Agnico Eagle Mines Limited

Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Agnico Eagle fourth quarter results 2019 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Sean Boyd, you may begin your conference.

Thank you, operator, and good morning, everyone, and thank you for calling into our fourth quarter and full year 2019 results conference call. Before we get into the slides, please be aware that this presentation includes forward-looking statements. I'd like to begin by just summarizing 2019 and the fourth quarter. In the fourth quarter, we had record gold production as we brought on the two new mines in Nunavut. We also had record cash generation in 2019. With that added production, we see 18% production growth from 2019 out to 2022, and we'll provide some details on that production growth in a minute. Although we had a very strong 2019 and in fourth quarter 2019, we still have some work to do and none of it through the first quarter of this year as we ramp up those two newly built mines. So we'll also talk about that. When we look at the fourth quarter numbers in a bit more detail, we produced almost 500,000 ounces in the fourth quarter. which is record production. For the full year, we exceeded our full year guidance, which had been increased during the year. We finished at 1.782 million ounces at a total cash cost of $673 per ounce. Our unit costs in the fourth quarter were impacted by the slower than expected ramp up in Nunavut, and we'll talk about the details as we said In a minute with the record cash generated from operations in 2019 and the ability to continue to grow production While generating free cash flow our dividend was increased in the quarter to a quarterly rate of 20 cents per share From the three-year guidance Perspective as we said we've got production growing 18% off of the record production level in 2019 we should see costs decline in 2021-2022. When we look at our 2020 guidance, our number is down 4% from previous guidance in terms of total production to 1.875 million ounces, which is largely driven by the expected Q1 impact as we ramp up Nunavut and we do additional ground support at La Ronde, and we'll get into the details of that in a minute. In 2021, there's no change in the production guidance, although our cash cost guidance is up $50 an ounce, so that's due to increases in cost, but also just inflationary cost pressures in the business. When we look at Nunavut and La Ronde, starting with Nunavut, As we said, the ramp up was slower than we had expected, and that's clearly on all of us. We should have done a much better job in anticipating and reacting to some of these issues. We have high expectations, and we didn't meet those expectations. Fortunately, we continue to make steady progress in productivity and efficiency efforts at Nunavut, and we expect to see production increase and cost decrease in Q2 and through the second half of 2020. At Meadow Bay, essentially as we had explained in 2019, we did get delayed due to excess water. We had had the entire pit was pumped out in October of 2019 and that allowed us to improve the efficiency in the open pit, although we were still limited in the fourth quarter with a smaller footprint due to having just pumped out the pit in October. We are seeing improvements in the mining rate now and drilling performance. There's still optimization efforts around those initiatives in the pit. We will also see optimization efforts as we ramp up construction and eliminate costs that still are on site after the construction. One of the areas that we're focused on is equipment availability and maintenance. We've made major headway there. The warehouse is now complete. We've begun the changeover in terms of stocking that warehouse from Meadowbank. So all of those things will help with the performance at Amarook and Meadowbank as we move through 2020. We're still assessing the underground opportunity there at Amaruk. We would expect to have more information in the second half of this year, and we could expect production to begin from the underground in 2022. At Meliadeen, we continue to ramp up at Meliadeen. Mining is actually going well at Meliadeen in December. We were approaching budget levels in terms of mine performance. We mined almost 4,000 tons a day in December of 2019, which was a significant improvement over what we were doing in the third quarter of 2019. So there's more work to do in underground maintenance on mobile equipment, but that's more optimization efficiency. Where we did have more of a challenge is not in recoveries in the mill. Our recoveries are, as expected, approaching 95%. The plant can handle and did handle in the fourth quarter an average of over 3,500 tons a day. What we're experiencing now is at the front of the plant in the apron feeder area. So we have a temporary fix there that's limiting the amount of tons that we can get through the plant. We should have that fixed as we move into the second quarter of this year, which will result in much more efficient operation of the plant. We've also decided that we're moving forward with the phase two expansion that provides more flexibility in the mine plan, and that is currently underway, and we'd expect to see production from that as we move through 2021-2022. At