Good morning. My name is Karina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle First Quarter Results 2019 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 Q1 2019 conference call. We're going to be going through some forward looking statements today, so please be forewarned. Just to sort of step back and look at 2019, as we've said, we expect record production at 1,750,000 ounces at cash costs in the midpoint of the range of $645,000,000 and all in sustaining costs at the midpoint of the range of $900,000,000 After the Q1, we're tracking extremely well towards that target and we'll be revisiting those numbers in our Q2 update in late July as we move through the commissioning of both Meliadine and Amaruq. So, the other thing that I think we've been focused on this year is just simply the execution of those two projects, because what that does in the second half of the year, it drives a significant bump in production in earnings per share and also in cash flow per share. From the quarterly perspective, we produced almost 400,000 ounces of which about 18,000 ounces came from Meliadine in the pre commercial stage.
We poured our first bar of Meliadine in the Q3 of in the 3rd week of February. Our cash costs in the quarter were very good. We'll talk about some of the components of that at $6.23 all in sustaining cost at $8.36 At Meliadine, as we mentioned, we're very close to commercial production. We will expect commercial production in May. At Amaruq, we would expect commercial production in the Q3 of this year.
So everything is tracking well. Both projects are ahead of the original schedule and we would expect both projects to come in slightly below the total budget for both projects, which was US1.23 billion dollars We also had some exploration results in our press release. We continue to get good results at Amaruq in the underground. We've got some interesting new results at Santa Gertrudis, new what looks like a higher grade structure in an area of past mining, a small pit. And at Kirkland Lake at Upper Beaver, we're extending the mineralization there.
So these are 3 projects that we've talked about providing an update as we move through the balance of this year. And the update will continue to obviously be exploration, but also we'll give you a project update on potential development scenarios for those projects as we move through the balance of this year. Looking at the specific properties and the contribution to production of almost 400,000 ounces, if we look at the Abitibi and look at LaRonde, Goldex and Canadian Malartic, we produced a combined a little over 200,000 ounces. The weighted average cash cost of those mines for the quarter was $5.44 an ounce. So we're getting good performance and good cash generation coming out of our operations in the Abitibi.
Also had good production at Kittila, almost 50,000 ounces. We continue to produce good quantities of gold at Meadowbank as we continue to mine in Portage. So that's extended a little bit longer than we had expected. And we talked about the 18,000 ounces roughly coming out of Meliadine in pre commercial production. In Mexico, our combined cash costs for those operations below $600 So those mines continue to generate good cash flow.
So if you think about roughly 400,000 ounces of production in the quarter, that's roughly what we've been averaging per quarter for the last several years, plus or minus. But as we move into the second half of this year and into 2020, when we expect to produce 2,000,000 ounces and then go beyond 2,000,000 ounces post 2020, we'll have quarters of 500,000 ounces plus, which is really the inflection point that we've been talking about in terms of both earnings per share and cash flow per share. Just going to the earnings and cash flow for the quarter, normalized was $0.14 so good quarter from an earnings perspective. Operating cash flow is $0.63 But as we said, as we go into the second half, we would expect to see improvements in both of those financial metrics. The balance sheet, we closed the quarter with about $200,000,000 in cash, good position as we move forward given the financial flexibility that we'll have moving into the second half as we ramp up production.
We'll talk a little bit about the assets. Talking about LaRonde produced 77,000 ounces in the Q1. We would expect to see higher grades in the second half of this year. That's just simply due to mining sequence in the mine. We'll have about a 10 day maintenance shutdown in May of this year.
We'll be offsetting some of that with material from the LZ5 zone next storage. LZ V continues to generate good cash, but I think the importance of that particular operation is the testing of the automated equipment. So good cash flow, good return on investment there, but also allowing us to test our automated mining equipment and communication system. Canadian Malartic, over 80,000 ounces, work on the Barnat extension is going according to plan. We would expect to begin production in late 2019 on Barnett, so no change to that schedule.
