Agnico Eagle Mines Limited

Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle third 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 thank you for joining us this morning for our 2020 third quarter operating results. Before we begin, I just want to refer you to our cautionary statement on forward-looking statements because this presentation will have forward-looking statements in it. Before we get into the numbers, I just wanted to sort of put it in context and sort of connect what we've been working on into sort of our strategic focus and how we see things moving forward. Certainly when you look at the press release, you can see the impact of rising production into these gold price environments and what that has on earnings, impact on earnings and cash flow and free cash flow. So that's certainly a major highlight for us as we get our production back into the 480 to 500,000 ounce per quarter range. and it's from this base that we'll be able to steadily grow the production over the next several years. So that's clearly important, and that's what we're here to do is generate those returns for our shareholders. But also in this release, which is just as important from a value creation standpoint, is the unfolding exploration story, which we've been talking about for several quarters as we're seeing a lot of life left in some of our mature mining camps. So many of our existing mines, we're showing that these deposits will likely to continue to grow and continue to add high quality ounces at these operations. And this has important implications for our longer term production profile as we sort of begin to look out over the next 10 years with a view to growing above the 2 million ounce mark and sustaining that production level above 2 million ounces for an extended period of time. In this presentation we'll talk about some of the key projects and I think it's important to note that because of these results we'll also be increasing our, we have increased our drill programs and we're going to have a more significant increase in our exploration budgets and drill programs as we move into next year because we're still in the process As we get into the slide presentation, you'll see we're still in the process of ranking our projects on a relative basis so that we can effectively allocate the capital to those projects. The important thing for us is to continue to steadily grow and do it in a way where we're generating net free cash flow. So that's why it's critical for us to rank them and stage them and invest in them over time. and not increase the risk level by piling projects on top of projects and eating up all the net free cash flow. So that's an important part of our story, and we'll connect some of those dots in the presentation. The other aspect here is the dividend, and so we've seen a 75% increase in the dividend. It's now $0.35 a quarter, $1.40 on an annual basis. That's approximately in total dollars about $340 million per year. The dividend increase is not solely based on higher gold prices, but also we factored in our ability to continue to grow the output from the current levels. If you look at sort of assume an average of production over the next several years between 2.1 and 2.2 million ounces, that works out to $160 an ounce in terms of dividend payment on an annual production basis. So that's very manageable for us. as we've invested heavily in the business and now we're in that harvesting stage. One more thing on the, on sort of the dividend and the philosophy there. And I think the industry's positioning itself well. It's certainly been good to see companies that eliminated dividends six or seven years ago, reinstating them now. It's certainly good to see from an industry perspective, companies growing dividends. I think we've, as an industry heard our owners saying we want a return of capital. We've certainly been there for many years. As you know, we started to pay a dividend back in 1983, and we've paid one every year since then. But it wasn't just the fact that we were able to pay that dividend over that 37-year period. By paying that dividend, We didn't pay a dividend, and as a result of paying that dividend and maintaining that track record, it didn't take money away from our ability to invest in our business over time. And so if we reflect on why we've been successful, we've been successful because we've identified a high-quality project early. We put money to work early. We drilled those projects. and we realized on that geological potential. So effectively what we've done is we've taken geological risk, and we've kept the other risks in our business low, and what we've also done is kept the share count low. So the idea was to ensure that over time when we had the ability to pay a dividend and return cash to our shareholders, we did, and we made it a priority. But while we were doing that, that wasn't just good enough. What we were also more focused on is ensuring the business was strong in a way where we were adding ounces cheaply, using our in-house mine building skills to turn those growing deposits into meaningful parts of our business. And while we kept our share count low, we were able to put up above average share price returns to our shareholders. Really what we're trying to say is that's been a very effective strategy for us because it's been well matched to our skills. As we said, it's been proven that it works and it's worked over several decades. So the message here is we'll continue to follow that plan as we move forward because of how it works and how effective it's been. And the one other point