Agnico Eagle Mines Limited

Good morning. My name is Grant, and I'll be the operator for today's conference. At this time, I would like to welcome everyone to the Agnico Eagle Third Quarter Results 2021 Conference Call. All lines will be placed on mute to prevent any background noise. All of the speakers' 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 star, followed by two. Thank you. Mr. Boyd, you may now begin your conference.

Thank you, operator, and good morning, everyone, and thank you for joining us for our third quarter 2021 conference call. Just to take note of the fact that this presentation will include certain forward-looking statements. I'd just like to start off with a summary and a bit of an overview. A very strong quarter from a production perspective, a cost perspective, from a cash generation perspective as well. We had record quarterly production as expected in the third quarter, producing over 520,000 ounces, excluding production from the Holt Bay mine. There was a big part of this performance was really driven by the performance of our Abitibi mines and our Meliodine mine. If you look at the Abitibi platform, Goldex, Canadian Malartic, and La Ronde, those three mines collectively produced in the quarter 222,000 ounces of gold, total cash cost below $600 an ounce. If you look at Meliodine, we'll get into that in a minute, had a record a quarter from a production standpoint producing about 97,000 ounces of gold at total cash cost of $634. So really strong performance from that base. producing almost two-thirds of the production ounces for the company in the quarter. As a result of the strong production and cost performance in the quarter, we've maintained our 2021 guidance. We did provide commentary in the press release on cost inflation. As we said in the cost inflation on consumables and supplies in the order of about 5% to 7% going into next year. That's roughly half of our cost structure. The other half would be largely labor. And our labor expected increase would be less than that that we're seeing in our consumables and our reagents. So we're not seeing any abnormal pressure on the wage side and we thought it was important to give you our sense. We did update you last quarter and we wanted to give you what we're seeing in the current environment. Also of note, as you know, on September the 28th, a month ago, both Agnico and Kirkland Lake announced a merger of equals that would combine and create the best in class gold company operating in pro-mining jurisdictions, unlocking significant synergies. So this is really a transaction to unlock value amounting to about $2 billion over 10 years. This is basically done to take advantage of what is really a regional consolidation opportunity, which drives a lot of those synergies. And as we've said before, when you look at From Detour down to Kirkland Lake, across to Val d'Or, that relatively small geographical footprint, the combined company will produce annually almost 2 million ounces of gold with a combined reserve and resource of almost 70 million ounces. If you look at the combined Canadian production from this company, as we've said before, over 2.5 million ounces with the potential to get to about 3 million ounces. So This is the major building block of this company going forward, not only unlocking value through synergies but creating the highest quality platform for creating additional value going forward. We continue to work with our partners at Kirkland Lake Gold, continue to discuss and plan for a successful integration of the two businesses, making good progress. We've been asked about the combination of these two businesses. Well, as we've said, in the past and set on September the 28th. I think the magic of this combination is the fact that we're taking two high-quality businesses, one with nine mines, one with three mines, and Kirkland's two of their three mines are on the same rough geological belt as our business in Quebec, and we do have development projects in Ontario. So from an integration standpoint, from a manageability standpoint, from a cultural standpoint, these line up extremely well, and we're highly confident that we'll have a successful integration of these two high-quality businesses. A big part of our story has been the exploration success over our long history, but more recently, over the last year or so, we're seeing significant exploration results at many of our largest cash flow generators and our largest producers, including at three of our largest gold mines. And we'll talk about that as well. As you've heard us say before, this is the largest exploration budget in the history of the NECO, around $160 million. And I think it's important to note that Kirkland Lake Gold actually spends more than we do. And so when you think about that combination again, it will be a company that actually has the best upside potential in terms of adding value through the drill bit. And that will be a core part of the strategy, given that It's been a core part of the strategy and a big part of the success of both companies individually over the last couple of years. We'll have a more detailed update of the exploration story of Agnico on November 2nd. And so we're still compiling that information around this. But some of the highlights were included in our press release. La Ronde continues to be a major focus for exploration, even after being in production for over 30 years because Agnico We do have a lot of undrilled ground to the west of La Ronde on the old Barrack-Bousquet property. That's going to