're hopeful that the industry will consolidate in a smart way that unlocks value that doesn't destroy value. And that creates an industry where investors will not only want to own these high-quality companies, but they'll be compelled to own them. And we certainly think from a Canadian standpoint, when we look at the Canadian market, this is going to be a very sizable company a dominant Canadian miner that has all the skills, all the experience, the high-quality assets, the financial firepower and the strategy that's created per share value that's going to succeed for many, many years. And that's the reason why we're very excited about this. So with that, operator, we'd be happy to open up the lines and take questions.

[Operator Instructions] Your first question comes from Josh Wolfson with RBC.

So I guess I have 2 questions. So Tony, first. For Kirkland shareholders, I would question why do this transaction now the company is really starting to hit its stride at Detour and arguably the opportunity set hasn't been fully outlined. Plus, there's upcoming opportunities at Macassa and Fosterville and arguably a merger of this size really dilutes this growth opportunity for your shareholders? And then Sean, historically, the company has really shied away from large-scale M&A and has talked about a lot of the challenges becoming a much larger gold company. How does this offset that risk?

Okay. So maybe, Josh, I'll start off. So yes, you're right that within Kirkland Lake, we have we have some significant value creation still coming through what we're working on at Detour and the optimization and Detour in value creation there. We're very excited about the exploration upside at the mine. And I've said before, even though as large as the resources, we probably still haven't found the ore body there. That -- as well as Macassa and the shaft is progressing well, should be completed sometime over the next month and a bit in terms of the directly sinking. And then we're definitely on track to complete the changeover of the shaft and get it back into production facility before the end of 2022. And lots of excitement there, but when you look at the growth opportunities, you combine that with the growth opportunities that we see in Agnico operations, whether it's what's happening at Malartic, whether it's what's happening -- and the value and the potential in the LaRonde area of Northwestern Quebec, what we see at Kittila, what we see up in Nunavut. We think that there's a pretty good trade because there's lots of value there, too, that can be -- that will be unlocked. So we think the combination helps to unlock those -- the value. There's an equal trade in terms of value creation. And then the big part of it when we talk about the synergies and the synergies going forward that unlocks new value as well as the people and the people and the technology and being able to leverage some technologies sooner and really in terms of creating value at Macassa that we talked about test for Kirkland Lake shareholders. The value at Detour, it helps us to move those things forward a lot faster. So we see this as a big plus. And maybe as somebody once I mentioned, we're trading basically 54% of the upside within Kirkland Lake Gold for 46% of the upside within the Agnico operations, and we think that definitely is a big value-enhancing proposition.

So Josh, on our side, and this goes for Kirkland as well. This only works in this form. These don't happen often. These aren't easy to do. They only work if there's upside on both sides and both sides realize and understand the scope and scale of that opportunity. And I think that was evident to both companies as we worked our way through the collection of assets. As far as sort of not our style and Agnico focus on size. I think we've always said, this was more about number of mines in terms of manageability and location of those mines in terms of manageability rather than an overall ounce number. And in this instance, as we've said, we haven't increased the risk profile of this business. We've actually put 2 low-risk businesses together and essentially 12 mines in basically 4 countries. And so to us, that's very manageable. And so if this was going to create a company that was just bigger for bigness sake and was spread out over many jurisdictions around the world. and created a management issue or a manageability issue, then we clearly would not have done it. And I think the other thing that attracted us to continue to look at this was the potential for those synergies. And we would go back to what we said at the start is that if the industry consolidates where one of the key drivers is taking advantage of regional opportunities and those regional opportunities driving significant synergies and driving an ability to optimize assets, then the industry will successfully evolve over the next couple of years. And this is one that was regionally driven. And this was one where it was evident as we looked at the assets where skill sets could be applied to opportunities within the combined company and that was evident as well. And that's what helps drive the synergies and the ability to continue to optimize the assets. I would say the other reason that we both see is the exploration potential, and that's something we touched on at the beginning. That was certainly hit home as we look at the potential to grow deposits and the potential to have extremely long life assets. And the potential to have those long-life assets in good parts of the world where you can actually do business. And then it's the overall platform that creates the ability to sustain the business and do it in a way where it's self-funding and do it in a way where you can lead in ESG. And so there's a number of components here that make sense. But for us, it was we're not going to grow and as a result of that, increase the risk level or dilute the quality of the underlying business. In this case, there was an opportunity to do it and put them together without a premium, and do it in a way where we generate significant synergies and leave ourselves open for creating additional per share value through the exploration potential that exists. We've always been a company that's been driven by geological upside and geological opportunity. And we've moved to areas where that geological potential and geological opportunity exists and where we bring skills to the table to help realize on that potential. And we see a lot of potential in the Kirkland Lake assets as we do on our own, to continue to add high-quality, low-risk ounces to a bigger and stronger platform in parts of the world where you can clearly get mining done and do high-quality business.

