Agnico Eagle Mines Limited

Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle first quarter results 2020 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 would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. Sean Boyd, you may begin your conference.

Thank you, operator, and good morning, everyone, and welcome, and thank you for joining our first quarter 2020 conference call. This presentation does include forward-looking statements, so just want everybody to be forewarned. Hopefully, wherever you are, we're doing this remotely as well, so hopefully wherever you are, you're safe, you're doing well, and your family is doing well. Because we're doing this remotely, during the Q&A, I'll direct the questions and hopefully that goes smoothly because we've got our senior staff working from home patched in online. But as I go through the presentation, I want to spend some time just on our thinking and mindset around the challenges around COVID-19 and how we've managed it, really how we're thinking about the business and position the business as we sort of move through the issues around COVID-19. I think, as you know, we've been challenged more than most companies in the quarter, having seven of our eight operating mines reduced to minimum activities. We'll get into that, how we managed it, how we managed that with our people, what it meant for our assets. We'll talk a little bit about that. But as we went through it, clearly the focus was the health and safety of our employees, the well-being of our employees, the comfort level of the families. So we've been able to manage through that very successfully. And while we were doing that, and even on minimum activities, we were still able to position the assets and look after some issues that we had been managing through Q1 so that we could have a strong second half. In terms of our actual response to the pandemic, as we've said many times before, it's a long-term business. You have to think long-term. Although the pandemic is devastating, there's a lot of loss associated with it, things will improve. And so the question is, manage through the pandemic and look beyond it. Our view is things will likely never get back to where they were. A lot of the protocols and measures that we've put in place will likely have to continue for many months into the future, and we'll talk a little bit about that. But we think as an industry, the gold industry is better positioned than most in terms of managing and in terms of getting back to a situation closer to normal where we can take advantage of opportunities a price deck for our product that's as strong as it's been in seven or eight years. So that provides certain advantages and also dictates the strategy. So as we said, we've been very focused around hygiene, around screening, around physical distancing. And in terms of positioning, as I've said, the industry is in a much better position than most because our physical distancing challenges are relatively short duration in things like cages where we're in close quarters for a few minutes at a time. It's not like we have as an industry extended period of times where we're right on top of each other. So we can actually manage the business a lot better than most industries. We'll talk a little bit about that as we get into the mines and how we've dealt with this on some of the mines. We've also employed testing which is another layer of protection. We've tested all of our Nunavut employees. We've tested all of our employees in Finland. We hope to expand that testing. We are involved in a pilot project in Nunavut. That's how we got access to the quick testing method. That testing method has now been approved by provincial and the federal governments. We're in a good position there. As we said, we're looking to expand that, hopefully bring that to Valdor. I think the other thing that stood out for us here is really on the ESG side. As we've said before, we found ourselves in a position where in a lot of the areas we operate, we're in a much better position than even the governments and the communities to provide critical services and to provide critical help to the communities. For example, in Mexico, we actually have more health care capacity at our minds than many of the communities do. We have as many doctors as the communities do. We have more sophisticated medical equipment like ventilators. We have more ambulances. So we're in a position to help those communities. We did set up a separate facility for the government at the government's request. We opened up an old mining camp to provide, if needed, in the community, an isolation center. So on the social side of things, we've been doing things like that, but also and none of it were providing food hampers on a regular basis to over 450 families in multiple communities. We're able to transport key supplies to those communities on our flights from the south. We've been investing in food banks. So all of this is something we would do normally anyways as part of the way we think, but it's also, I think, focused governments and communities on the benefits of mining. as the governments and communities are looking for leadership, looking for assistance. And that actually builds the case for mining. And I think many of you know, we started a We Make Mining Work social media advocacy campaign last year. And this really hammers home that message. But I also think it's important as we move forward, because all of us have no idea how this is going to play out. And one of the things we saw was that different governments approach mining from a different perspective. Some called it essential, some called it non-essential. We were in regions where initially it was determined non-essential, but I think the governments realized, particularly in Quebec, that it was, although initially determined non-essential, it was a high priority industry that not only was able to benefit the communities, but also was able to provide well-paying jobs, pay significant tax, of dollars towards the government. And I think one of our jobs here as we go forward is to ensure that we continue to make the case for mining because we don't know if there's a second wave coming. We don't know how long this is going to go. And that's why