La Ronde, we've decided that as we move into the west mine area, which is our highest grade area, to add additional ground support. As we said, La Ronde had outstanding performance in the fourth quarter. It had record production from that mine. It had cash costs of $422 an ounce. It had an average grade in November of over 7 grams per ton. So that's a big part of the future of the mine at Laurent and the cash generating ability of Laurent. Laurent actually last year set a record for safety performance, an all time record for safety performance. As we moved in to the West Mine area, geology is a bit more complex and we thought that it was prudent and cautious to add additional ground support in the major infrastructure. So that includes additional bolting, additional screening, additional shotcrete. We expect this to be completed in a few weeks at minimal capital cost and also has a very minimal effect on future cost per ton. So you combine that in the first quarter with a slower ramp up in Nunavut and you have the impact that we have on guidance going down 4% for 2020 but also you have the impact on unit costs and most of that is being felt in the first quarter of 2020 and as we move into Q2 and beyond not only does production increase but unit costs go down. Moving beyond the three-year guidance just on The production growth, as we mentioned, the production growth is 18% from 2019 to 2022 with the newly released guidance in 2022 of 2.1 million ounces with a focus now on the project pipeline to see which projects actually make sense to allocate capital to and grow the business in a steady measured fashion beyond 2022, so we continue to do work on Amaruk Underground and on Kirkland Lake on Odyssey East Mallardic. Our reserves, we used a $1200 gold price to calculate our reserves. Our reserves were down slightly, but our grade increased almost 5% to 2.83 grams per ton from 2.7 grams per ton. but we saw a significant increase in our mineral resources and our inferred mineral resources. Our indicated grew by 4% and our inferred grew by 19%. So it's those resources in our project pipeline that we're currently studying now to see how we allocate capital and which projects we decide to build to continue the growth beyond 2022 from 2.1 million ounces. Just looking at some of the mines in particular in more detail in the fourth quarter, we mentioned La Ronde at record performance. When you combine La Ronde and the La Ronde complex, 112,000 ounces at La Ronde, almost 100,000 ounces, as we mentioned, at 422 per ounce. We also had good solid performance at Goldex, which continues to exceed budget. Goldex actually had its best year ever from a safety performance. Canadian Malartic, steady producer, good cash costs at $630 an ounce. Kitla, better performance, also set an all-time record in safety in 2019. You can see the impact of Meadowbank in the fourth quarter, a little over 60,000 ounces, but cash cost of $1,400, which skews the entire combined cash cost number up. And that's the issue in Q1 of this year as we continue to ramp up at higher unit costs in Nunavut, which skew all of 2020. So that's why we're looking for better cost performance in Q2 and beyond. And in Mexico, we continue to get good cash generation out of that business. From a financial highlight perspective, we mentioned earlier in the call we had record cash provided from operating activities of almost $900 million. dollars in 2019 on 1.782 million ounces of production, which was also a record. From a financial position perspective, we continue to add to our cash position. We closed essentially with $328 million in cash at the end of December. Our $1.2 billion credit line is fully undrawn. We have a debt maturity in April, and we've got several options to pay that, draw down some cash, draw down a bit of a line of credit, potentially term some of that $360 million out. Not all of it, but we could do some of it. Interest rates would be less than half of what we're currently paying on the $360 million maturity. So really good financial flexibility as we move forward. in a way that allows us to grow production, as we said, 18% and generate free cash flow. On page 12 in the slide deck, we see a continued growth in operating margin coming out of the mines with relatively flat CapEx as we go forward. We still haven't decided how we're going to allocate that CapEx. We're still doing assessments on the pipeline, but our focus is on stretching those projects out and stretching that capex out. So while we're growing, we're still generating net free cash flow to invest in the business, pay down debt and increase the dividends. And before we take questions, I'll just end on the dividend slide. Our dividend is now 80 cents a share with the increase in the quarterly amount to 20 cents this quarter. You can see that we've increased our total cash paid out in dividends in the last six years. And that was during a period of heavy construction as we built the expanded Nunavut platform. So I'll close on that. And operator, if you can, please open the line up and we'd be happy to take questions.

At this time, I'd like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. Your first question comes from the line of Fahad Tark from Credit Suisse. Your line is open.