Okay, welcome everyone to our next session. Just as an introduction, my name is Fahad Tariq. I'm a mining analyst based out of Toronto, at Jefferies. I cover predominantly the large cap precious metals, including Agnico Eagle, of course, as well as some of the mid cap, copper companies in Canada. I'm really happy to have Agnico Eagle join us. Agnico Eagle, probably needs no introduction, but, I will introduce them anyway. The second largest, gold company in the world, with a market cap of CAD 70 billion. That was as of last week. I think I'm off by a couple of billion, so it's probably higher than that today. Through disciplined acquisitions, the company has grown to a CAD 3.5 million ounce per year low-cost producer, leveraging its regional focus approach primarily in Canada.
Important to note, at least in our model, 85% of the net asset value of the company is in Canada. I'm really delighted. We have today with us Jamie Porter, EVP Finance and CFO. Jamie, welcome to our conference.
Thanks, Fahad.
Maybe just to set the stage, you know, this is an industrials conference. We do have quite a few generalist investors who maybe don't spend as much time looking at mining. Can you just provide just a high-level overview of the company, where the assets are located, and just the cost structure?
Yeah, absolutely. Thank you. I mean, yeah, you gave a pretty good overview. Second largest gold mining company in the world by market capitalization. We produce just under three-and-a-half million ounces a year. The vast majority of that from Canada. I think what differentiates the Agnico strategy, though, from Barrick and Newmont, is that we, while we're a global company, we have operations in Canada, Finland, Australia, and Mexico, we are a regional miner. So our focus and the majority of our production comes from regional clusters in Northern Ontario, in Northern Quebec, and in Nunavut. Our strategy is really consolidation within a region to create a competitive advantage. So in the areas where we operate, we are generally the largest employer, the employer of choice.
In many cases, our employee turnover is half of the industry average. We have long-standing, multiple decade relationships with our suppliers. We have purchasing power by virtue of the volumes that we buy. And we have the ability to share technical resources, so people, technical expertise, equipment, in some cases, parts and supplies because of the physical proximity of many of our mines. So that's really our strategy, and that's what helps us to keep our costs in check. And, you know, if you look back over the past five years, I think cost inflation has moderated.
But Agnico has really been a leader in terms of keeping costs low, driving, you know, constantly looking for continuous improvement opportunities and efficiency, to make sure that we allow the benefit of higher gold prices to actually accrue to our shareholders through margin expansion, rather than having it eaten up through higher costs.
And then, I mean, you know, just to address the elephant in the room, M&A, I'm sure it comes up often in meetings. If I think about your peer group, whether it's Newmont or Barrick, just the top three, you know, it sounds like they're more divesting assets than they are acquiring. Agnico maybe is more uniquely positioned to acquire. Just walk through philosophically how the management team is thinking about M&A. You alluded to regional focus, but what are the other filters and screens that they're using?
Yeah, I mean, it's a good question. If you look back in Agnico's history, there has been a fairly significant M&A that's helped to bring the company to where it is today. A lot of the company's growth has come through the drill bit, and then through development of its own projects, but certainly significant M&A in 2022 with the merger with Kirkland Lake Gold. Bringing in, you know, the Detour Lake Mine, Macassa assets, as well as Fosterville, which are all, you know, important core assets to the company today. We are uniquely positioned. I'd suggest in that we are very happy with our current production base, you know, producing 3.4 million ounces this year.
We'll talk about it, I'm sure, later on this morning, but we do have what we call our five key value drivers, so five projects that collectively represent about 1.5 million ounces of additional production. Now, that will be offset by depletion at some of our existing mines, but we see the potential for 20%-30% production growth over the course of the next five to 10 years, all with projects that we already own.
From an M&A perspective, from an external M&A perspective, we can afford to be very patient and very disciplined, and obviously, we have to weigh any external opportunities against the internal development projects that are part of our organic growth pipeline, that we already own, and that we know are high return at gold prices, you know, CAD 1,000 an ounce below where current spot levels are. So, yeah, we'll take our time. Obviously, it's our job to look at every, you know, decent opportunity out there, but it's a pretty high bar in terms of competing for capital against what we already have.