we've been very careful with the restarts is take leadership, demonstrate this works, demonstrate that we can protect our employees, demonstrate that we can make our employees' families comfortable so that if there is a second wave or this thing continues for a while, we can continue to do what we do well in the communities and continue to operate our businesses. So we're very focused on those initiatives. And we'll talk a little bit about that as we get into some of the specifics on the site. As far as the first quarter, the big impact was really nine days of shutdowns at our Quebec operations. Two of our Quebec mines were our best cash flow generators historically. For nine days in the quarter, the back end of the quarter, two of our best cash-generating mines were down, as was GoldEx. It also impacted our operations in Nunavut because one of the things we did do in Nunavut is to protect the communities in Nunavut because that's a high risk. Those communities are at high risk. They have a history of lung issues and poor health. They live in, quote, close quarters. So we made a decision early on to isolate our operations from the communities and have our Nunavut workforce go home. And that continues to this day. We're still working on plans to bring them back. We're still working on plans to fill in while they're still at home, allowing us to continue to ramp up. So that was a key also strategy, but it also did impact our operations. I'll talk a little bit about that. But we've restarted in Quebec. We'll talk about that. And we're also ramping up in Nunavut, which is all about really positioning the business for the second half, where we expect to return to production levels and cost levels to those that we saw as we closed 2019 very strong in the fourth quarter of last year. We're also focused on free cash flow generation. Our overall CapEx numbers will come down from roughly 740 to 690, so that'll certainly help in terms of generating free cash flow. And we still have a lot of confidence in our business and we've maintained our dividend, our quarterly dividend at 20 cents US per share. As far as an operational update, the focus was number one priority deal with COVID-19 and the impact, look after our employees, try to manage a business where we were shutting down basically the minimum of activities, seven of our eight lines. So we're dealing with thousands of employees. in multiple communities, that wasn't easy. As we've said, in my 35 years, this is the busiest sort of seven or eight weeks I've ever had. I think just based on the complexity of all the things that are involved in managing through this, but we didn't lose sight of what we needed to do at the assets. The teams did an amazing job at sort of managing things they needed to do at the asset level. Everybody knows that we had plans to upgrade infrastructure, at the West Mine at La Ronge. Whatever we had planned to do, we got done in the first quarter. In fact, we were actually, before we had to suspend operations, we actually were in the West Mine area developing. We've actually just taken the first production blast in the West Mine area within the last 24 hours. So, so far, so good as we continue to ramp up at La Ronge. And we're also looking at ways that we can increase the mining rate at the neighboring property at La Ronne, and we'll talk a little bit about that in the La Ronne section. At Meliadeen, the job, one of the main jobs was to fix the feeding system to the crushing plant. That was repaired in March. We had actually been running the plant at over 4,000 tons a day prior to having to reduce activities there. So we had good indications before we were impacted by COVID. that things would work well with the repairs. Ultimately, we're getting a new unit in, but the repairs have gone well. The mill is actually operating at 85% capacity from underground ore and stockpile as we continue to ramp up in the mine area, and we'll talk a little bit about that. At Meadowbank, the focus was just getting caught up and catching up on equipment maintenance backlog, getting the lake bed material out of the open pit, creating more mining surfaces. We've been running at 50% in our mining rate due to reduced activities there. As we move into the second half, we expect to be back to normal levels at both of the sites. We're really excited about exploration in the quarter. I think what we're seeing there is, we've mentioned this before, is there seems to be a lot of life left in these old mining camps, a lot more potential. We've been saying that in the past with respect to East Goldie, and we've been saying that with respect to what we're seeing on the old Bousquet property at LZ5, but we're now seeing it again, interestingly enough, at La Ronde. And La Ronde is blessed with the thickest package of favorable rock in that whole sector. When you go from going on the old Cambior, IM Gold, to Bousquet, which was Barrick, to La Ronde to the east, which is ours, We were blessed with the thickest package of rock, so we always had multiple lenses in that with various types of mineralization. And what we were seeing in the west zone, which we've talked about in the past, is a repeat of what we saw 25 years ago in terms of small north-south fractures that were filled with a lot of visible gold that were situated parallel to our drilling, so we never really picked them up. And that's why we're seeing that upgrading in the West Mine area, but we've actually seen something else that we saw many, many years ago. We're actually seeing what looks like the reappearance of the 20 North Zinc Southlands, which is massive sulfide. We're seeing decent thicknesses with weighting assays, but we're seeing massive sulfide over sort of true thicknesses of 8 to 10 meters, which suggests lots of zinc, lots of silver, Still need to do the assays, but it's situated in an area which makes sense. It's on the eastern side of the deposit. It's still wide open. So we've got a program to continue the drilling off to the east, and it wouldn't surprise us if we have the reappearance of that lens below three kilometers, which could make it interesting. Those lenses tend to have a lot of tons in them. So it's early. Remains to be seen, but it shows you that there's a lot of