We have a very active exploration program ongoing at Canadian Malartic, focused largely on underground opportunities and zones there, but it's still early there. Still a lot more work to do. Nothing has been approved in terms of additional capital to move forward there. But all we can really say at this point is there's active exploration going on there. We continue to add to our land package there.
We continue to fill in the blanks and open spaces on that belt and the partnership just picked up the Rand Malartic property, which is immediately to the east of the Canadian Malartic ground and there is potential for the zones to continue onto that ground. At Goldex, a record production since the restart in 2013, seeing some high grade coming out of the South Zone, which is not unexpected. That is a higher grade area, although small. We'll see continued tonnage coming out of the South Zone for the balance of this year. The Akasaba project is still on hold.
It's a quality project, but in terms of capital allocation, it's one that we've just put on hold for the moment and we would expect at some point to give it the go ahead given that it meets our investment hurdle rate and we can leverage off of the existing skills that we have at Goldex. At Netobank, 44,000 ounces. So as we said, we're winding down at the deposits in and around the Meadowbank processing facilities. But I think it's important just to stop and reflect on how effective the transition has been in Nunavut from the Meadowbank deposits to the Amaruq satellite deposit. If we roll it back 2 or 3 years ago, there was an expectation that we would possibly be faced with a 12 to 18 month gap in production.
And at the time, all we could say was just allow our people to work through the issues and the opportunities and come up with a plan that narrowed that production gap and also allowed for a seamless transition from the Meadowbank deposits to the new Amaruq deposits. And they've done an exceptional job because that's had a very positive impact on the workforce because there was no negative impact of having people without a job for a period of time. So very good work from that team and we're now we've been transitioning both people and equipment to the Amaruq facility and we've also completed all the mill upgrade work at Meadowbank for the Amaruq material. So, Amaruq is well advanced in terms of dewatering and mining and truck fleet. We're still working on permits for the Whale Tail and the V Zone expansion.
We would expect to get those in late 2020. There's nothing special about those permits compared to the permits we've already been issued to start Whale Tail. So we don't see any issue with that. And I think it will be we're still very much focused on the underground opportunity at Amaruq and how we can potentially bring that into production at the same time as we're mining the pits, because that could have a significant impact on the production profile for 2 or 3 years, where they're potentially operating at the same time. So we'll have an update as we move through the balance of this year on our thoughts around the Amaruq underground opportunity.
At Meliadine, we've talked about it. It's going well in terms of commissioning. We poured our first bar, as we said, in the Q3 of February. We're getting good recoveries. We're ramping up the mining rate.
There's no showstoppers there. We're confident on our guidance this year. We continue to get good exploration results there, demonstrating that the deposit continues at depth with good grades and decent thicknesses. So I think also looking at that decision back in early 2017 to invest $900,000,000 that was the right decision. Timing was right.
We had slowed the project down in 2016. We got better prepared. And as a result, that project is ahead of schedule, as we said, and below budget. So, good decision. And I think that decision, the positive how positive that is, is really reflected in the fact that although the economic study was done on 14 years of mine life, we have an extensive resource and we see with the latest drilling that deposits likely going to continue to grow.
At Kittila, we talked about a solid production quarter at 49,000 ounces. We will have a scheduled shutdown to realign the autoclave in this quarter. So that's done every 4 to 5 years. So that was in our plan. So it doesn't impact our guidance at all.
And we continue to push forward on the mill expansion and the shaft projects. In the Southern business, as we said at the start, very good performance from a cost per ounce standpoint and from a cash generating standpoint. So they continue to operate effectively, generate good solid cash flow while they work on satellite deposits such as Sinter and Cabero and Reyna de Plata, effectively just leveraging off of infrastructure and skills in the region to maximize our investment there. Crest and Muskota also good cost performance and good production in the quarter. And at La India, we continue to focus on expanding the heap leach and the ore stacking, which is going well.
