Agnico Eagle Mines Limited

Good morning. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Second 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, press the pound key. Thank you. Mr. Sean Boyd, you may begin your conference.

Thank you, operator, and good morning, everyone, and welcome to our second quarter 2020 conference call. Prior to getting into the slides, just be forewarned, we are presenting forward-looking statements in this presentation, and there are two slides which go through the disclaimers on forward-looking statements, so please, at your leisure, read those. What I'd like to do is talk a little bit about Q2 and how we've managed through the pandemic, but focus more on how we're positioned going forward, what the emphasis will be on our business in terms of driving a free cash flow and using that to reinvest in the business and increase our dividend as we move forward. As you know, it has been a challenge. It's been a challenge for everyone. From a business standpoint, we had seven of our eight mines were impacted either with temporary shutdowns or with significant reductions in our activity levels at those mines due to COVID-19 and the fact that in some of our jurisdictions, mining was not considered an essential business. We were fortunate to be able to restart those operations earlier than we had expected. We continued our dialogue with the governments in our respective regions on our safety protocols and how we were positioned to restart and keep our employees safe. And in both in Quebec and Mexico, both of those governments allowed the mining industry to restart before many other industries. So that allowed us to ramp up and get things moving quicker than what was in our original plan. As we've said before, the number one priority for us was to ensure that our employees were not only safe, but they were comfortable, their families were comfortable with our approach, also our communities were comfortable with our approach, and we used some unique, our team put some unique ideas forward, particularly with respect to testing, and that just added an extra layer of comfort and protection, and we'll talk a little bit about that. We closed Q2 strong, we started Q3 strong, As a result of that, we expect to have a strong second half in terms of production, declining costs, and also free cash flow generation. It was important for us because in a lot of the meetings that we've had over the last few months with investors and analysts, the question was always, well, how much is it going to cost to manage through the pandemic in terms of impact or costs on putting mines on care and maintenance. But more importantly, going forward, what was that going to do to your productivity? What was that going to do to your unit costs? And on page five on the slide in our press release, we've broken those down and we've given you the accounting treatment. So in the quarter, we incurred a little over $22 million. Roughly $8 million of that was strictly the care and maintenance costs. at those operations where we were on temporary suspension. We had an additional $14 million roughly, which were our payroll costs for employees that we temporarily laid off during the COVID. Those amounts of $22 million were not included in our unit costs, either cash costs or all unsustaining costs, and we did not back those out of earnings in calculating our adjusted earnings. There's been differing treatments in the industry. We've chosen to leave them in our earnings calculation and not back them out for adjusted earnings. But I think it's more important to focus on the cost going forward. In the quarter, we had $2.3 million in costs around increased hygiene and screening and testing. Those were factored into our unit cost calculation, and we didn't adjust our normalized EPS for them. As we look forward, I think there was a couple things in terms of moving parts. We do know we have additional expenditures to continue with the protocols around screening and hygiene and testing. Our number for that is about $1 million a month, which amounts to about $6 per ounce in additional costs. And that's a number that the market's certainly been interested in for a number of the companies. That's where our number has landed. We view that as not significant in the overall picture, but we've also been able to, because of our unique situation, having to reduce employment levels at seven of the eight lines, and in some cases drastically reduce employment levels, On the restart, we reintroduced employees in stages. So we gradually reintroduced employees, and that allowed us to get a pretty good feel and match our employment levels and headcount levels against our productivity and our production levels. And we feel that there's going to be some cost savings there in terms of the total headcount, particularly on the contractor side. So it looks like we won't have to call back as many contract workers as we had prior to the pandemic, which we think is a bit of an opportunity. We do have an additional cost of $1.4 million per month. One of the things that was done early on is that in Nunavut, the communities are at high risk for COVID-19. It was important to ensure and protect the communities that we had to separate our operations from those communities as a result As you know, we sent our Nunavut workforce home. They are still at home. We want them back, but we want them back when they're comfortable. We believe we have a safe environment for them to come back, but we are still in discussions