require access to drill, so we're extending three exploration drifts into the LZ-5 property, the former Bousquet property. That will be a big part of the exploration story over the next two to three years. And we also continue to see good promise to the east of the mine and we put in a recent drill hole that was encountered on the 20 north zinc south zone and the nsrs of these intersections are several hundreds of dollars so highly valued rock in the lower part of the mine which is not inconsistent with what we've seen over the 30-year history of this mine where we've seen polymetallic zones that run uh high nsr values so we're going to also as well as the focus on the west part of La Ronde, also focus on the east part of La Ronde. At Meliudine, we continue to drill that deposit as we go deeper, continue to encounter higher grade over meaningful widths, which is important. And again, reinforcing the concept that we first understood very early on as we were looking at this opportunity. And after we bought it, doing a bulk sample, we found that that bulk sample returned more gold than was indicated in the block model. So we continue to see a lot of visible gold in the drill holes, suggesting that this deposit not only continues and gets bigger, it's also retaining its high-quality nature in terms of grade. And we'll get to it in a minute, and you can see that that translates into higher production and very good cash generation coming out of Meliodine. At Amarook, as you know, that's a focus for us. In the region of the Amarook deposit, we continue to drill largely to the west. We're drilling also between Whaletail and IVR, but of note in the quarter was in the Mammoth area. That's about 600 metres west of the Whaletail pit. We're encountering good thicknesses, decent grades within 250 metres of surface. So it's early. but potentially significant, and that will be a focus as we move into next year to continue to follow up our drilling in that area because that's what we're looking for, near-surface mineralization close to our existing infrastructure. The Odyssey project continues to have tremendous potential. We continue to get, as we drill the core of East Goldie, as Guy Gauslin has said many times, it's very consistent, very tabular, Almost like La Ronne, when you drill a hole within the envelope or within the outline, you're hitting gold, very consistent. And the excitement is really what do we see as we move to the east in that favorable geological pattern. And what we've seen as we've drilled in between that wide step out that we talked about over the last few months is we continue to see the potential to maybe add additional zones in that gap. Again, early, but it's a real focus for exploration at Canadian Malartic. And Upper Beaver, we're seeing the potential to add additional mineralization as we drill deeper. High gold grades, very good copper grades over very good thicknesses in a potential new zone. So we're focused on that as we move forward. And that will be an important part of extracting additional value out of the combination of Agnico and Kirkland because of the proximity of Upper Beaver to Kirkland's Macassar mine. And in addition to that, we've got a sizable resource right on the boundary in the AK zone, which is easily accessible with a tunnel drift from the Macassar operation. So we'll be able to provide more clarity on that as we move through the next couple of months. ESG, we continue to rank very high in ESG ratings. It's a focus for us. It will be a focus in the combined company as we put those two businesses together. We see lots of opportunities, particularly in communities, particularly on renewable energy in the combined company. So that will be an important focus. The highlights in the quarter was really the reintegration of the Nunavut workforce in Nunavut, both at Meliodine and Meadowbank. We've been able to do that successfully. We're happy to have them back. We missed them while they were away, and that's an important step in building the business and building the platform in Nunavut. On climate change, we announced recently our commitment to net zero by 2050 and also recently committed to implement the task force on climate-related financial disclosure. We talked about that at our Health and Safety Committee yesterday and at the board level. So that's a primary focus. And our Mexican mines continue to win awards in terms of safety and corporate and social responsibility. So that was a big highlight in the quarter. I'll spend a little time on the next page, mostly just to go down some of our assets and talk about some of the highlights. And I'll just use this page as a bit of a guide and a reference before getting into the individual mines. just want to highlight the strong operating margin in the quarter coming off of that record production. And really looking at, particularly from the big three mines, looking at La Ronde, continues to be our biggest cash flow generator, almost $150 million of operating margin in the quarter, Canadian Malartic at $93 million, and Meliodine sort of entering into that group of the big three mines with record production but also strong cash flow generation at $85 million. So that cash flow is a significant part of our overall cash margin in the quarter of over $500 million. Just starting with La Ronde, a very strong quarter. We had very good grades in the West mine. We set a new quarterly tonnage record at LZ5, which is important in terms of continuing to optimize that asset. A lot of that productivity comes from using automated