And we're drilling the El Realito satellite zone, which we would expect to extend the mine life at the India. From an exploration standpoint, before I open it up for questions, I just wanted to highlight Santa Gertrudis. We bought that in December, for December of 2017. And we've got some nice high grade intersections on an area that had some past small open pit mining on it. Interesting opportunity because we feel if we extend the drill holes, some of the earlier drill holes did not extend enough to capture what we see as a potential new zone.
So already almost 1,000,000 ounces. So we would expect that to continue to grow. And that's the type of tailor made project for our skill set in Mexico. Right region, Sonora, we know it operates there. We operate there with La India.
So as we said earlier, we'll be providing an update on that project as we move through this year. So operator, I'd like to open the line for questions.
Thank you. Your first question comes from the line of Fahad Tariq with Credit Suisse. Please go ahead.
For Meliadine, you mentioned that the mill throughput for the Q2 will be 3,000 tonnes per day. Curious, what was the average in April so far? And you mentioned that the plant has gone up to 3,700 on several occasions. Is that the right way to think about maybe the potential run rate or close to that for the second half of the year? Thanks.
Yes, I think we're targeting about 3,250 for the rest of the year, roughly. And the plant has been averaging close to 3,000 tonnes per day. And it has operated at the higher throughput that you quoted.
Okay, great. And then just switching gears for a second, more on capital allocation. As the free cash flow profile gets better in the second half of the year and certainly in 2020, How do you think about higher dividend, debt repayment coming due in 2020 and maybe keeping dry powder for potential asset acquisitions from the other large M and A divestitures, maybe some color on the way you're thinking about that strategy?
Yes, I think it's a balance. It will clearly be given the track record paying a dividend for 36 years. We'll certainly be looking to increase the dividend. The dividend, in fact, in total dollars has gone up in each of the last 5 years. So that was done during a period when gold was relatively flat at $1200 We were in the biggest capital program in our history.
So that's we've clearly indicated that that's important. And as we also said, we're working on some key projects in terms of development opportunities in Kirkland Lake at Upper Beaver, Santa Gertrudis, the Amaruq underground. So certainly there'll be capital at some point allocated there and that capital will be allocated at a time when we start to wind down the capital in Finland with the shaft and mill expansion. So I think those are timed fairly well. Debt repayment is also a focus.
We have a maturity next year. So certainly, we'd like to improve our financial flexibility. So we're looking at all those three options. And as we said, we're in that sweet spot in terms of capital coming down dramatically from the average of the last two years when production is rising significantly in the second half of the year. So good position at the end.
Okay. Thank you.
Your next question is from Stephen Walker with RBC Capital Markets. Please go ahead.
Thank you, operator. Good morning. Just Yvon, just a follow-up question on Meliadine. When we were there last fall and had a look at the plants, given the excess capacity that's been built into the back end of that plant, there was talk at the time that with a modest investment, you could get the plant up to 4,500, maybe 5,000 tonnes a day plus. Where are you in the planning process as far as the further optimization?
And do you have a sense of the capital number that might be required to get it up to these higher levels?
Well, at this stage, we're entering our next life of mine planning phase. And before we complete the commercial production decision, that specific tonnage number, we'd like to be in a position to be testing. So we will probably test the total capacity of the plant in the next 2 weeks. And we will evaluate as we continue to ramp up the underground mine and potentially advance some small bits, try to see what's the best scenario, advance the expansion with the pits as originally planned or simply invest in just stripping and accelerated development underground to maximize the current capacity of the plant. So these are scenarios we're going to be evaluated over the next few months.
Just a follow-up on Meliadine as well. In the testing that you're doing so far, with respect to the grinding and resin time in that part of the plant and then the leaching times and the recoveries that you're seeing, is there anything in the metallurgy or the grain size that is different from the original test that suggests that recoveries could be improved or there could be challenges with respect to recoveries or throughputs?
No, not at this stage. The front end and the back end of the plant have actually responded very strongly. No surprise in that area. We've had some we've had to adjust in the cyanidation circuit, introduced lead nitrate in the circuit. But so far recoveries are on plan and there's no concerns about grains or other elements at this stage.