One specific region that comes up often in M&A discussions, and there's been some media reports around this, is Australia. Agnico, of course, has a Fosterville mine that they acquired through Kirkland Lake, you know, a single mine in Victoria. How do you think about Australia as a region? Is that a place where you'd like to grow, or potentially exit, as you think about just having a single mine there, the-
... Yeah, I think, when you look at our strategy, I mean, we're willing to accept technical risk and geologic risk, but we're not, you know, we're less inclined to go into jurisdictions where there's high potential geopolitical risk or uncertainty around, you know, permitting and the ability to develop projects and the rule of law and everything else. So, you know, looking through that lens, Canada's obviously a great place to operate. The United States and Australia would be, you know, some of the top three gold mining jurisdictions in our view. So, you know, we are focused. We've got 85% of our NAV in production coming out of Canada.
You know, Newmont and Barrick have done a good job with the U.S., with their joint venture in Nevada. Australia is, you know, an obvious potential expansion jurisdiction for us. That said, I'd say our thinking on Australia has evolved over the past several years. Immediately after the merger with Kirkland Lake, there was a thought to potentially divesting of the Fosterville Gold Mine. You know, at the time, the gold price was about CAD 1,600 an ounce. Fosterville had been in operation for about 15 years.
For most of those fifteen years, it hadn't made a lot of money, and then they hit this ultra-high grade Swan Zone, and was printing like CAD 1 billion a year of cash flow, was one of the top five corporate taxpayers in Australia for a period of a couple of years. But that zone was being mined through, and grades were on the decline, and the thinking was, well, maybe this asset should be divested. What's changed since then has really been the gold price. You know, we've gone through a period of, you know, a near doubling of the gold price over the last several years, and now we're generating north of CAD 1 million a day of free cash flow from the Fosterville mine. So it's extraordinarily profitable.
Our geologists are very optimistic that there's strong potential for us to find another ultra-high grade zone and have, you know, another kind of boom, boost in production. Where that mine's located, Fosterville's in the state of Victoria, in Southern Australia, there's really no other gold mining operations in close proximity to us. So the infrastructure that we have there, the processing facilities, creates a lot of optionality if there's other discoveries in the region. If we can find, or another junior finds a good gold deposit within 100 km of where we're located, that's likely gonna be processed at our facility.
So, we see a lot of exploration upside, we see a lot of optionality associated with the infrastructure, and we're making a ton of money. Fosterville is core for now. Do we expand in Australia over time? Potentially. But again, you know, our focus is on regional clusters, so creating that competitive advantage from physical proximity, and where Fosterville's located, there's not much around it. So we'll be very selective in terms of an expansion into Australia, and any opportunity, again, would have to be weighed against our internal growth projects.
And then a lot of the opportunities, as you alluded to, in Australia would be Western Australia? Which is, you know, not the same as Victoria. Would that still be considered a regional cluster if it was an acquisition, let's just say, hypothetically, in Western Australia?
There'd be the potential, certainly in Western Australia, to create that regional cluster, again, because that's a location where you have multiple mines within the same kinda geographic region, and you can create that you know strong supplier network, that employee base and everything. So yeah, that would be a potential at some point if the right opportunity came along. But today, you know, we're very focused on Canada and our existing development pipeline there.
Maybe just lastly on M&A, and I promise we'll talk about the operations. On commodity, you know, we hear from some investors that we talk to that maybe the right thing, not just for Agnico, but for any gold company that's trading at a decent premium, is to do something countercyclical, potentially look at copper opportunities. Maybe just talk through, at a high level, how management thinks about commodity.
Yeah, so I would say our strategy differs from that of our peers. You know, some of our peers, years ago, decided they were gonna pick another metal, copper, and they were gonna set a target percentage of their revenue that they wanted to be in that other metal. And, you know, they kinda scoured the globe for those opportunities. Our strategy, I'd say, is entirely different. We are not choosing a specific metal, you know, copper. We're willing to look at any other metal, but only if it's an opportunity where we can lend our competitive advantage, our skill set.
So if there's a copper, zinc, nickel, whatever project that's in our backyard, where we have the workforce, we have the supplier network, we'll look at it and then see, you know, if we can generate a good return for our shareholders, we'll absolutely consider that. But, you know, we're 98% gold by revenue currently. We have one significant copper zinc project, our joint venture with Teck in the state of Zacatecas in Mexico. And even with that up and full operation, we're still 96% gold. So I would suggest that we will remain, you know, primarily gold for the short, medium, and likely long-term. But again, you know, it's just based on the opportunity set.