with the Nunavut public health authorities, the government of Nunavut, local government, community leaders on when is the most appropriate time to bring them back and ensure that the communities remain protected. So there's no set timeline for that. But as we say, we continue to work with that. We have backfilled that workforce with some additional contract workers and some seasonal workers to help us manage while our Nunavut workforce is at home. In terms of second quarter highlights, we produced a little over 330,000 ounces, which is a bit more than we expected. When we started to see the impacts of the virus, there was a lot of uncertainty around the restarts Our costs were higher on a unit basis because of producing less gold in the quarter. But going forward, we expect those costs to come down. We'll talk about that. We tightened up our guidance. We increased the lower end of the range. The guidance is now for the full year 2020, 1.68 to 1.73 million ounces. We had a fairly broad range when we revised guidance at 1.63 to 1.73. And we needed to do that because we were still in a period of a lot of uncertainty. We really weren't sure at that point when we were going to be able to restart and how quickly we were going to be able to ramp up. Now we've gone through the second quarter, so we're comfortable tightening up that range and increasing the lower end of that range. In terms of full-year guidance going out into 2021 and 2022, we left that the same. And what that means is second half of this year, we expect to produce between 480,000 to 500,000 ounces per quarter at declining costs. In the next year, a little over 2 million ounces, which puts us about 500,000 ounces per quarter, and beyond that, over 5,000 ounces per quarter as we continue to ramp up. We continue to declare our dividend of 20 cents a share. We'll certainly look in the third quarter at revisiting that, and given our track record of 37 years of consecutive dividend payments, and given the free cash flow generation, I think it's logical to assume that over time that dividend will continue to go up. Also in the second quarter, I think it was important to note that we did receive some critical permits in the quarter. We received a permit to increase our processing rate in Finland to 2 million tons a year. We received the permit at Meadowbank for the IVR open pit and for the Amber underground and we also at Meliadeen received approval to double the amount of water saline water we can discharge to the sea. So those were three important permits that we were anticipating and we did receive them in the second quarter. In terms of the ramp up, we did talk about the faster ramp up in the previous slide. As we said, we got able to restart earlier in Quebec than expected, about two weeks earlier. We got to restart in Mexico about 12 days earlier than we had expected. As a result, we closed the quarter strong in June, and that allowed us to gradually ramp up. And in July, we're over 160,000 ounces of production. So that sets us up for a strong second half, as we said. On an operational update, I'm not going to go into individual slides, although they are in the slide deck. But as we go through the next series of slides, I'll touch on each of the operations at Le Ronde. Prior to the onset of the pandemic, we had completed the planned infrastructure upgrades in the west mine area at La Ronne. We were actually developing in the west mine area before we had to reduce activities there. We have been mining in the west mine area in the second quarter, and we continue to see higher grade than we had forecast in the block model, which I think is important to see that realized as we mine out those areas. We're expecting in the second half to average about 8,500 tons a day from the La Ronne complex. About 3,000 tons of that from LZ5. About 12% of the tonnage will be sourced from the higher grade west mine area. Meliodine in June, our throughput in the mill exceeded 4,300 tons a day. We had always talked about 4,000 tons a day as the level that we needed to achieve. We beat that in June. In the third quarter here, we will replace the repaired apron feeder. So to reach 4,300 tons a day, with the repaired apron feeder really speaks to the success of those repairs. We will put in a new unit in the third quarter. We will upgrade the filter press system and other components that will allow us to go to 4,600 tons a day in the plant in the fourth quarter of 2020. I think what's also important is we've been able to pump out the third mining horizon at Meliadeen, which was always in the plan. Those are higher grade areas, and that's set up so that we can start mining in those higher grade blocks in August and September and into the fourth quarter. We did make reference to our water discharge at Meliodine. We did get approval to double the discharge limit at Meliodine. We're doing that by truck in the third quarter. We can continue to do that by truck going forward, but we feel strongly that the best solution is a water line. um so we're moving forward with the process to get the water line permitted that's going to involve a lot of community discussion one of the concerns that the community would have about a water line is does it impact the ability of the caribou to move they had that initial concern back in the early days of baker lake back in 2007 and it was pretty evident pretty quickly once the road was built that the caribou were not bothered by the road and they easily cross the road. We think that's the same thing