Great. And if I might on the Whale Tail ore that you're getting into now, Yvon, is there anything visible in the metallurgy that wasn't picked up in the drilling? Is there anything in the way of additional minerals or types or grain size that wasn't picked up in the original test work? And then secondly, presumably you're going to start batching that through the Meadowbank plant. When will that occur?
And if it has occurred already, how is the batch recoveries being or how is the reactivity of that ore through that plant at this stage?
Well, we commissioned the we're in the process of commissioning the gravimetric addition to the Meadowbank plant. So that's ongoing now. And let's say exclusively on Meadowbank ore and recovery has actually gone up. We will probably processing some well tailed ore quite later in Q2 because we're sort of progressing with the ramp up there. And as far as the questions on mineralogy, no surprise at this stage.
I think the only area that we've been presently surprised is that the block model on surfaces responded quite well and the grade in grade impacted grades have been a little bit better in some areas. So that's the encouraging part.
Great. Thank you very much, Yvon.
Your next question is from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.
Congratulations on all the progress in Nunavut.
Thank you.
While the other companies are selling things, I was kind of wondering how you might react. If you're looking at considering acquiring a property, what rate of return would you require? Or second, would you simply not evaluate the things because why distract yourself from your good projects to look at someone else's losers? Or how much should they pay you to look at them? I don't know.
Yes. That's a good question. I think that we you'll let's have a laugh for a minute. So we see the press release Newmont Goldcorp and several of us are in the office quite early before 6:30. And we had people running around saying, oh, there could be some things coming out of here.
And I think the message was everybody's just got to relax, have a cup of coffee and calm down. We've been doing this for a long, long time and there's no bargains out there. We've never been a company that sort of bought things as 6 or uppers, because that doesn't really pay and it's hard to get a return. The things we tend to pay attention to are those things that we've assessed have geological potential. So we've built this company on assessing geological opportunity and then proving that theory very patiently through consistent drilling and mine building.
So that's the framework that we sort of use to determine whether we spend any time on things. So we do have a group that looks at things, but I would say the things we're looking at are more sort of smallish development opportunities in regions and belts rather than buying production to say we're a bigger producer. And if you look at the M and A dance that's gone on for the last sort of 6 months or so or 9 months and even going back to 2014 with Barrick and Newmont. If you look at the top 5 market cap companies and we were sort of sitting at number 4 with Goldcorp falling to number 5, Newcrest at 3 and then Barrick in Newmont, Every one of those other 4 companies had talked to each other in some form or another. At Agnico, we typically just minded our own business and focused on sort of executing and none of it bringing these projects online, because we can see point coming in EPS and cash flow per share.
And our audience is very much a generalist investor audience and we spend a lot of time focused on that market and that market sort of wants discipline. So, we've been sort of going on here. I'm getting ready for the AGM. It's at 11 o'clock this morning. So I'm sort of getting pumped up.
But I think that the answer is we're going to continue to sort of be disciplined and move forward in a way that drives cash flow per share for our shareholders.
Thank you.
Your next question is from the line of Mike Parkin with National Bank Financial. Please go ahead.
Hey guys, just a quick question. With the Kittila Q2 shutdown that you mentioned there earlier on the call, how many weeks would that roughly be and should we expect what should we kind of expect for sustaining CapEx for that quarter?
Well, the shutdown will is presently scheduled for 60 days. As far as the CapEx on the quarter, we'll have to get back to you on that number. I don't have that number specifically at this stage.
Your next question is with Anita Soni with CIBC. Please go ahead.
My question a little bit more on some of the grades. Let's start with Goldex. It outperformed on grade this quarter versus your guidance, I think substantially. I think it was 1.77 versus about 1.57. Do you expect that to sort of average out over the course of the year or is that just a bonus for Q1 and move on with the rest of that 1.57?
I think as they continue to accelerate and get maturity on the railway air system, we've on this quarter, we've had a larger proportion of ore from Deep One secondtors, which have contributed a portion of that. We're also mining about a stope per month from the higher grade south zone. So all of these factors are sort of contributing. South zones will tendency will continue for the rest of the year. But I think we should continue to see pretty regular grade profile for the next little while at Colbex.