And I'm conscious of the time here. Maybe if I can just ask 1 more follow-up question, Sean. When you think about the new jurisdiction of Australia for Agnico, which has not been historically identified as a region of interest, how do you see managing a jurisdiction that's that far away? And with the presence there, would you consider building out more opportunities there?

Well, again, a pro mining country, with a pro mining culture with great geological upside, physically distant from where our home base has traditionally been, but it comes with a management team that has proven an ability to create a lot of per share value. And so we had our people go to the site. We have an understanding of Australia or a better understanding of Australia and the ability to do business there. And so good asset with upside with a solid management team, and it's up to them to lay out a strategy of how they're going to expand and build upon that expertise, that asset and that business. So there's more work and understanding to do there, but we're impressed with what we saw there.

Yes. And Josh, we had that question when we first merged with Kirkland Lake with Newmarket back in 2016. And in the end, the main part, a lot similar to what Sean said, it's good geology, good mining jurisdiction. When you look at what's going on, the skill set of the people is a very high standard. We actually learn and become better minor in terms of what we do because of what we learned there. And definitely, the geological potential is exceptional in that region in Australia and in a lot of other parts of the country. So it's a going concern business that basically has lots of value creation and easy to manage.

Your next question comes from of Ovais Habib with Scotia Bank.

Tony, Kirkland Lake has really kept us on our toes since the Denver Gold Show. So -- and just on the question side, Josh touched upon the merits of the deal for Kirkland Lake shareholders. So thanks for answering that question. But just a couple of questions from me. In terms of this merger, -- maybe this question is for Tony and maybe, Sean, you can add up on this as well. Does this merger change how you are looking to expand Detour and how aggressive you are moving on the exploration side at Fosterville? Like what I'm trying to understand is would you look to slow things down? Or are you looking with the combined company and looking to continue to advance these projects according to current plans?

I would say, I mean, it's not going to slow you down at all. I think it gives us the opportunity to continue to grow. We're not going to slow anywhere, right? I think we're going to hit the ground running. It gives you opportunity for new potential. One of the things that I do see at Detour and one of the synergies that we -- when you talk about sharing of technology, is to look at the application at Detour as we go West and what's going on at that operation, whether we extend continue to extend a larger pit or whether we combine what's going on there with what we see over at Odyssey and what we see over at Goldex, and we combine an underground operation with an open pit operation at Detour has significant upside. The resource at Detour even in the current main pit, it bottoms out on 100-meter plus thickness of indicated resource. So it gives us the opportunity and take advantage of what you see there to look at that now from a different approach and how we're going to mine it. So I think there's lots of excitement there. And in terms of -- we're not going to slow down what we're doing there, we're going to be able to think things a little bit more creatively. And similarly, with Fosterville, Fosterville, I mean it's -- the exploration upside is possible. It's one of the lowest cost mines in the world and most profitable mines in the world, and it's special in terms of what's there. And I think it's going to continue to be a core area for the company as we go forward and really being able to leverage further opportunity in that region.

And just one area on our side would certainly be the Kirkland Lake camp. And we've been moving our Upper Beaver project forward. More recently, we've had some of the best drill holes that we've seen on that deposit with significant gold grades and significant copper grade. So that's a buildable project, low-cost producer. It will certainly benefit from the proximity of Macassa and possibly halt in its processing operations. So this is part of the reason, and that's a good example of why this combination makes sense.

We have a shaft crew that's completing the Macassa #4 shaft. You can we still have work to do, but that can be a crew that helped to develop Upper Beaver. We have a ramp at surface at Macassa, developing it into near surface mineralization. It's a couple of hundred meters away from some resources that's on the Agnico ground. So in terms of true synergies and true value opportunity in Kirkland Lake, both of those get unlocked because of that, and it helps us to create -- keep the people that we want the people there and keep them interested in new opportunities. And as Sean said, it leverages we have the Holt mill, which we currently have kept in care and maintenance. We're maintaining the tailings area and setting it up. And it really -- again, for being able to advance that those projects in Kirkland Lake it reduces capital. It helps you to move it forward in a lot quicker fashion and really understand, I mean, how do you permit them, how do you how do you take it from concept to reality. I think there's a lot of opportunity in Kirkland Lake alone for that. I think that's one of the most exciting things just for Kirkland Lake itself. This is going to be a big plus in terms of boosting that area and the economy for people in the region of Kirkland Lake.

