Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited Third Quarter 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Mr. Sean Boyd, you may begin your conference.
Thank you, operator, and good morning, everyone, and welcome to our Q3 2019 conference call. This presentation does include forward looking statements and does use non GAAP measures and does give production guidance. So there's cautionary language in our slide deck that you can read at your leisure. Talking about the quarter, where we expected to be. We expected to produce a record quarterly gold production.
We did that, produced almost 477,000 ounces. We expect it to generate free cash flow based on the fact that production was increasing and our capital spending was declining. We did that. We expected to reach commercial production at Amaruq. We achieved that.
What we still need to work on is the ramp up at Amaruq. We'll talk about that in some more details. It's had some impact on our guidance for next year, which we've trimmed a bit based on a slower than expected ramp up. We expect it to be in position to increase the dividend. The dividend is clearly important.
Given our track record, we'll talk a little bit about our thinking behind that. And one of the things that is possibly overlooked in this release is the fact that we continue to get good exploration results at a number of our properties. So we'll talk a little bit about that. A summary on the exploration side, although it's still early, we do have some encouragement at Canadian Malartic Underground at East Goldie and needs a lot more drilling, needs a lot more analysis. The structure has been traced over a strike length of about 1300 meters.
I think the fact that this was discovered is really consistent with our expectations of the underground exploration potential of the property when we bought it in 2014 and really consistent with our strategy at that time where we thought there was good potential to find additional mineralization underground. And we knew that we were well matched and positioned given our extensive underground skill set in the region. So we say this needs more drilling. I think that's clear, but also needs more analysis. But really what we're saying is we're well positioned to do that work given our track record of creating value along Highway 117 in the Abitibi.
We continue to extend the deposit at depth at Meliadine. So that's continuing to show it's a long life asset. As you know, we're considering accelerating a Phase 2 expansion there. We'll talk about that. We continue to get good results at Upper Beaver at Kirkland Lake.
And I think strategically, that's an important land position, not only from the drill results that we're getting, which is showing the ability to grow the Upper Beaver deposit, but also our neighbor, PerkinEl Lake Gold has announced recently some what could be significant results on the amalgamated break and our project and property position is continuous to that property position. And at Santa Gertrudis in Mexico, we continue to expand the higher grade Amelia deposit and we'll have a continued drill program on that property in 2020. Although we had record production, it wasn't all driven by the fact that we have brought on 2 new mines in Nunavut. We saw record production coming out of the LaRonde complex of about 107,000 ounces. We saw record production since the restart at Goldex.
We saw record throughput at Canadian Malartic. We saw record production at Kietala with record throughput. And as we said, we continue to ramp up our Nunavut newly built Nunavut operations. So I think what we take out of that is there's still upside in terms of being able to grow that production, but also the operating total operating margin is growing as we increase our gold production and that's driving an increase in operating cash flow. The operating margin in Q3 was 300 almost $367,000,000 So that's certainly helping our financial results, both earnings and cash flow per share.
Our cash provided by operating activities is almost $350,000,000 $1.47 a share. This has resulted in an improvement in our financial position with our cash position growing, which is lowering our net debt, so improving our financial flexibility, our cash position at the end of the quarter at $265,000,000 Our dividend, just based on some context there, as you know, we've paid a dividend for 36 consecutive years, but not many sort of have realized that this is will be the 6th straight year that we've had an increase in our total dividends paid in the year. And that was during a period where for the most part, gold was relatively flat around $1200 and we had in that period, as you know, our largest and heaviest CapEx spend in our history. So our focus really continues to remain on steadily growing our output over the next several years in a measured way with continued investment in exploration, where we continue to demonstrate good success in adding value by extending deposits, continue investment in our project pipeline. And while doing this, we're in a position to generate net free cash flow, reducing debt and paying more dividends.
So that will continue to be the focus. Moving to the operations, as we said, the LaRonde complex had a record quarter combined production of 107,000 ounces. Of that LaRonde was 92,000 ounces with extremely good unit cost performance of $4.54 in total cash cost. So even after 30 plus years, LaRonde the impact that the western part of the lower mine has on our production and unit costs in the quarter as we get higher grades coming from that Western area. We're also focused on the implementation of the automated mining equipment.