If there's an opportunity for us to do something proximate to where we already operate and we see a competitive advantage, then we'll consider it, and we're almost metal agnostic.
Just switching to the actual operations, Canadian Malartic, of course, is the major growth driver, or one of the major growth drivers. The current plan is to mine additional ore underground at Malartic, and then also satellite deposits, Marban, Wasamac. You know, a lot of investors, particularly generalist investors, they don't have a, maybe, a as clear of an understanding of just how those different satellite pits or the underground come into the mine plan. Can you maybe just provide a high-level overview of where Malartic is today and how it grows to, let's say, a million ounce per year?
Sure, yeah. So that's a good question, and maybe I'll go back in time, you know, a hundred years. I mean, this deposit was initially discovered in 1923 by a couple brothers named the Gouldie Brothers, and now the heart of our deposit underground is called East Gouldie. But Agnico got involved initially in 2014 when Osisko Mining sold the Canadian Malartic asset. At the time, it was basically a big open pit project. It was a relatively low grade, bulk tonnage, one gram per ton, 60,000 tons per day being mined and processed through the mill.
Agnico entered into a fifty-fifty JV with Yamana at the time, and a couple of years back, was able to take out Yamana's position and consolidate 100% of it. The open pit, so this was Canada's largest open pit gold mine for a number of years, and what we're doing at the Canadian Malartic Complex is transitioning it to being the largest underground mine in Canada. So we're going from 60,000 tons per day of relatively low grade, one gram per ton material, to 20,000 tons per day of three gram per ton material. So our production stays about flat, around 600,000 ounces a year, but all of a sudden, we've got 40,000 tons of available excess mill capacity, which provides tremendous optionality.
Obviously, what we're doing is looking at ways to fill that mill, 'cause if we can fill it at that grade, you know, we can produce well north of a million ounces a year, and then that's really been the objective. The underground deposit at our Odyssey project has gone from zero ounces in reserves and resources in 2018 to we're north of 20 million ounces currently and growing. The deposit's open in every direction. It's been arguably the best exploration discovery in the sector in the last decade. We're north of 20 million ounces currently. We see the potential to sink a second shaft and secure another 10,000 tons per day of mill feed from a second shaft.
We also have these satellite deposits that you alluded to, called one called Wasamac. That's about 90 km away from the Canadian Malartic mill. We see the potential to develop that and truck that ore to the mill. We also acquired a company called O3 Mining. We announced that acquisition last December, and through that, acquired their Marban deposit, which we're drilling off now and drill defining. But we see the potential for 14,000 tons per day of mill feed coming from Marban as well. So you put it all together, 20,000 tons from the planned first shaft underground, gives us about 600,000 ounces a year. A second shaft gives us another 200,000 ounces a year.
Then if you add Marban and Wasamac, you get up to about 1 million ounces a year, and you still have about 13,000 tons of excess mill capacity. So there's tremendous exploration upside and again, tremendous optionality associated with having that mill capacity. We're drilling at a pace around Canadian Malartic that we never have, you know, in the company's history. We've got 25 drill rigs active currently on the Odyssey Underground project and in the 20 kilometers surrounding that Malartic mill. There's a number of old mines that were shut down in the 1950s, 1960s, 1970s because it just wasn't economic, but they were mining down to a depth of maybe 800 meters at a grade of 4 or 5 grams per ton.
You know, we're down to 3.4 kilometers at our LaRonde mine. So the exploration potential at depth of these old mines is significant, and we're looking at ways to optimize the grade of that mill feed. If we can find other deposits and develop those at closer to two or three grams per ton, we could see well north of a million ounces of annualized production. So that's the focus there is just maximizing the value of that complex and that infrastructure.
Great. And is it fair to say that to the extent that you can expand the mining underground at Odyssey, that would always take precedence over the satellite pits, just from a grade perspective?
Yes, I absolutely. I mean, the average grade underground at Odyssey is around three grams. Our Wasamac project, the average grade is about two and a half grams, but it's 90 km away. So you have, you know, the incremental hauling cost. The average grade at the Marban satellite pit is closer to a gram, so it's, you know, relatively low grade. So we will absolutely prioritize continuing to figure out exactly how much we've got there, and how underground, and how best to access it. I mean, there's talk of a potential third shaft at some point. All this takes time.