Just one more quick question for me on just in terms of consolidation in the current consolidation environment we're in. So I mean in terms of the combination, obviously, you're going to have a very large presence in Canada. You've taken toehold position, obviously, about Fosterville in Australia. Do you feel that there's further consolidation that's needed in Canada as well as Australia?

Well, I mean, the -- I mean, first off, in terms of -- you're talking about me, commenting about the other companies and what's going on? Or are you talking about within the -- as we go forward? I mean definitely, as -- when I look in the region, within the Abitibi, but in a lot of the regions, definitely, you can see there's been some consolidation in Australia with Western -- sorry, Northern Star and Saracen and creating a solid gold company that can operate within those regions. So yes, there's opportunity for further consolidation in the different regions. And it's all being able to create companies that have stronger balance sheets, be able to not get sort of caught up in small changes in the market or what's happening in the regulatory environment, be able to move things forward responsibly and correctively for that for shareholders. So I think there is opportunity for further consolidation in the regions. It's been -- there's been a history of consolidation. Kirkland Lake Gold itself and getting to here and now going to be part of Agnico Eagle, we've been -- we've been a part of consolidation, right from square one. There's been consolidation with Agnico Eagle prior to this. And I can see that there's lots of opportunity going forward as time progresses with other companies, right?

Your next question comes from Fahad Tariq with Credit Suisse.

I wanted to ask, given the Canadian concentration, are there any regulatory risks or potential for having to even dispose and sell maybe Canadian mines to get this deal done?

No. No, there's not. No. In fact, that's the opposite. It's the strength of the business. And I think when we look at, unfortunately, how the Canadian space has lost some of their former champions due to international consolidation. This certainly helps to fill that void and vacuum and demonstrate leadership. So I think it actually helps our ability to do business in this country along the major geological belts, and that gives us staying power over time.

Actually, that's one other thing. I think that the one thing that defines this this merger that's different. And there's no 1 asset within the companies that need to be disposed of. There's no noncore asset, right? It all just strength on strength, right, as we talk about. So we don't have to anything to fix balance sheets or fix operations, et cetera, we're going to be able to make things better, right, as we go forward.

Okay. Great. And just one other follow-up question. One of the things that wasn't really touched on, Sean, maybe from Agnico's perspective is the additional firepower and balance sheet that comes with this deal, maybe talk about was that something that factored into this decision? And will that help with some of the CapEx needs in the, call it, next 5 years or so?

It was really driven by the synergies and the low-risk nature of the business and the ability to continue to grow. I think both companies have made a major investment push in exploration, that will continue. When you combine the project pipeline, it's robust. There'll have to be some decisions made on where the emphasis is. But certainly, it's always nice to have additional firepower, particularly when you are blessed with a high-quality pipeline of not only individual projects, but also brownfield opportunities at some of our major cash flow generators. So -- That's something that the company will have to work through and focus on its capital allocation opportunities. And I think it's really -- this is really driven by ensuring that the next 10 to 20 years of this combined company is one of success in creating value as we said, for all stakeholders. And our balance sheet is a key part of that, but that wasn't the primary driver here.

Your next question comes from Tyler Langton with JPMorgan.

Just on the synergies of $240 million from strategic optimizations. I know you mentioned the Holt mill, but...

It appears we lost Mr. Langton. Your next question comes from John Tumazos.

Congratulations on the transaction. It's a great deal, great for both companies. To Tony, your shares didn't have a big boom on the September 2, 10 million-ounce new resource statement at Detour. Why so -- why do this now when your stock wasn't recognizing those successes? Did you have unwanted approaches from other large companies that have a gazillion mines on gazillion continents in a gazillion time zones and some bad countries that you just didn't want to merge with, and this is the logical transaction that made sense and you did it?