with the water line. In a 35 kilometer long water line, there's 70 crossover points for Caribou. Ultimately, if we need to cover the entire water line, we'll do it. So longer term solution, eventually we'll get it approved. And in the meantime, we can continue with trucking the water at Meliadean. At Meadow Bay, we made a lot of progress even though we're at reduced activities. to catch up on the backlog of maintenance. And you can see that in the results in June where we mined over 110,000 tons of ore and waste per day. Our target, as you know, was 100,000 tons of ore and waste per day. The mill restarted in late May, which is a couple of weeks sooner than we had planned. The mill is currently running in excess of 9,500 tons a day, both from the mine ore and from existing stockpiles. In the balance of 2020, we expect higher rates between two and a half and three grams per ton, which helps with our production in the second half and helps us to achieve our increased production for the second half. And as we mentioned earlier, we received the permits for the Meadowbank complex to mine the IVR open pit and the Amherst underground pit. At Kitsila, that was the one mine where we were able to operate our plant continuously through the quarter. We also received an important permit there allowing us to move forward with the expansion in the processing facility to 2 million tons a day. We were impacted with our shaft sinking because the Canadian, the shaft sinking crew is Canadian. They were brought home during the pandemic They've now been allowed to return and resume shaft sinking activities. We did continue on with the other construction related to that expansion program. Ultimately, we believe the future at Kittila is beyond 2 million tons a day, and that's why we're thinking about the opportunities we may see to increase the mining rate there. We've had some good exploration success there. I'll talk about that in a minute. As we step back and look at our production profile, We see our graph. We've gradually increased production over time. We're now pushing on that sort of run rate of 2 million ounces a year. We expect to exceed that in 2021 and beyond. We continue to work our project pipeline. Ketzel expansion is under construction, so is Meli-Dean Phase 2. Amaruk Underground is in planning, was delayed due to COVID. We're working on ways where it will not impact our 2022 production number. We think we can be successful doing that in terms of timing. And I'll talk in a minute about the opportunity at Canadian Malarctic Underground, which is an important project. Exploration continues to be a major focus here, but I think what we've learned in the last 12 to 18 months, as we've said before, is there's still a lot of potential left in these mature mining camps. whether it's La Ronde, whether it's Mallardic, or whether it's Kirkland Lake. As we mentioned at Kittala, it's a very long-life asset. We continue to drill that deposit. We continue to intercept ore-grade material beyond the current resource limits. So we're going to continue to probe at depth, and that's been a big part of our success. We don't mind drilling deep drill holes. simply from the perspective we'd like to know what we own for planning purposes. That was the same story at Canadian Malartic Underground. The reason East Goldie was found is because we were attempting to drill a hole about two kilometers underground. That was the target, tracing the plunge from the old East Malartic Underground, and we hit the East Goldie deposit. We've got 10 drills currently working there. We've expanded the program. to increase the drill meters by almost 20%, which is important to gather information on the potential size, but also tightening up the drill spacing and improving our confidence in the East Goldie deposit. It's the East Goldie deposit that makes this underground work. Without that, even at these gold prices, Odyssey and the East Mallardic side It was still low grade. It's now the volume and the number of mining horizons and the potential to make this a large tonnage underground mine that East Goldie introduces. We certainly combined with Humana Agnico have the skills to understand what we own and what steps need to be taken to optimize it and turn it into a meaningful part of our business. We're doing that now. The first stage of that, as we said, is to increase our drilling. We're working on a a preliminary economic assessment, which we expect to be ready in early 2021, and the initial work on an underground exploration program, which is essentially the ramp. We're going to begin that this quarter. So we've taken important steps to move that project forward. And essentially what that will do is extend the mine life at Canadian Malartic and have the potential to extend it for many, many years. Kirkland Lake, another old mining camp. We continue to drill Upper Beaver. It is a mine. The question is, where do we stage it in our pipeline? We continue to drill and we continue to assess the economics. We have now started to drill more targets along that land package, including amalgamated Kirkland, which is close to the boundary with Kirkland Lake Gold. We're interested to see what those drill results return. In Mexico, we continue to get high-grade results at the Amelia deposit. It's going to need some more drilling. The team is focused on completing those drill programs and then updating a study on the potential at Santa Gertrudis. And I'll just add La Ronde here. We continue to drill both LZ-5, the old