equipment, where we continue to be well advanced there with Sandvik. And Sandvik will acknowledge that La Ronde is one of the mines that they deal with, which is further ahead than most mines in terms of integrating and utilizing automated equipment. Our board was just at site this week at Goldex, at Canadian Malartic, at La Ronde, and we're able to see some of that automation in progress. Continue to focus on exploration, as we said, as we move to the west. And really what we're looking at is, as part of the full potential exercise here, La Ronde's strong production we think will be bolstered going forward in an ability to extend the mine life as we drill out both the western and eastern side of that deposit and that trend. So good performance there at La Ronde. Canadian Malartic. Again, record quarterly tonnage mined and record quarterly tonnage milled in the quarter, resulting in strong gold production and very good cash generation. The focus continues to be on optimizing the Odyssey project. We got to see the new concrete head frame. I think it's completed in terms of the form. It's up about 97 meters, so an extremely big head frame to match the big underground opportunity that exists there. And you need the big head frame if this is going to become, which it is, the largest underground gold mine in the country in Canada as we build it up. But as we said, the focus is we're on target in terms of development there, on budget in terms of development, but the focus is also on exploration and how big is that structure and how do we integrate that into the mine plan and improving the economics of that project, which we believe we can continue to do as we look to optimize that project. Ketala, quarterly record in terms of mill feed and quarterly record gold production. So a lot of records in the quarter, which I think is a testament to the ability now, once we've expanded some of these mines, now to focus on optimizing the assets. And Ketala is certainly one of those, although we're already working on the next phase of expansion at that mine. Continue to get good drill results there. As we drill deeper, that deposit continues at depth, continues to be wide open. It's already a very large mine in terms of mine life. And again, another optimization opportunity and expansion opportunity there. At Meadowbank, good production coming out of the Amarook deposit, 90,000 ounces. In September was over 30,000 ounces. In September, 34,000 ounces. The focus now is really on optimization, really on cost reduction as we go forward. We need to get the cost down. We have a definite plan in terms of optimizing that asset as we move forward. But the key for us is to get the tonnage, get the long-haul truck performance, which we've been getting. That's allowed us to process good tonnage, which has resulted in good production going forward. So there's still work to do there. Our goal is to make it as high a quality mine as we have at Meliodine. It shows you that can be done in Nunavut. But as we move into the fourth quarter, we did have a one-week shutdown in early October, and that was really to do some tie-in work in the mill as we add a new circuit there to improve the recoveries in that plant. So with that one-week shutdown, we'll have lower production in the fourth quarter at Meadowbank. And Meliodine, I'll just finish with Meliodine on this page. As we said, record quarterly production of 97,000 ounces, hitting commercial production at the Tiriganiac open pit in August. We're progressing on our Phase 2 expansion, which is important to continue to optimize this asset. We know from exploration that this asset will continue to grow. Had a successful sea lift. We discharged the saline water to the sea, almost all completed at this point, and the NERB has reviewed the permit application. The NERB recommendation for the water line project was positive, and we're just waiting for the approval from the federal government as they review the NERB report. We expect to receive that before the end of this year. So just wrapping up here before we open it up for questions, just on financial highlights, normalized earnings of 60 cents, operating cash flow before working capital, a very strong result at $1.69. Again, that's driven by the record production, strong cash position. But we should note, post the merger announcement with Kirkland Lake, all of our rating agencies put Agnico Eagle on a positive ratings watch. So that's a positive sign on the merger from the rating agencies. So just in conclusion, a good strong quarter, record production, very good cash generation, lots of good exploration results that we'll be able to spend more time on next week with a more fulsome release and another call to have Guy and his team go through them with those that are interested. And we're all focused now on getting to the vote November 26th. So we're asked those shareholders of both Kirkland and Eco to get out and vote for the merger. We're excited about it. We look forward to the combined platform and working with our partners at Kirkland Lake to continue to deliver the type of value that both companies have delivered individually to do it together in a lower risk, higher quality platform. So thanks for your attention on that and we'll be happy to take questions, operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order that they are received. Should you wish to decline from the pulling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Thank you. Your first question comes from Tyler Langton from JP Morgan. Please go ahead.