Well, first and foremost, I mean, prior to -- I mean, we've been working, as Sean mentioned, for the last few years looking at this as being something that's definitely a way to transform the industry and creating a leading gold company. And this has been on our mind for quite some time and something that we've really seen is the best thing to do for the injury. So -- and then in terms of Detour, I mean we're going through -- we're doing our midyear updates and these because we have talking to shareholders and expressing that by year-end, we're going to have an updated resource estimate and then an updated reserve coming into 2022 in a new mine plan or an updated review on Detour in 2022. So we were -- when we were going through that and we've seen this the midyear update in terms of what the resource list that's material, we better get that to shareholders. And you could look at it and say, geez, when's the last time in your career that somebody has discovered a 10 million-ounce deposit within an existing mine, right? And so it's special. And yes, we recognize the benefit of that and what Detour brings to the table. But again, the same logic as I see significant upside in terms of the Agnico assets, and we see significant upside combined in terms of putting the companies together and the synergies you're going to create that will unlock that value and earlier for the Kirkland Lake shareholders and that the combined company is going to create more value for people for shareholders on its own as opposed to each company individually or Kirkland Lake on individually on its own. It gives you that uptime forward. And in terms of interlopers and [indiscernible] yes, we do -- it's a small industry, we do have good relationships with others and you do have conversations, et cetera, from time to time. But we had no we really had no other intriguing opportunity available to us, and we felt that this was really a special -- the one difference that again, can make a difference in our industry, and in the Canadian market and -- sorry, the industry as a whole in terms of what we can do from defining the gold companies going forward. So ...

Your next question comes from Greg Barnes with TD.

I think I'm going to sort of repeat John's question though. But Tony, I appreciate this started off as a strategic discussion between you and Agnico did effectively turn into a sales process by the end?

No, we were never trying to sell Kirkland Lake Gold. We are trying to be part of building a better company. So yes, I mean -- and regardless of that if we talk to others, it's only because we're in this and making sure that we represent shareholders well in terms of what we're going to do. But -- this was really the -- this, from our perspective, is the -- first off, is really the only thing available. And at the other side is the best alternative. So no, it didn't -- Kirkland Lake Gold was never for sale per se. We were never selling the company, and we don't see this as being a sale. We see this as being a merger to create a new and a stronger company.

Your next question comes from Scott MacDonald with Scotiabank.

Congratulations on the deal. Just to Tony and Sean, just kind of following up on the topic of geography and manageability. Just thinking about Finland and the Mexico operations ., these mines are on the smaller side in the context of the combined company. Do you see these as regions that you'll continue to grow in and invest in or kind of stick with the status quo or something you could divest? Or how are you thinking about those 2?

Yes. I think in the case of Finland, that's one that's still growing. We just completed an expansion to get to 2 million tons a year, have the ability to take that up 15% or so. And that's one of the largest reserve resources in the combined company. So that's one of these long-life assets that's going to generate strong returns for a number of years, and it's in a great part of the world. It's a pro-mining region and there's lots of exploration excitement in and around where our Kittila mine is based. So I think it's strategic as well as a core holding for us as we look at it. In Mexico, it's been one of the sort of key drivers of our cash generation ever since it went into production. Strategically, as we've always said, the #1 asset we have there is the people and the ability to do business. And so we're always looking for opportunities to grow that business. It's tougher there's still opportunity, we think, to leverage off of the skill set and build it into a bigger business. And so that team deserves more time in our view, to lay out a plan. And we do have opportunities now that we're still working. Santa Gertrudis has had recently some good drill results. So there's still opportunity there and -- but it is from a strategic focus standpoint, an area where we have capacity. We have capacity to do more. So we'll certainly be looking at ways that, that business can continue to grow and prosper and deliver the cash generation and cash returns that it's done historically.

Right. So in Mexico, I guess, in terms of your expertise, historically, it's sort of been a smallish heap leach open pit operations. Is that the main type of opportunities you would consider or looking at bigger types of ...

Well, Pinos Altos has started as an open pit, but it's an underground mine. So there's lots of skill sets there that we have in Mexico and the team there has actually worked for other mine developers and operators in Mexico. So there's a broad range of skills. We can do more than just build small open pits there. We can build underground mines, sizable underground mines. We can build large open pits. So it's a broad range of skills. So it's not confined because of lack of skills. So the discussions about opportunities can be much broader. But as everybody knows, that works in Mexico, it's a great place to work, great place to do business. But we don't have the size of the opportunities that we have, let's say, in the northern parts of our business. But it's still an area where you can find opportunities with lower CapEx and quicker paybacks and higher returns, and we have the skills to manage those as we continue to look for opportunities there.

Okay. Great. And then maybe just talking about synergies. Could you provide a bit more detail on where you see the value in terms of the operational synergies? I presume mostly that to be Kirkland area, but maybe just a bit more on the specifics on how you could achieve the numbers you've laid out on the operational synergies?