life left in this camp. At Canadian Malartic, We continue to drill East Goldie. I think East Goldie is important because just with Odyssey and East Mallardic, it was never going to work. It was too low grade on its own. It just didn't make sense. East Goldie, given the tonnage, given the uptick in grade, the better grades, gives us a chance now. It's still early. We continue to get good results. We're getting decent thicknesses in a higher grade core. but we've only drilled in on spacings of about 150 meters. The plan and strategy now over the next 18 months is to tighten up that drill spacing to about 75 meters and hopefully we continue to confirm the continuity and the geometry of the deposit so that we can upgrade the resource classification and so that we can understand what's possible and what ultimately that Yamana and Agnico can put together for that opportunity at Canadian Malartic. And Santa Gertrudis, we put out some pretty good holes. We've got some recent drill holes, which continue to look good. So that's going to be a focus of our Mexican business to try and understand how that fits in as we move forward. Just briefly on the operating results. Again, these were impacted by temporary shutdowns and reduced activities. I'll just highlight two here. Goldex, even without nine days at the end of March, was still above its budget. Very good productivity there. And Kittila has remained open. We had a temporary shutdown of the underground mine. We'll talk about that. But even with that, they were above their budget as well. So good performance from those mines. The financial highlights EPS a bit noisy. That's really driven by the weakening of our local currencies against the US dollar, particularly the Canadian dollar, which on January 1 was 1.3, end of March 1.42. So that had the impact of impacting our deferred tax liability. So we had to add back 18% to our headline earnings and also We had mark-to-market on our foreign exchange and diesel hedges of about $0.09, so normalized earnings of about $0.23 per share, so not bad given that we were impacted in the back half of March due to COVID. On the financial position, at the start of this, we didn't really understand or know how this would unfold. We just wanted to be ultra careful, no magic to the number. We decided to draw down $1 billion. on our credit line of 1.2 billion. We've paid back half a million. We expect to pay the balance as we continue to ramp up our production over the next few months. We did pay down our maturity on April the 7th, $360 million. We did turn 200 million of that out, which given the volatility in the markets and the way that treasuries were moving around, our team did a very good job because that was not easy. In fact, the week that we did that debt deal, there was only I think about six debt deals done that week in all of the U.S. market. And normally there's dozens and dozens of these things done. So we got it done, average of 11 years at 2.83%. If we had waited a week, the deals that were done a week later, they were much better credits than ours. They were paying for the same term about a percent more in interest. So our team did a good job. getting that done. So our debt, overall debt came down in terms of net debt because we did pay down 160 million of that over above the term out to reduce that. We did get a credit upgrade by TBRS and we did have Fitch issue their inaugural credit rating on us with a rating of triple B with a stable outlook. So all of that again is positive as we look forward. I'll go through this fairly quickly and we'll open it up for questions. I think, Laurent, as we mentioned, the emphasis was really just doing the ground support so we can get back into the west mine. As you know, that's a higher grade area. We have seen last year we're in a significant upgrade of 30% to 50% in contained gold due to the north-south fractures and a lot of visible gold in that system. So it's important to get back in there. That drives production, drives production growth as we go forward. So I think that was important to get back there. The key there as we deal with COVID, as we looked at our Quebec operations and began to call people back as the Quebec government on April 15th allowed the reopening of mining, just the process. Each of the employees were called individual by their supervisors. We sent them a video which outlined in visual form what they were going to see when they came back to the sites in terms of screening, in terms of hygiene, in terms of physical distancing. And I think one of the key things which is from a mining perspective really jumps out at you is the way we're managing the cage. And each of the employees enter the cage, we're operating that at 50% capacity. Each of the employees enter the cage one by one. They're separated by a curtain. They can't face each other. They can't look at each other. They can't talk to each other. So they're in that cage for five plus minutes. So, you know, that's been well accepted. We had 90% take up on the return to work. It's all voluntary. We're not forcing anybody to come back to work. Not only do the employees have to be comfortable, the families have to be comfortable. What we found when people returned, they were excited to be back to work, excited to see their fellow employees, so things are going well. As we go forward, I guess the big question is, well, okay, these types of things may extend for much longer and many months. Now, how do we offset the drop in productivity from some of these new measures? We believe that, well, we already started a program to understand sort of the optimal size of our workforce. And the fact that we've had to scale back at seven over eight lines gives us a better feel as we reintroduce people slowly what the optimal size should be. And most of the people that haven't been put back in yet would be the contract workforce. So we're hoping we can be more efficient with that contract workforce. That could introduce some savings to possibly offset some of this productivity loss through these new measures. But it's still early. We're still learning. But we're confident that we're going to get a really good feel of how this is going to work going forward, largely because we've been forced to scale back. And