before I get into the details is just to note that we've had some really prestigious acknowledgments on the safety side here. So our teams have done an excellent job and have been recognized for that work. So let's move into the presentation, and we'll get into some of the details. We talked a little bit about the summary. We always expected that the second half would be much stronger. We can see that in Q3, so we expect a solid second half in terms of our ability to produce gold where we expected to produce it, but also to generate the free cash flow at these gold price levels. So we've maintained our production and cost guidance. We've maintained our longer-term guidance. That's unchanged. As we said, we're producing roughly at a run rate of close to 2 million ounces, and we expect, given our pipeline and what we're seeing in our assets, to be able to go above that. We still have to decide how we're going to build those projects in terms of scheduling and relative ranking. As we said, we're working on that. But a big piece to how we're going to make those assessments is really on the exploration side. As we said at the start, there's still more work to do. We've seen some really good results, which are suggesting that we can extend mine life, add ounces in the mine plan, which is important, and we'll get into some of those ideas in this presentation on the back of a higher exploration budget as we move into next year. As we said, on the gold production side, we produced over 490,000 ounces at a cash cost of $764 per ounce. There's still more work to do on the cost side. We believe we can do better next year, so we're expecting to see some improvements on that side. As we said, there's no change to our 2020 guidance or our longer-term production guidance. That remains the same. We did decide to spend a bit more in the closing months here in 2020 to position the business going forward, adding about $40 million. It could take the midpoint of that range, and that's being spent at Ketala to accelerate that expansion program. At Amarook, we had stopped the underground program. We're restarting. the underground program. We stopped it in the first half, largely around COVID and the fact that we had to go to minimum activities there. And we're actually purchasing pipe for the water line that we expect to have permitted next year at Meliadeen. So we thought that was smart to do in terms of being able to position the business forward. And we've talked about the dividend COVID. clearly important our teams responded as you know we've talked about this before responded well in q2 principally in getting testing up and running early an effective testing system in addition to the other protocols so that certainly helped us position the business and make the case to the authorities that we could operate safely and as a result as you know we were able to get our minds up and running in quebec and mexico earlier than had been suggested by the government's shutdowns. And I think the real question is, you know, how is the business and how is the industry positioned now where we're seeing rising case counts and rising case counts in some of the areas where we're operating? What we're doing is we're expanding testing. We have two labs going now. We're adding another lab, another lab in Quebec, in the Val d'Or area. So testing's been effective. We're looking at changing when we test. to test for a period before the workers show up for their transportation to site. We think that's important because sometimes they're asymptomatic, may not test positive, may test positive a day later when they're at the site, which has happened, but we've been successfully able to isolate employees in those instances and avoid spread within the workforce, which is important. I think the other thing that's important for a second wave is the way that the business's position, not just Agnico, but the industry. And I think the industry has made a strong case to the authorities that not only can we operate safely, but we're clearly economic engines in those regions where we operate. And you can just see based on the profitability on the third quarter results from our peers and ourselves that these companies bring a lot of benefits to the region. And given the profitability, In most instances, we'll be paying lots of taxes, which the governments are looking for. So there's a strong case to be made. And one other point here is that everybody knows that in Nunavut, the communities are particularly susceptible to the virus. And back in March, one of the approaches we took was to ensure that we separated our business from the community so that there'd be no transmission as we were bringing people up from the south to the north. Even though we were testing, we wanted to be extra careful. Unfortunately, the Inuit workforce is still at home. They're very important to us. We're focused on getting everybody back, but only when we can ensure the safety of the communities. And right now, we can't do that. We are in continuing dialogue with the government of Nunavut, with the public health authorities in Nunavut, to understand the best way to bring them all back to work. That will happen, we're just not sure when. We're bearing the cost of that for the quarter of $3.7 million. We'll be patient because it's the right thing to do. Also on COVID, which is in our cost per ounce is about $6 an ounce, largely due to additional testing and the additional protocols. So I just want to mention one more point on the Nunavut workforce. What we've done To keep them engaged and to assist the communities who are in