You know, we need to do the infill drilling and engineering and mine planning and everything else, but there's tremendous upside potential at that asset.
You, you touched on the exploration at Malartic, including at the satellite pits. What about the rest of the portfolio? What is the exploration team getting excited about? I mean, there seems to be a lot of work being done at multiple mines. How would you kind of rank order where the most exploration upside is?
Yeah, I mean, I'd say our focus is on our biggest assets. I mean, Canadian Malartic, you know, we found 20 million ounces over the last eight years at a discovery cost of CAD 10 an ounce. So that is, I mean, that's how you add value in the gold mining industry, if you can minimize your total cost. So, you know, you can either find ounces or you can buy them. If you're buying ounces through M&A, you're normally paying CAD 300-CAD 400 an ounce. If you can find them at CAD 10 an ounce, you're off to a hell of a head start. The second component of your cost is your capital cost per ounce, and if you can leverage existing infrastructure, you can minimize your capital intensity.
Then the third component is obviously your operating costs. If you have, you know, if you have that kind of regional setup that we do, where you benefit from synergies, you can minimize your operating costs, and your all-in cost of producing an ounce of gold is as low as possible. Canadian Malartic's a huge priority, as I already talked about. The other major priority for the company from an exploration perspective is at Detour. Detour is another mine that it's a bit of a unicorn in our industry. It's currently producing. It's now Canada's largest open-pit gold mine, produces about 700,000 ounces a year. Reserves and resources have gone from 20-40 million ounces over the past decade.
We put out a study last June, whereby we're planning on going underground to access some higher grades and bring production up to a million ounces a year. So that study that was based on information from, you know, two years ago, had us getting up to a million ounces of production a year in 2030 and staying there for about 13 years. Since that time, we've been continuing to drill, and we've seen better grades closer to surface, and we actually see the potential to bring that some of that production forward and actually get to a million ounces sooner, and to be able to stay there for longer.
We're dedicating a lot of our exploration budget to Detour and making sure we flesh out exactly, you know, what we have underground there so that we can optimize the, you know, value creation at that asset. Canadian Malartic and Detour are our two biggest assets by far, long life, very large assets, and they're the focus from an exploration perspective. Beyond that, we have a project called Hope Bay in Nunavut. We currently operate two mines in Nunavut, Meadowbank and Meliadine. Together, they produce about 900,000 ounces a year. Meadowbank is in decline. We were initially scheduled to actually end the mine life there in 2028. At these gold prices, we see the potential to push that out to about 2035, but production will be declining.
So in order to really offset that and keep our production from the Nunavut platform, you know, close to a million ounces a year, we're looking at a redevelopment of Hope Bay. And Hope Bay has been another key focus from an exploration perspective. We've, you know, bought the asset from TMAC Resources in 2021. They were operating it at a much smaller, like 2,000 tons per day, producing around 100,000 ounces a year. In Nunavut, you need scale. You need size and scale in order to make money. Everything costs three times as much as it would in the, you know, southern part of Canada.
So, we've spent the last three years really drilling that deposit off, and over the last two years have discovered this new zone called Patch 7, that's higher grade, and represents really a third mining front for us. So we'll be announcing a construction decision on Hope Bay in the first half of next year. And, really, it's that Patch 7 zone that has helped to push that project to the size and scale that we need. We think it'll be about 400,000 ounces a year, and it'll go for decades. So I'd say Detour, Canadian Malartic, and Hope Bay have been the three key focus areas. But across the portfolio, I mean, Fosterville, we're looking for another super high-grade zone.
We've... We're drilling even San Nicolás, which is, you know, in the relatively- we're just doing the feasibility study and permitting activities there, but we've had some good success there. So there's lots of upside across the portfolio.
The exploration budget, whether it's 2025 or 2026, does it line up with the order that you provided, Canadian Malartic, Detour, Hope Bay? Would that be roughly how the exploration dollars are allocated as well?
Yes. Yeah, that's exactly right. So yeah, we spend about CAD 300 million a year. We'll spend about CAD 300 million this year on exploration. We've got about 125 drills running across the company. And, you know, as I mentioned, 25 at Canadian Malartic, so that's, you know, about 20% of our overall activity.