Bousquet Barrack property, to the west of La Ronde. Our intention there is to ultimately mine out several hundreds of thousands of more ounces there. And we're also drilling to the east of the main La Ronde ore deposit where we picked up massive sulfide mineralization over the last several months in the 20 North Zinc Southlands. So that continues to be a focus for us on the exploration front. On the operating results, we talked about most of these mines, but I'll talk about Goldex here. Goldex was actually doing extremely well prior to the pandemic. It was exceeding its budget, getting very good productivity from the rail VAERS system. getting good productivity in the high-grade south zone. We expect, as we move through this year, to be able to increase the mining rate in the south zone. We expect more production coming out of GoldX in the second half. So the team has done a really good job optimizing that asset, generating free cash flow. At Ballardic, we've talked about the underground potential, but the mine during the second quarter actually did extremely well in terms of ramp-up. In May, the monthly tonnage mill was 64,000 tons a day. So that's a record. And we have to congratulate the team because they did produce in the second quarter their five millionth ounce since the mine started. So that's a tremendous achievement in a short period of time. There's a lot more ounces to come, particularly as we look at the underground, but there's a top-notch team there that's doing a really good job maximizing the open pit and now looking at the opportunity to extend the mine life with the underground component. In Mexico, the focus continues to be on advancing satellite opportunities, whether it's Center or ProViro at Pinos Altos or Chip Riona at La India. But I should also give our thanks to our Mexican team. The mines are in a region where communities have been hit fairly hard with the virus, unfortunately. I think what that has done is it's allowed our teams to really be helpful in the community. And what we've been able to do and what the team's been able to do is we've brought in additional medical resources and medical personnel to help the communities. We have the logistics. We have better medical facilities in some of the communities. We're in a better position to respond. And our team has done an exceptional job of working together with the communities to help them deal uh with the pandemic in the communities our screening program has been effective for the most part we've been able to screen out employees prior to getting on site we've had some that were asymptomatic that it passed through screening we isolated them immediately we're using rapid testing followed by the detailed testing after so the testing's been a big factor in our ability to manage through this As I said earlier, our team did an exceptional job implementing testing in April in Nunavut. We now have a test facility in Quebec at Val d'Or, which basically prescreens and pretests every employee we bring up from the south into Nunavut. So by the time the plane arrives in Nunavut, we have the test results, essentially. And if all the tests are positive, all the employees are released to work on their 14-day shift. So I think using testing... The highlights for us was early adoption of testing, the fact that our team thought about it and were able to execute, and the fact that in the regions where we've been, we found ourselves in a strong position to help the communities, and our team have really stepped up and done that. Just quickly on financial highlights, even though the quarter was down from a production standpoint due to COVID, we did have good earnings and good cash flow generation We expect all those numbers to improve as we move through the second half. We did draw down a billion dollars on our credit line. As the pandemic struck, just to be extra cautious, we have now fully repaid the billion dollars that we had drawn on the credit line. We've made reference to the dividend. I think it's important to note that over the last six years, Even though we were in a heavy construction period and the gold price averaged around $1,200, we increased our dividend in each and every one of those years. We raised the dividend in February of this year. Given where the gold price is and given our growth trajectory in terms of production, we would expect that dividend to continue to increase as we move forward. So just to wrap up, we talked about our ability to manage through COVID and make sure not only were the employees safe, but the assets remain properly positioned to manage and deal with some things that we had to get done, largely in Q1 and a little bit into Q2. We successfully did that, which sets us up for a strong second half and a strong 21 and 22. And again, renewed exploration focus where we feel we can continue to add a lot of value on some of our mature mines. There's still good opportunity there, and those are high-quality ounces given they're at existing mines, not only near physical infrastructure, but near our skilled workforce who's demonstrated a track record of being able to add value. So, operator, that's the formal part of our presentation. We'd like to open up the lines, if you could, and take questions.

Certainly. Again, if you'd like to ask a question, please press star then 1 on your telephone keypad. Again, that's star 1 to queue for a question. We'll pause briefly to compile the Q&A roster. Your first question comes from Ralph Perfetti with 8 Capital. Your line is open.