we're actually doing more productivity with less workers in places like Nunavut than we were doing before. So we really have to let this play out as we go forward. Jumping to Canadian Malarctic, we did start that mill shortly after things were allowed to reopen. We restarted it on April the 17th, running about 60,000 tons a day, running off a stockpile as we ramp up the mining activities. So that restart has gone well. We mentioned Goldex. The productivity is really driven by really good performance in the rail there. So that was a great add. and a great use of old technology, just adapting it in a new format and tailoring it to that particular operation. And we're also benefiting from higher grades and more tons in the south zone. And the south zone, I think, is going to be driving good solid performance at Gold X for several quarters as we move forward. At Meadowbank, the focus was just managing the communities as it was at Meliadean, having the Inuit workforce go home, isolate the operations from the communities going to a 28 day rotation from 14. Again, that was all voluntary, we're not forcing people to go up for 28 days, we had more volunteers than we had spaces. So that's a good sign that rotations working well, ultimately, we have to come back to something less than 28 days, that's a long period of time to be up there. But that helps the productivity because we're having fewer changeovers. So I think that's a plus and that's positive as we work through the issues around COVID. The focus there was just catch up on maintenance, remove the lake bed material, open up more faces in the open pit. We went down to 50% of our mining rate. We stopped the mill with building a sufficient stockpile. We've just resumed long haul trucking to bring the ore to Meadowbank. We've done a lot of improvements on getting the parts from Meadowbank to the Amaruk site. There's still work to do at this one. So of the three, Leron, Meliadeen, and Amaruk, we always said this was sort of Q1, Q2. The others were more Q1. So there's still a bit of work to do and a bit of catch up to do because of COVID. But they've made a lot of good progress there. and it's set up for a much stronger second half as we resume production and get up to over 9,000 tons a day in the second half. At Meliodine, as we said, apron-issue feeders were resolved. They function. They work well. But even in February, I've got to give the team credit, even with no apron feeder, the workaround, we were able to do 3,300 tons a day in February, even with the workaround. Getting the apron feeder repaired with manufactured parts, we have the spare plates in from the manufacturer. We should get the other unit in July, August when the barges come in. So far, so good there. We're running that plant now at about 3,500 tons a day. Q3, about 4,000 tons a day. Q4, about 4,600 tons a day. We've started to pump out. the additional mining horizon. So we're in a position to continue to move that part of the mine forward as we pump it out and get to developing that area. So that's what's going to drive the additional tons in Q4. But also that's one of the higher grade areas of the underground mine. That's why we're comfortable on the meleodine production profile. As we look at Meliadean and we look at Meadowbank, one of the things that we have to do is reintegrate the Nunavut workforce. At this point, they're not ready to come back. I think there's still anxiety. They have had one case of COVID-19 in Nunavut. It appeared this week. It's in Pond Inlet at the northern tip of Baffin Island, so not near any of our operations, but there's still some unease and anxiety there. We can actually ramp up. We can use the contract workers. We can use employees that we had planned to have come in in the summer to do some of the duties that we had our input workforce. They're still a key part of our operations. We want them back, but we only want them back when it's safe for them to come back and they're comfortable coming back. At Kittila, again, we said it's above budget. They have been the only mine that's really maintained the processing through the entire quarter. They did have an employee test positive. They isolated the employee right away when he was feeling not well. They did contract tracing. They tested immediately the people that he had contact in prior to him not feeling well. All of those tests came back negative. The employee is better now. We have actually tested all of our employees in Finland. No other issues there. And I think the Finnish team did a really good job reacting, responding, following protocol, taking isolation steps, contacting public health authorities, working with them to do the contact tracing and ensure that the spread was not more widespread than just impacting one employee. So good work on behalf of Kittila. And in the southern business, Mexico has taken the position that In April, all non-essential businesses were to go to minimum activities. We're still getting gold out of the leach pads at those operations, particularly La India. The government has subsequently extended that now to the end of May. They do have an opportunity that if you're operating a business in a region where the COVID-19 is not a major issue where there's very few cases that they will consider allowing those industries and those businesses to start back up. That date could be May 18th. So we're certainly in an area right now where there's not a lot of cases there. So there may be an opportunity that we can get back to work before the end of May, early June. So we're going to continue to monitor that Our team is working very closely with the Secretary of the Economy that's responsible for the mines to highlight what we're able to do in the community and the fact that we can still protect our employees and run our business. So we'll keep you posted on that. Operator, if you can open the lines for questions, we'll try to see how this works remotely. I'll try to direct the questions to those of... members of the team that are online that can respond to the questions. Thank you very much.

If you'd like to ask a question at this time, please press star then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. First question comes from Fahad Tariq with CreditSwift.