Well, I mean, first off, I mean, leveraging -- they're definitely leveraging some scale and operational synergies in terms of procurement and regional in terms of people and how you're taking -- moving people around and what's happening there. We -- big synergy, as we talked about, is developing the assets in Kirkland Lake. The big synergy in terms of leveraging technology, in terms of advancing, I mean some of the -- we -- in our last press release, we talked about Detour answer saying as where from $750 million to $1 billion of value creation at Detour through advancements of improved operating costs and again, that will get unlocked through technology and changing some of the approaches to how we mine there. This gives us the ability to do that a lot faster instead of saying it is going to be done in 3 to 5 years, we got to -- do it a lot quicker. So we are -- we did partner with Rogers. We're building a private area network at site that should be operational in Q4 this year. Then we started -- sorry, putting instrumentation on our equipment, start really dealing -- getting a lot more digitization or automation but even just being able to gather more data from the operations in terms of what gets done and combine that with. There's a lot that, that technology that Agnico is actually much further ahead on that we can -- instead of saying we're going to do it, as I mentioned, in 3 to 5 years, we can be able to implement it a lot quicker. And we can actually start putting the -- where we're going to build -- collect it -- start collecting the data and then work on how you're going to use the data to interpret what's going on. We're actually able to be able to take advantage of that much quicker, in terms of approach us. Plus you have a history of Malartic and mining at Malartic pit. I think that in terms of benchmarking and give a better sense in terms of productivity and utilization of equipment, I think it will definitely help up at Detour. And then I think there's some skill sets that come from Kirkland Lake, whether it's shaft sinking and development that definitely could help at say, places like Kittila, et cetera. So we see the operational improvements and being able to reduce costs, improve procurement and just in terms of logistics and turnover of people being able to keep this should help in terms of reducing those costs and giving more opportunity to those people. So is that a good answer? Or is that too long-winded?

No, that's exactly what we're looking for details. Congrats again, guys.

Any more questions, operator?

Thank you. Your next question comes from Mike Parkin with National Bank.

Most of my questions have been answered, and congrats. It's nice to see a Canadian mining champion emerging. One additional question just with relation to how -- where do you see in terms of the upside with your First Nation relationships. You obviously have varying relationships on both sides. I'd imagine -- are they aware ahead of time of this merger? Are they supportive? I imagine they're looking at 2 very strong partners coming together and being kind of good for them on a go-forward basis. If you could provide any color on that.

Well, I mean, I think that in terms of relationships and we expect in terms of the local indigenous communities in the regions where we operate. I think you can -- there's a lot of similarities that you see. And we can leverage a lot more because now you're working with larger groups of people. And so the approach and what we do, people can get a sense on building -- or definitely going to build a lot more trust because people can understand would demonstrate there's a demonstrated track record of how we operate and how we treat people. So I think that's a consistency that can become across the border and not just cost costs everywhere and not just in in what we're doing in Canada. I think it makes a difference for what you're doing in Mexico and Finland and down in Australia with the [indiscernible] to get a sense on who we are and how we operate. I think that's going to build more strength and trust with those groups. But we've always -- we have a good relationship and we intend to continue to have a good relationship with them. And because it's a relationship built on respect, built on recognition, respect and recognizing that it's a partnership, right?

And I just would add to that, that in the Kirkland Lake camp with the Upper Beaver project, we're essentially dealing and partnering with the same indigenous groups that are with Macassa. So certainly having that already strong relationship in place will be helpful as we collectively think about the opportunities that exist on our current land holdings in the Kirkland Lake Camp, predominantly [ Upper Beaver ] then ultimately, possibly Upper Canada. So there's certainly some synergies there.

Thank you. There are no further questions at this time. Mr. Boyd, Mr. Makuch, you may proceed.

So thank you, operator. And Tony and I would like to thank everybody for their attention today, their questions on what we're very excited about putting to high-quality, low-risk businesses together to create a stronger business, focused really on optimization, $2 billion in synergies over 10 years. We think we can do better than that as we get into the assets in more detail. And I'd like to thank the shareholders we've been able to talk to up till now for their support of the deal. And we did mention Joe Foster, who is a big shareholder of both companies being very supportive of the transaction. I'd like to thank Joe. And we've got a number of calls set up as we move forward. We're trying to cover as much ground as we can. We are available as the broader team as well to help you out if we -- if Tony and I don't get to you right away, as these meetings get set up. So we're here to answer questions. We're working for all of you as shareholders in putting this business together and we're happy to talk about it at any time. So feel free to reach out to us. So thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.