need of help is we've actually brought many employees back to work, not at the mine. They're actually working in the communities for community agencies. They're doing things like cleaning up waste fill sites. They're working in daycares. They're working in community centers. And when they do that, we pay them 100%. Right now, if one of our Inuit workers is at home, they get 75% of their pay. If we can find a way that we can get them engaged in the community, we'll pay them 100% to keep them active and engaged, but also to give back to the communities that we partner with and operate in. As far as gold production, looking forward, we're forecasting about a 24% increase out through 2022. Our focus is not only on executing that, but understanding what comes in beyond that. And as we said, we're still doing the relative ranking on which projects we're focused on. We'll talk a little bit about them. We know about the Kitzel expansion. We've made major progress there. It's going to cost us a little bit more because we got delayed there with COVID. We had to send all the shaft sinkers back home to Canada. So it cost us four months or so there. which is increasing some of the costs. Meliating phase two is underway. Amber underground, we talked about the restart of that. And Odyssey, East Millard, I'll talk about that in a minute. But there's an opportunity there in the early stages as we've begun the ramp to bring up some development ore up in the ramp. We're also focused in this context as we look at the production profile out in the out years, 2027 to 2032. And part of that is this increased drill program to help us convert resource at existing mines into reserves so we can put those ounces in the mine plan, which is really focused around how we can not only go above 2 million ounces, but sustain it for a longer period of time. So that's where our team is focused on. Just talking a little bit more in detail about exploration, I talked about Kitsila. From an expansion point of view, we're at We've got the permits to be at 2 million tons a year. We're moving to 2 million tons a year. We've commissioned the plant. Things have gone well there. But what we've also seen recently is an extension of the CSAR zone. So the CSAR zone is a zone that's parallel to our main zone. We continue to intersect that zone outside of the known outline. And that could be important as we move forward because it's an additional source of ore for us. And it's growing in size. So we're focused on what is the next level above 2 million tons per year? Is it 2.4? Is it 2.5? A lot of this drilling on the Cesar zone will tell us whether we have additional sources of ore to increase the mining rate. So that's how we are focused on adding value at the Kittilam mine in Finland. I'll skip over Canadian Malartic on the slide for a minute and talk about La Ronde. The focus there, we can see at depth as we mine the west zone, we're getting an upgrading in that west zone. So the La Ronne mine has been in production for over 30 years. We're seeing some of the best grades in terms of volume we've seen in that 30-year history. And we also have had a lot of exploration success. We see the reappearance of a zinc zone. The recent drilling has been deeper on that zinc zone. The gold grades have got better. The NSR values are very high here. What we're trying to do is figure out how big it is. But it's close to infrastructure. That'll be part of the increase in exploration budget to understand the size. It would certainly open up a lot of flexibility in the lower mine and extend the mine life. And also at La Ronne, we're focused on the old Bousquet property, now known as LZ5. And there's a whole package of felsic rocks that the previous owners, Barrick and Lack, never drilled. The mine was shut down due to gold prices ahead of that. And that opens up an entirely new exploration front for us and for Laurent. So we need to understand what that opportunity is. At Kirkland Lake, I think we know and have concluded it's a buildable project. The question is when? When does it fit in? There's still more work to do. We continue to get good drill results. It's got low cash costs because it's got a copper credit there. It's a unique deposit for that part of Ontario. but it's well-situated. We like it because it's a 45-minute drive from Bruon, which is where we have a good part of our workforce live. So there's a natural fit there, and we're working on the study and hope to have it completed by the end of 2021. Canadian Malarctic, it's getting a lot of attention, as it should. It's really moved up the depth chart in terms of potential over the last two years, largely on the back of East Goldie, because what East Goldie does is it gives us another fairly large source of ore, which is thicker and much better grade than what we see in other parts of the underground in the Odyssey and East Mallardic areas. So it's changed the complexion of that opportunity, largely because we can now look at it as a much larger underground mining scenario. And what it has the potential to do is significantly extend the mine life. And so there's work to do. It's still early. It's not a slam dunk by any means, but I think our confidence level is high there because of our experience of almost 50 years in that region, 50 years of successfully building and operating underground mines. So we know what these things look like. We know what they feel like. We know what to do with them when we see them. Back in 2014, when we sort of stepped into the hostile takeover, Part of our thesis was that there was a pretty good chance that there