We continue to make good progress there. And we're building some flexibility into our production profile by focusing on Zone 03 at LaRonde. The LaRonde Zone 5, which was the old Bousquet property, we would look at that as another excellent example of the advantage that we have in being able to be patient in a region where we are the dominant player. Sort of 15 years or so ago, we purchased the Bousquet property from Barrett for CAD7 1,000,000. In the initial years, we actually transferred some of the underground mining equipment to Pinos Altos to help with the development of that project.
The LZ5, we just have returned our capital investment there and got payback on that project in about 18 months. So that's an excellent example of how we can stay focused, use our local expertise and take advantage of opportunities that exist there to create value. The opportunity here was always to get something started and to focus on potentially bringing additional ounces that we know exist on the property. So we're currently looking at those opportunities. And we actually continue to drill below the old workings at Bousquet.
And we've actually had some recent interesting drill results, which suggests that there is potential across the Bousquet property at depth. So again, it helps to be able to be patient and be in a strong position to take advantage of opportunities. At Canadian Malartic, as we mentioned, we set a new quarterly record for tons mill. I think we averaged 57,500. When the property was purchased by GECO and Yamana and taken over in June of 2014, the processing rate was about 48,500 tonnes a day.
So the team at Canadian market has done an exceptional job as we expected to gradually over time increase the efficiency and optimize the plant and optimize the mining rate. We see that in the solid production and good cash cost performance of that mine. We talked early about East Malartic on the Odyssey zones and the recent discovery at East Goldie. As we said, it's still early. There's a lot more work to do.
But clearly, we'll focus on keeping those drills turning, try to understand the potential of East Goldie and then use our collective expertise in underground mining to determine what we can do with that opportunity and how we can potentially extend the mine life at Canadian Malartic, but also add and improve the returns on that asset. At Goldex, we certainly benefited from higher grades. We certainly benefited from improved performance of the rail there system, which is allowing us to increase volumes in the mine. As a result of that, we're studying whether we can actually increase the mining rates going forward. We continue to get good results mining in the South Zone.
That's a smallish, but higher grade area. There's still exploration potential there and on the Deep II zone. So we're really focused on that. But again, congratulations to Golbeck, 37,000 ounces at total cash cost of $5.49 and they continue to just optimize and take advantage of the opportunities that exist there. Meadowbank, Port Edge Pit, essentially done now.
So that operation extended almost a year from what we had expected a few years back. So we're basically at the point now where we're fully transitioning to the Amaruq deposit from Meadowbank. At Amaruq, we achieved commercial production, we said at September 30. Our mining sequence has been delayed due to water, essentially just limiting the mineable surface area of the pit. We've made a lot of improvement in the last few weeks.
So we've watered the pits. Mining rates have increased. We're about 75,000 tons now a day, so tracking to our targets. We did do a maintenance over the last several weeks where we had the mill was temporarily shut down from mid September into mid October. The focus now going forward is essentially ramp up the mining and development rates, but also while we're doing that building up stockpiles to close the year with a stock strong stockpile as we enter 2020.
At Meliadine, Q3 was our Q1, the 1st full quarter of commercial production. We saw some nice gains in our mining rate, The Q4 minuteing rate, we're forecasting between 3,600 and 3,700 tonnes per day. Through mid October, we were almost at 3,300 tonnes per day. So good performance from a mining perspective, getting good performance in the mill. Our recoveries have averaged 95.5%, which is where we expected them to be.
We've seen the ability to mine ore than the design capacity. And as a result of that and as we've explained in prior meetings and discussions, we're studying the potential of accelerating the Phase 2 development at Meliadine given that extra capacity that we know exists in the plant. As we also mentioned at the start, we continue to drill the deposit and we're extending the mineralization at Tiraganiak, which really demonstrates that this is an asset that will be around for us for a long time. At Kittila, we had a very, very strong quarter, record throughput from the mill, record recoveries, record gold production. We continue to expand the zones at depth through drilling.
In fact, as we move further to the north, we've recently picked up another drill hole, not our deepest hole, but it demonstrates that there is potential as we move to the north to develop additional mineralization. Our expansion project is progressing well. Headframe is under construction and going well. And we look forward to being able to continue to increase and expand production coming out of that deposit. At Pinos Altos, we're looking for improvements in Q4 on our production.
We continue to focus on 2 satellite zones to extend the life and improve the performance of that operation in Reyna de Plata and Cabiro. At Creston Muskoka, we've extended that. We now expect it to continue to April 2020. So another one of these operations that we continue to optimize as it nears the end of its productive life. And at La India, the focus remains on El Realito drilling and potential to increase the mineral resources at that site and extend the mine life at La India.