Okay, that sounds great. And then on Malartic, a similar question, I think the guidance was about 1.16 and you started at 1.18. And as I recall, as you get down to the bottom of the pit, the grades continue to get better. Is that again something that we should expect better grades than what was probably anticipated at the beginning of the year?
Well, quarter over quarter, we'll have slight variance, but the grades in certain periods tend to go up. But at this stage, it will meet the guidance for the end of the year. And as we get into Barnat late in 'nineteen and early 2020, there will be additional grade improvements.
Additional grade improvements, but did it start out higher grade? I thought because you were sort of higher up in the pit, it's going to start out a little bit lower and then progress as you go down?
Sorry, I didn't hear the question, Anita.
Sorry. With the Barnett startup, is that immediately higher grade than what the average is for the year or what you would see at the bottom of the pit at Canadian Malartic or is it start off with a slightly lower grade?
Well, it will start probably at average grade and build up to what the grade in Barnat is. I think the average grade there is about 1.2. Okay.
All right. And then the last question is with regards to LaRonde. On the byproducts, it seems like some of the recoveries for lead and zinc, I think, in particular, maybe even copper sorry, not copper in silver were I guess a lot better than expected. Is that something that you expect to continue or was that just something you're not willing to predict at this point?
Well, we've had quite a bit of variability on some of our base metal streams as some of our zinc is cyclical depending on the mining sequence. Copper has been quite steady. But overall, the performance in the cyanidation circuit have been pretty strong both on the gold and silver side. So I think what you see now should be close to what you should see going forward. But it's highly grade dependent.
Okay. All right. Thank you very much.
Your next question is with Carey MacRury with Canaccord Genuity. Please go ahead.
Hi, good morning. Just a question on Upper Canada, Upper Beaver, you've talked about evaluating different scenarios there. I'm just wondering if you can provide a little more color on what specifically you're looking at there at
this stage?
Well, actually, we're mostly focusing on upgrading the our resources model, fine tuning the resources for year end, adding some more interest. And in the meantime, as you mentioned, we're looking at what could be done at both Upper Beaver and Upper Canada. And recently, we've been paying attention to the near surface portion of Upper Beaver, where we see potentially an opportunity to end end scenario at Upper Beaver. And we'll get a better grasp about potential scenario as 2019 goes by, and we should be in a better position by year end to provide more color on that.
Your next question is with Ralph Profiti with 8 Capital. Please go
ahead. Thanks, operator. Thanks for taking my question. I don't want to jump the gun again on Kirkland, but you're seeing these deeper intercepts down to 400 meters and in this recent drill holes and you're seeing mineralization down even further. Can I assume that the work that you're doing includes both open pit and underground options?
And then what's the plan for the copper at Kirkland? Is it significant enough that you potentially want to monetize that as a credit?
Well, to answer maybe the first part of your question, we were at first obviously investigating how much we can grow that resources. And we know that it's always nice to have confidence that we can continue to grow. So we've been testing both the deep extension that have been successful, demonstrating that keeps ongoing for another 400 meter at depth. But in the meantime, we know that closer to surface through a ramp potentially that we could fast track the near surface portion of the deposit. But while at that point in time for Upper Beaver, it is very unlikely that we'll do anything from an open pit.
And for Upper Canada, we don't know enough about it yet to figure out what is the best development scenario for Upper Canada.
Right. Got it. Got it. Okay. And maybe just a follow-up.
I'd like to just talk a little bit about opportunities to control costs in Nunavut. Can you talk maybe a little bit about the lessons that you've learned? And as you potentially try to manage costs there, are there opportunities in the area of say power or logistics that you're going to continue to look at? Where are there opportunities?