was an underground opportunity here, and it looks like there is. And so we've put our best people to help and work with the Canadian Malartic team and with our partners in Yamana to sort it all out. The news flow will be an updated resource in February, as well as a preliminary economic assessment, which will outline our thinking on a shaft. It needs a shaft. I think you can... take from our decision to advance the ramp. We're confident that we have an underground scenario here. We just need to continue to drill it. We need to improve the confidence level around the resource. We need to understand how big it is. But we also now, given where East Goldie is located in a package of rocks which previously didn't really, it wasn't really known to have a lot of potential, we've got over 20 kilometers of coverage now of that favorable rock package. So clearly it's a regional play now as well as a play around the immediate vicinity of the mine. So when you add all those things up, these are telling us that these traditional camps have a lot more life left in them. And I think what it means to us is as we look at external opportunities, we continue to look because we're always focused on the pipeline as we look on out beyond five years. That's how we built this business. That's where Kitzela came from. That's where Pinos Altos came from. That's where Meadowbank and Nellyadeen came from. That's where La India came from. With that type of theory, we talked about the strategy at the top. That's what we're going to continue to do, look for those. But we also need to be able to understand what we already own at existing mines to make those relative comparisons. So that's an important part. I'm not going to go through each individual mine slide. They're in the deck. I won't get that far because we want to open it up for questions. I know Newmont's coming up at the top of the hour, but I'll just use the slide on the operating results to touch on some of the mines, and then I'll talk about some of the financial results, and then we'll open it up for questions. I'll start with La Ronde, and La Ronde, although it's been in production for 30 years, it just keeps going. It's one of these things that, and it's not an easy mine, so I think we have to give our team credit for I listened to a presentation a couple of weeks ago from the Ron team, and when you add in everything they're dealing with there, it's a really complex business unto itself, and it's more complex because they're dealing at depth, but they're also dealing with exploration opportunities and how that fits in, the sites located in the community. So there's lots of things to worry about, but here they are continuing to open up the lower part of the mine. We're getting an upgrade in the west mine. We're getting tonnage from the other parts of the deposit, We have opportunities at LZ5. We're using more automation, which is going to be extremely important as we go forward. And the end result of all that is a quarter where they produced about 100,000 ounces at cash costs of $476 an ounce. So it still, after all these years, is an important contributor to our operation. Part of that success is the vision that the team had several years ago to take the old Bousquet property, which we paid Barrick's $7 million Canadian in cash for almost 15 years ago, and use it as a test case for automation, but also use it as a way that we can extract some of the resources that were left there. And part of the strategy going forward, there's a lot more ounces there. There's several hundreds of thousands of ounces more that are not in our mine plan, and there's exploration opportunities in that felsic package of rocks that we need to understand. So that will continue to be the focus going forward. So exploration is key, although the mine continues to generate extremely strong cash flows. And not only do we have opportunities to the west as we look at the old neighboring ground that we now own, but also to the east of our deposit when we see the potential in the base metal zone. Gold X, we talked about safety awards. Gold X was awarded the F.J. O'Connell Trophy by the Quebec Mining Association for excellence in health and safety. So congratulations to the Gold X team. Also in September, They had the highest throughput since the mine restarted back in 2013. So they continue to get good drill results at depth in the south zone. So it's still an important contributor to the company. Canadian Malarctic also awarded an F.J. O'Connell Award in the open pit category by the Quebec Mining Association for Excellence in Health and Safety. So that's a big mine. That's a big mine that requires regular overhauls of the plant where you'll have 800 to 1000 contractors running around in a week. And so a lot of people in a confined space and they're clearly doing it safely. So I think that's a good example of how effective that team there is. They had record monthly tonnage milled in August. So coming back from the shutdown in Q2 with COVID, they've done an extremely good job. Barnat reached commercial production at the end of September, so slightly ahead of schedule with our mining activities there. The project we mentioned, the underground, we started the ramp, so I think that's a really good sign, and we talked about the expanded drilling and the potential for East Gold Lake at Kittsala. As we said, we're commissioning the expanded mill. That's ongoing now. We completed the tie-in from September, late September, to the third week in October, so that's a good thing. As we said, the shaft project was delayed because we had to send the