So just to summarize before we take questions, as we said at the start, we're here sort of completing Q3 2019 entering Q4, sort of tracking where we expected to be in terms of production, in terms of our cash generating ability, in terms of our focus on increasing payouts to shareholders through the increase in dividends. So the focus in Q4 is to continue to ramp up the newly commissioned mines in Nunavut and position the company for further growth in production and cash flow generation in 2020 and for several years beyond 2020. So operator, if you could open up the lines, we'd be happy to take questions.
Our first question comes from the line of Fahad Tariq from Credit Suisse. Your line is open.
Hi, good morning. Thanks for taking my question. You revised 2020 production guidance down just a little from 1.9 or to 1,950,000 ounces at the midpoint. I believe it was 2,000,000 ounces previously. But the rationale for that was a slower Amaruq ramp up.
But I'm wondering if the maintenance that was scheduled for 2020 was moved ahead to this quarter, would that not more than offset this lower ramp up? And it sounds like you're also getting a bit of extra production, extra quarter production from Creston, which has been extended to April 2020. I'm just trying to gauge the like is the 2020 guidance conservative and what like what's the thinking around the downward revision? Thanks.
Well, going back to the shutdown, the advanced part was basically replacing the bottom shell and gyratory pressure. So had we done that in Q3 2020 as it was already planned, we would have likely crushed material ahead of time and it wouldn't have affected production. So I think the guidance at this stage, it's just ensuring at this stage that the ramp up rate at the site is in place and it's mostly related to Pamarupin slightly to the mining sequence of Paladine at Silden ramp
up stage. Okay. Thank
And our next question comes And our next question comes from the line of Mike Perkin from National Bank. Your line is open.
Thanks guys for taking my questions and congrats on the good quarter.
Thank you.
First off, you've got debt coming due next year. So I'm just trying to get a sense from you in terms of how to think about the CapEx guidance for next year? You've already given me some pretty good color that your kind of minimum spend is around $350,000 $400,000 and if you kind of pushed full steam ahead on your whole growth pipeline, it could be maybe as high as 700. Is the way of that kind of balancing is that sort of a to ensure that the debt gets covered off and that $300 ish million delta is kind of dependent on the gold price? Is that how we should think of it?
Or would you be willing to kind of consider refinancing some of that debt to ensure that the growth portfolio moves ahead as quick as possible?
Yes. Those are you've laid out all of
the considerations
we're currently working through as we finalize our budget and life of mine planning process right now. So one of the items that would be newer would be the Meliadine Phase 2. So that's one that we believe we'll move forward with in February. So that's a strong project. We wouldn't delay that project because we needed $10,000,000 or $20,000,000 or $30,000,000 during that 1st part of the year to fully repay the debt.
So the gold price will determine where we are in April after what we would expect to be 2 very solid quarters of production and cash generation. So our focus is to pay debt when it becomes due. That's certainly the intention, but the focus is also to optimize the investment opportunities that our current pipeline presents to us.
Okay. That's perfect. That was kind of what I was thinking. And then on mill eating Phase 2, what would you be is there any potential to get a bit of color on what that potential spend could look like for next year or basically refer to technical report and just advance everything a couple of years?
Well, at this stage, we've provided some preliminary information on the tour in August. We've clarified our expectations for CapEx for the rest of the year. We're basically in the final stage of studies presently with the pit. So we'll clarify these numbers in the Q1 release Q4 release, sorry.
And then on East Goldie that certainly looks pretty exciting. What's the plan that you're still trying to just determine the ultimate envelope of this target or are you looking at maybe doing a bit of infill work on that as well?
Well, at the moment, we have 5 rig and the near term priority is to obviously define the size of the zone and initiate some infill drilling just to bring it to a portion of it to infer resources. So we're just trying to understand the size and the grade and make sure that we are in filling it to better understand what it is.
And because of the rock unit that it's sitting in, is it potentially softer than what you're milling at Canadian Malartic today?
No. It's basically the same old rock than we were mining in most of the Canadian Malartic pit. So all of the western part and the southern part of the main piece of Canadian Monarctic, it's the same old rock. It's the continuation of the zone that we're seeing in the southern portion of the pit.
McCrory from Canaccord Genuity. Your line is open.
Hi, good morning guys. Just a question on Malartic. Just wondering with the underground moving along, when you'd be in a position to actually sort of make a construction decision on the underground?