Then just switching gears to cost. One of the, I guess, really impressive operating performance in the first half was just Agnico's cost control. Rough numbers for anyone looking at Agnico, you know, all-in sustaining costs around CAD 1,300 an ounce. Your peers are CAD 200-CAD 300 an ounce higher than that. That may surprise a lot of generalist investors who think of Canada's expensive labor market. You mentioned Nunavut, and things are expensive to just, you know, even transport supplies there. Maybe talk through how Agnico's been able to achieve, you know, peer-leading costs among the seniors.
Yeah, I mean, obviously, the Canadian dollar has helped over the past several years. I mean, we've had about five years of increasing U.S. dollar gold prices and a weakening Canadian dollar. So I can't discount that. I mean, that's been a contributor for sure. But I think I've touched on it briefly previously. It's really our strategy. It's that regional consolidation focus. You know, we have five mines in Northern Ontario and Northern Quebec that are within a few hundred kilometers of one another, and within about a 10-hour drive of our head office in Toronto. There's tremendous synergy associated with that. Yeah, again, you know, in many cases, like, we've been active in the Abitibi, in Northern Quebec, at least, for over 60 years.
so many cases, we helped our suppliers set up their business when they initially got up and running, which means, you know, if we need something, they drop everything to help us. So that's... It's a distinct competitive advantage. I mean, our employee turnover in Quebec right now, or not right now, over the last 12 months, trailing 12 months, is 4%, less than half of the industry average. So, you know, Agnico is the employer of choice. Turnover is minimized. Our costs in terms of just, you know, purchasing power are lower than those of many other kinda single-asset companies. And there's an intense focus on cost control.
I mean, our messaging over the past several years internally has been, "You know, the gold price is going up, but we can't lose focus on costs and capital discipline." We need to constantly be evaluating how we do things and looking for opportunities to get better. The example that I always refer to... We have a gentleman named Martin Plante, who was vice president of our Nunavut operations. A few years back, they recognized that Meadowbank was going into decline and would be approaching closure. He recognized that they needed to reduce costs in order to keep the operation going.
They brought in, you know, a third party to help with an internal review of everything the mine does, the process flow, equipment availability, with a view to just optimization. They were able to shave over $100 an ounce per ounce of production off their cost structure and extend the mine by two years. That kind of process, that third party, you know, check on how we do things, we've extended across all of our operations, and every year we're looking at, you know, what are the technical limits, what's the maximum output that we should be able to achieve based on the equipment and people and resources that we have, and trying to minimize the gap, if there is one, from where we are.
So we're always focused on operational efficiency. I'd suggest that in underground gold mining, we're a leader with respect to automation and technology adoption. A major project for us this year is a fleet management system underground. So you know, underground mining is still very rudimentary in some cases. You know, you go down a shaft, and you get a clipboard and wander over to your piece of equipment and start your day, but there's often a big lag between the time you actually you know, start working and the time you start being productive. So we're looking at digitizing a lot of our underground mines and optimizing how our process flow works, using you know, technology to do that.
That could be a game changer in terms of our overall cost structure and productivity.
Are there any questions in the room? We can take some questions in the room. Just wait for the mic, and then we can start.
Hi, George Ross, First Eagle. Not precious metals analyst, that's our other guys, you know them. Just a quick question on the McIlvenna Bay project, where you guys have raised your stake to, I think, almost 14% of the company Foran. Just curious, is that one of those cases where you have potential regional synergies? Because it's not really a gold asset, as I understand it. Just curious what your thoughts on that.
Yeah, that, that's correct. I mean, there is some gold there, but it's primarily a zinc copper asset. Why we're interested in that project is really an analogy to our LaRonde mine. So I mean, you'll note that the name of the company, Agnico, is the, you know, silver, nickel, cobalt. The early days of Agnico were very much less focused on gold. And, you know, even 25 years ago, the majority of the revenue came from zinc and copper. LaRonde is really the founding mine of current Agnico. It was opened 37 years ago with an eight-year life. It's been expanded five times. There's four shafts and a winze currently.
It's produced eight million ounces. It's been operational for 37 years, and it's a VMS style deposit, and you know, we see similar potential with Foran's project, so you know, we're not interested for what they have now. We're interested in having a seat at the table and seeing how the deposit evolves, and whether they're able to, you know, grow it, double it, or triple it in time, at which point we might be more interested. The other thing that's interesting is that, you know, we're starting to source a lot of labor for our Hope Bay Project out of Central and Western Canada.