contract workers back home to Canada, so there'll be a delay in the construction, not a delay on the other side of the expansion in the plant because we kept working on that because we used our employees in Finland and our local contractors that could actually operate and move in the country. So still producing over 50,000 ounces, but with the ability to expand and go higher with exploration potential as we continue to look at depth. At Meadowbank, Meadowbank was important from the perspective that we achieved our planned target of over 100,000 tons a day of ore and waste. So that was critical. We struggled to get there, as you know. We struggled to get there because of backlog in maintenance, which affected equipment availability. So we're able to achieve that tonnage in Q3. We're also focused on the long haul trucking. We've added more vehicles we received on the barge three in the third quarter, so that'll give us some flexibility in that aspect of the business, which is important for us. The IVR pit development. has been accelerated we mentioned we've restarted the underground ramp for the underground program i think which is also important for the future of that deposit and as we go forward over the next several quarters we should see an improvement in the strip ratio there at the deposit because the early part of the production there was near surface lower grade higher strip ratio so the mining conditions should improve as we go forward there meliodine We had record production there of 96,000 ounces, good cost performance. So they've had also a successful ramp up from Q2 and being reduced down to minimum activities. So the focus there going forward is to continue to steadily ramp up our throughput and production rate over the next several quarters as we move into 2021 and take advantage of the better grades that we're seeing as we open up the new mining horizon that started in Q3 of 2020. And we've begun overburden stripping at Tiriganiac, so a lot of that expansion work and adding additional reserves into the mine plan is ongoing. We continue to do conversion drilling at the Discovery Satellite Deposit, which should add to the reserve position there at the end of the year. We continue to move and develop the center deposit to help out at Pinos Altos. We also see some good drill results at the Cobiro deposit, which we think is going to be important for Pinos Altos in terms of accessing good grade material in the vicinity of the existing infrastructure. So it's important for them there. The next slide is Creston Mascota. Really a thank you to Creston Mascota. An open pit that added some really good quality production for our Business in Mexico, very close to the Pinos Altos mine. It's now winding down. It's just in the leach position now. We're just getting the residues off the heap leaches going into next year. So just a thank you to the team there for doing an exceptional job over a number of years and adding value to our business in Mexico. At La India, another safety word. La India, for the third year in a row, was recognized by the Mexican Chamber of Commerce for their health and safety award. So they won the Silver Helmet Award. And what we're looking at at La India, we're drilling, infill drilling, and extending the Chipriona deposit. That will allow us, we feel, to extend the mine life at La India. So the focus really in Mexico continues to be on taking advantage of near vicinity deposits to the infrastructure and also working on Santa Gertrudis and some other opportunities that we see in Mexico. So moving off the site quickly to the financial highlights, we can see that our earnings were strong, but we're focused really on the operating cash flow per share, which was $1.90. So we can see the impact that increasing production, being able to maintain costs, and delivering into this high gold price environment has on our ability to generate cash, not only cash from operations, but also free cash flow as we look forward to keep a lid on our capital spend. by staging out projects and building them over time and not being in a hurry is a real focus. Moving to financial position, as we entered the quarter, we had about $250 million drawn under a credit line. That's been now paid as we expected it would be. So nothing drawn on the credit line, and we ended the quarter with $322 million in cash. So strong cash position coming out of the quarter. I'll just end with the dividend slide. I think what we see there is the progression since 2014. We were confident in our business even when gold was $1,200. We didn't eliminate the dividend. Some others were having to based on their positioning. We were in a better position, so we didn't, but we were confident that we could increase it every year after that reduction, and that was largely in a period where gold wasn't doing much. It was sort of between $10.50 and $12.50, and we were spending a lot in 2017 and 2018 and none of it, and we were still increasing the dividend. As we said, it's been a big part of our history, and we're comfortable increasing it again to the level of $0.35 a quarter. One of the things for us, it's really about balance. And so we've highlighted the dividend, but I think more importantly, we've highlighted the fact that we can pay that dividend and still invest and continue to invest in our quality projects to improve the value in the business while we keep the share countdown. So on that operator, I'd like to open it up, open the lineup for questions.

Certainly at this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Fahad Tariq from Credit Suisse. Your line is open.