Yes. I'll just start. That's in our view, it's way too early. And it's actually a good question, because what we have to consider is our existing pipeline and we would stack up things like Meliadine Phase 2, we would stack up Amaruq underground, we would stack up Goldex as we go deeper ahead of Canadian Malartic Underground. And so our focus is on taking advantage of those opportunities that we know a lot better.
And before we get to allocating any significant capital to Canadian Malartic Underground. There's a lot of thinking that needs to go into this besides just getting more drill information and understanding it, because this is the East Goldie, if it's a minable deposit will require a shaft, which is significant capital, significant lead time. How could that ultimately integrate with Odyssey? And Odyssey goes down to about 900 meters. So it's fairly complex.
So it needs a lot of thinking. I think we come at it from the perspective is we're excited, but it's early, but it's going to take a lot of analysis and thinking and hard work to turn it into reality.
And is there any concern as the open pit is depleting, not having enough ore to fill the mill in the future or how do you think about that?
Yes, I think you could some could make the case that we should speed up so that you could have some overlap between the open pit and the underground. But until you really understand it, that would probably be not the best allocation of capital. And we would rather understand it and we would rather understand it from the perspective of it, does it have the potential to be something standalone down the road.
Okay, great. And then maybe one more question on the balance sheet. You have the $360,000,000 in debt due next year. But beyond that, I don't think there's anything due until 2020 2. So as your free cash flow ramps up, are you considering buying back debt early or what's your thinking on the balance sheet there?
Yes, it's pretty hard to buy that debt back early. It's in the private placement insurance market in the U. S. There's lots of penalties there. So we just wait till it comes due.
Okay. Great. Thank you very much.
Our next question comes from the line of Taylor Jakusconek from Scotiabank. Your line is open.
Yes. Good morning, everybody. Great quarter. Good morning. I wanted to come back on Meliadine, if I could, and just talk a little bit about what is on the critical time path for us to move this 2 years ahead to 2021.
There's obviously having to make adjustments to the mill. And I think when we were on the mine tour, correct me if I'm wrong, I think we were talking about a capital of under $150,000,000 and to put a Verdi Mill in. Is that still what you're thinking?
Well, we're reviewing the various scope of the sectors unit operation presently. We're refining these costs and we're also refining the mining cost scenarios at this stage. So as we move ahead with these, we'll confirm the pricing on the total project cost, but this will move ahead pretty quickly. It will be phased out towards 2022 production at 6,000 tonnes per day.
Okay. And so would most of the spend then occur in 2020 2021 whatever that capital will be?
It would be spent on the mining side in 2020, on the milling side and mining side in 2021.
Okay. And then what's critical on the path line in terms of permitting? There would be obviously an adjustment to the permits for the mill and what about the open pits and water discharge?
Most of these permits are already in place now for the pits. So nothing significant at this stage.
From the permitting front?
Correct.
Okay, perfect. So I look forward to getting more on that. And then maybe just coming back to the Amaruq, the underground scenario, we're looking to get more information on that, I think, with Q4 financials. Do you still see that as coming in both as an underground with an open pit component that we do need both of those to have in terms of keeping that mill filled, it just can't do it on with the underground alone?
Yes, that's correct. I think the as we continue to focus on internal opportunities like Sean's talked about, The underground opportunity is one of them and we're trying to just get what's the best NPV for the overall site and the underground component while the pits are in place are certainly a big part of that.
Okay. And how are you finding the ground conditions underground at Emerald?
So far, excellent. We haven't had any issues with development and very little rehab as we go ahead.
Okay. And then maybe my last question for Sean is, with all of this exploration success and there's a lot that you flagged, do you think you'll be able to replace your reserves and resources this year?
That should be a key question. But we're still working on that. I think that I would expect to be around flattish from last year based on what we see now. There's still work to do, but that's where we're sort of thinking.
Okay. Okay,
that's good. Great. Thank you very much.
Our next question comes from the line of Steven Butler from GMP Securities. Your line is open.
Good morning, guys. Again, great quarter. Congrats.
Thank you. Good morning.
Thanks, Sean. Question, I guess, just to clarify maybe with respect to as we go into the Q4 and you'll elaborate more on the CapEx spending over the next couple of years and thereafter, I expect a multiyear guidance, I suppose. But for Meliadine, we'll get a CapEx number there for Phase 2. What other projects will we see growth capital likely allocated towards Sean in 2020, 2021?