Well, I think on the power side, there's several ideas that are underway to look at adding cleaner energy and wind turbines. The rest is I think we lot of discussions with the government on infrastructure that would be quite helpful down the road and trying to reduce the overall logistic reality of dealing in Nunavut. But at this stage, we'll be more focused over the next year and a half on trying to get the plant up to plant and the mine up to speed, but also focus more on productivity to keep the cost structure down. I think that will be mostly our focus.
Your next question is with Steve Butler with GMP Securities. Please go ahead.
Hi, operator. Guys, just coming back to Amaruq, where you had this slightly higher grades reported in the Whale Tail and Pit initial ores. I guess, obviously, it's still very early days. So but maybe you can make a do you give us a general comment on how slightly higher grade it is percentage wise, if you can share that? And if you're considering any changes to your top cut factors or obviously it's still early days?
Yes. Since it's in the early days, Steve, I'll get back to you on that part in Q3, Q4.
Okay. And then ore sorting, you talked about ore sorting at Pinos Altos in the sinter. Obviously, again, it's still preliminary stages there. But can you comment on what you're seeing in the Sintur results? And where do you see ore sorting going next in terms of pilot studies at the other assets?
Hi, Steve. Jean speaking. We have a process presently and this is a pilot plant and we have it's following the result that we are obtaining. It's exactly in line with what we were expecting, but it's really early stage. So eventually throughout the organization or on the other side, we have some plan and we have to do the demonstration at Pinosau Post first, but it's encouraging up to now, but it's really early
stage. Okay. A bit ahead on this questioning there on 2 fronts. Thanks guys.
And your last question comes from Tanya Jakusconek with Scotiabank. Please go ahead.
Everybody and congratulations on the good quarter. A lot of my questions have been answered. I just wanted to come back to Yvonne and maybe Dave Smith on Amaruq and Meliadine. Just on commercial production, let's start with Amaruq. Yvonne, how are you going to define that?
It appears that you're already going to be putting some ore and have been putting ore through the Meadowbank mill. So could we potentially have production in Q2? I know Sean mentioned production and commercial production in Q3. So I'm just kind of wondering the definition of commercial and whether we have or pre commercial production in Q2. Sorry, I can't hear you.
Sorry, the microphone was closed. The definition of commercial production in this case will be mainly beyond profitability and the commissioning of the plant will already be done on the Meadowbank ore. So I think once we've processed about 30 days of Amaruq ore, we'll probably be in a position to declare commercial production there.
So sorry, again, you were breaking up. Is it like 30 days? Is that
what I heard?
Yes.
Okay. Because I think your pre commercial production guidance for Amaruq was 40,000 ounces. And I think that implies about 1.5 to 2 months. Is that about correct?
Correct. Yes. But we might be processing some more in June as well. So we'll in Q2. So
we'll Okay.
We'll tread that reality going forward.
Okay. Okay. So that one might be a bit conservative then. And just on the Meliadine, I think there was 60,000 of pre commercial production there. If you look like you're going commercial in May, that would imply more 30,000 to 40,000 ounces of pre commercial.
Is that about right?
It could be, yes. But I think at this stage, we'll probably be targeting a little bit higher than that and you'll find out over the next several weeks, I guess.
Yes. That's all good news, though.
Okay. Thank you so much.
Yes. Just as a follow-up on that, Tanya. Ultimately, is it 60,000 credited on Meliadine or 40,000 credited on Amaruq? It's too early to say. We're certainly getting closer on Meliadine.
So that impacts where we land in terms of capital on the projects. But I think we're comfortable enough to say, if we're early and we don't have the credits of 60 against Meli Dean and 40 against Amaruq because we've come to the commercial production earlier, we should still be in a position where the total and at Nunavut collectively for both projects is slightly under budget. So we're just working through a lot of those parameters as we commission both operations.
Absolutely. And also you would be closer to actually having free cash flow.
Yes.
Okay. Thank you so much.
Thank you.
We have no further audio questions at this time. I now turn the call back over to you, Mr. Boyd.
Thank you, operator, and thanks everyone for the good questions and hope to see some of you at our annual meeting this morning at 11 o'clock. Thanks again.