So we do see the potential for that to be another regional hub in the future, if you know, we see other opportunities there or end up creating a regional head office supporting Nunavut in that part of Canada.
I think there was one more question up here.
Good morning. Threefold, like, one, if you look into Canada, you see at New Afton with New Gold, they extend the mine life. You see, mine life, you see that Highland Valley, that they extend the mine life. You do that at Hope Bay. It's like, is this a Canadian thing that you perhaps, with higher prices, can go into existing locations and extend mine life? And the second question is regarding the reserves, like, at what price have you booked, basically, your reserves? Like, the price of gold went up sharply, but I guess your reserves, proven and probable reserves, are booked on a different price, far lower. So at what point are you going to increase your price and your net present value calculation?
Yeah, no, both, great questions. You know, on the first question, like, it is it something kind of particular to Canada where we're able to extend mine life. I think there's two parts to that. One, yes, often when the gold price goes up, there's lower grade material that previously would've been designated as waste that all of a sudden is economic, so you're able to extend mine life that way. The other, I guess, more geological answer, would be in certain parts of Canada, the Abitibi, where, you know, the majority of our production comes from, these deposits tend to extend to depth. And, you know, I talked about LaRonde.
LaRonde, we're mining down. That's the deepest mine in the Western Hemisphere, the deepest gold mine in the Western Hemisphere, 3.4 kilometers. So there are a lot of old mines that were mined down to a depth of, you know, 600-800 meters, and shut down fifty years ago, where they haven't been exploration tested since. So there is a lot of potential there. On your second question, with respect to reserve pricing, absolutely. I mean, there's a massive disjoint between... You know, our reserve price last year was CAD 1,450, and current gold price is north of CAD 3,500.
I think the industry, it's a challenge for the industry, because if everyone updated their reserve pricing to spot, you know, grades would drop by 30%, which means, you know, margins dropping by 30%. So there's a balance between protecting the integrity of your short- to medium-term mine plans, while making sure that you're optimizing value. So in situations where we have spare mill capacity, we're absolutely processing more, 'cause it makes sense to do so, 'cause we're making money. In other situations where we don't have excess mill capacity, you know, especially in open pits scenarios, we're looking at stockpiling some of that material that's potentially economic and ensuring that it's there for closer to the end of the mine life, to feed the mill, make sure we don't lose that production.
That's a great question. It is a challenge for the industry when you see such a dramatic increase in the price of gold.
Yeah. Maybe one more? Yep, go ahead.
Yeah, a quick one from me. Right now you are constructing Canadian Malartic Underground. You're also thinking of the Detour Underground. We've seen in the sector CapEx budgets blowing out, and you know, when the projects are built, they're not working, they say. You know, to spec, they want to design spec. How do you protect against that risk for your projects? You know, do you, like, for construction expertise right now, when we know that it's very hard for companies to build projects, how do you get to the right answer?
Yeah, that's a great question, and it gives me an opportunity to talk about our construction team. So we do have. That's another thing that I'd suggest is unique about Agnico. We build our own mines. We have an in-house, like, basically EPCM construction team, 400 people, led by you know, an Agnico lifer, that you know, they have built multiple mines for the company. We have two distinct shaft-sinking teams. We're not reliant on, you know, Redpath or Cementation. We do it ourselves. We have one currently working at Odyssey, Canadian Malartic, and we have another that completed the number four shaft in Macassa that will sink the shaft at Upper Beaver. So that is a very unique advantage.
We have this in-house team. We are able, because of our size and scale, we're the largest mining company in Canada, when we call contractors, we're able to ask for the A team and dictate, you know, how they operate and work with us. That gives us a lot more control over our capital budgeting and spending and, you know, our timing. You know, just as an example, I was visiting our Upper Beaver Project a couple months back, and there was a gentleman building the water treatment plant, and I asked, you know, his background.
He said, "Oh, I've done eight of these. And most recently, you know, I built the water treatment plant at Meliadine." So there's a lot of in-house, you know, technical construction expertise that I'd say, I'd suggest, de-risks our projects.
I think we're right up on time. Jamie, thank you so much. That was excellent.
Thank you.