We still have work to do in Finland on the expansion. Amaruq underground would certainly be a focus there. So those are the sort of the principal growth CapEx. Right. Okay.
Yes, you previously elaborated, do not you provided a number for Finland some time ago. I can't remember the CapEx for the mine mill expansion.
Yes, I don't have that in front of me. Yes,
that's fine. Guy, at LaRonde, you had good reserve additions last year, the deeper part
of the
asset, beneath 3.1 kilometers and the resources are still can you give us a sense and remind us again how deep are your resources reaching at La Ronde? And do you think you've done enough drilling this year for additional reserve conversion or maybe just simply replacement, as Sean alluded to, at least corporately?
Well, we are currently considering more on a level per level approach for resources conversion. So we saw a significant conversion last year. We certainly do not expect to see that coming back this year. And we are studying it slowly as we go downward in a deposit and we're not expecting to see us replacing what we have been mining this year.
Okay. Okay. Sounds fine. Ivan, maybe for you just your experience so far, it's early days at millidine, but the cost per ton, do you expect to see some improvements in that number or are you kind of where you expected to be on a unit cost basis?
Well, we're not too far presently on the unit cost. The cost of the plant are a little bit higher than we had forecasted at the beginning because of labor as we're continuing to ramp up. But so far the mining costs have been pretty well on track. As we continue to get more maturity in the mining side of it, it will it could be expected that we'll get more opportunities towards cost reduction. So I think you're correct in that sense to what extent time will tell.
Okay. Merci beaucoup. Thanks.
Our next question comes from the line of Anita Soni from CIBC. Your line is open.
Good morning, guys. Congratulations on a good quarter. Good morning. Thank you. And I guess my questions, most of them have been asked.
But I want to get an idea of where you're thinking for next year, given the rise in gold price reserves, you've done it at a conservative $11.50 What are you thinking for next year? And in terms of your budgets, like how you think about your capital allocation, What gold price do you think you'll be using for next year?
$1200 For reserves, right? Yes.
And budgets, any different than the reserve price or?
Not really. Around the same.
Okay. And then just in terms of Amaruq, so it seems like the throughput slowed down in the next couple of I mean, obviously, you guys have highlighted some of the dewatering issues that you had there. But how does that play out over the second half of the year? You gave us some guidance into Q4 and Q1, but could you give us a little idea of sort of how that ramps up over the next couple of years?
Not sure I understand the question. You're talking about 2020 next year?
Yes. So you gave you said I think you said 650,000 and then 620,000 tons in each quarter. And I was just wondering if that's about the same pace for the remainder of the year at Amaruq?
Well, the target to finish the year, we'd certainly be I'd like to be in the 90,000 tons per day. We're currently at 75,000 tons per day. So ramped up from last month to 60,000 tonnes per day. So the target is 90 and slowly ramping up to 100,000 tonnes per day by the end of next year.
And that's with my dredging strip question, but obviously essential to figuring out how you fill a mill. So what's the strip at 8 to 1 right now?
I don't know exactly the number, probably around 7.
Okay. All right. Thanks. That's it for me.
And our next question comes from the line of Ralph Profiti from 8 Capital. Your line is open.
Good morning. Thanks for taking my question. I just wanted to come back to Meliadine and get a little bit more specific on the productivity improvements. When you think about Q4 being about 3,660 and the mill seems to be operating around 4,500 Even before we get to Phase 2 expansion, just wondering if that's going to even out. Is this
just a question in terms
of productivity of sort of moving more ore or
are we looking at some scope changes?
No, it's mostly product to the underground. Up to this stage, we've been quite dependent with the sequence itself and getting the paste in the sequence. We've achieved quite a bit of productivity improvement on the mill side with pace. So they're slowly starting to catch up. So once that is in place, that's going to be a big benefit.
Second point is that the I guess we're in the optimization phase now that for the various aspects of the sequencing part. So there's several ideas that are coming up on the drilling side, blasting side and so on that they'll progressively implement that we'll see us like get step change towards getting us to 3,750. So we're pretty comfortable with that number at this stage.
Great. That's it for me. Thank
And there are no further questions at this time. I will turn the call back over to Mr. Boyd for closing remarks.
Thank you, operator, and thank you again everyone for participating in our conference call. Take care.
And this does conclude today's conference call. You may now disconnect.