To our fireside chat with Agnico Eagle. My name is Fahad Tariq. I am a Mining Analyst at Jefferies, based out of Toronto. I am really pleased to have here today with us, Jamie Porter, Executive Vice President, Finance and Chief Financial Officer. Just to give a little bit of context, Agnico is a senior gold producer with a current market cap of about $102 billion, operating a portfolio concentrated in Canada, Finland, Australia, and Mexico. The company strategy is centered on reliable low-cost production, disciplined reinvestment, and growth on a per share basis with a major organic pipeline that includes the redevelopment of Hope Bay, expansion of Detour Lake, Canadian Malartic towards 1 million ounces, Upper Beaver, and the development of a larger Finnish platform around Kittilä and Ikkari. Jamie, thank you for joining us, and we are really happy to have you here.
Thanks. It is good to be here.
As I mentioned in my introduction, Agnico is simultaneously investing in five growth projects, which is a lot, returning substantial capital and building net cash. How do you think we should be thinking about the hierarchy among these uses of capital, and what would cause maybe that hierarchy to change?
Yeah. We are in a gold price environment now where we are fortunate in that we can really do a little bit of everything. Current gold prices, we should generate about $4 billion of free cash flow this year, and that is net of $3 billion of capital spending, sustaining and growing our business, and net of $600 million worth of exploration spending, which is a record for the company. So we are investing heavily in the business and still generating very strong free cash flow, net of all that. When you look at our capital allocation priorities, obviously we want to be disciplined. Our focus is really on per share value creation over time. When you look at the potential uses of that cash flow that we are generating, we have been paying a dividend for 43 years. That is an important part of our commitment to shareholders to return some of that capital.
We keep it at a relatively modest level such that we're never in a position where we need to cut it. Currently, it represents about 25% of our free cash flow for this year, about $900 million a year. That's priority one. After that, as Fahad, you mentioned, we have this great organic growth pipeline. The development pipeline that we have has really never been stronger. It's comprised of five key projects that we're primarily focused on. Again, at these gold prices, these projects have 30%-60% returns. They're very attractive and I would say relatively low risk. For the most part, they're expansions of existing mines or new construction projects in regions where we've operated and built multiple mines over multiple decades.
We're very confident in our ability to execute and have these projects contribute to 20%-30% production growth by the start of the 2030s. That's a key focus. Obviously, after that, there's the balance sheet. If you look back over the last two years, we've paid down over $1.5 billion of debt. We've got our financial position to the strongest place it's ever been in. We've got $3.3 billion of net cash now, and I could see that increasing to maybe upwards of $4 billion by the end of the year or early part of next year. Really, after that, the excess cash flow is going to be returned to shareholders through the share buyback.
We bought back $150 million worth of stock in the first quarter, $400 million in the second quarter, and I think we're on track to do about $500 million in the second half of the year. So between the dividend and the share buyback, we will have given back about $2 billion to shareholders this year. Again, in this gold price environment, we're able to do everything. We're investing in the business, we're strengthening the balance sheet and financial position of the company, and we're delivering record returns to shareholders.
Okay, great. You touched on margins, particularly in this gold price environment. One of the pressures I think that's facing the sector is just higher energy costs, input costs, and specifically diesel costs, which are very elevated. Can you maybe touch on how Agnico is managing diesel costs in particular and any unique advantages the portfolio may have in Canada?
Sure. That's exactly it. The unique advantage that we have, the Agnico strategy is really while we're a global company, we focus on regions. We consider ourselves regional miners. We focus on concentrating multiple operations in close proximity to one another, such that there's synergies between those operations. We're fortunate in that the center of gravity for our production base is in Northern Ontario and Northern Quebec, where we get clean power, hydroelectric, or nuclear. We're not using diesel to generate power there. We only do that in Nunavut, and the majority of our production comes from underground mines, which are inherently less diesel-intensive as well. I think our average consumption per ounce of production is about 100 L. The industry average is about 150 L per ounce.
We are exposed, no question, but not to the same extent as many of our peers who have larger open pit mines or who need to produce or generate the majority of their power from diesel. Diesel as a percentage of our overall cost is about 7%, and the sensitivity is about a 10% change in diesel prices impacts our cost by $4/oz or $5 /oz . It has an impact, but it's not as significant as you might expect. We go through almost 400 million liters a year of diesel. About half of that's for our Nunavut operations, and half of what we use in Nunavut is for power generation. We are looking at options and alternatives to try to reduce that reliance on diesel.
We've entered into really a partnership with an Inuit group and the Canadian federal government to build wind farms up at our Hope Bay project. That should help to, over time, reduce our reliance on diesel for power generation.
Maybe shifting gears to one of the growth projects that we touched on, Hope Bay, which was recently sanctioned, and the PEA was completed. It's going to be about 400,000 oz to 450,000 oz of incremental production. Can you just walk through some of the important factors that gave the board and the management team confidence in the CapEx, the schedule, the execution to sanction the project?
Sure. Maybe I will start just with a high-level overview of, and background on Hope Bay. This is a project that has been owned and explored by BHP, by Newmont, by Miramar, and most recently by a company called TMAC, a junior called TMAC Resources. TMAC started production, at the Hope Bay project at a rate of about 150,000 oz a year and really kind of struggled to get it going. They were starved for capital. Ultimately, a Chinese company was set to buy the project from them, and the Canadian federal government blocked that sale. The reason for blocking the sale is because of the strategic importance of the location of the Hope Bay project. It is right on the northwestern-most border of North America. It is considered, from an Arctic security perspective, a very important region of the country. The sale was blocked.
Agnico stepped in, quickly determined that this project needed scale in order to hit the economic thresholds that we wanted it to. We set about exploring and spent the last three years drilling the project off, and in so doing, discovered a new area called Patch 7, where we went from zero to 2.5 million ounces- 3 million ounces over the past couple of years, some of the highest grades across the district. That will represent a new mining front and really gave us the ability to, once we get into production, to mine from multiple different mining fronts and get production to closer to 400,000 oz- 450,000 oz a year. In Nunavut, because of where it is located and how difficult the logistics are, you need scale. We have been operating in the territory of Nunavut for 20 years. We have built three mines there.
Hope Bay will be our fourth. We recognized that and needed to ensure that we had the critical mass in terms of the resource base before we okayed the construction decision. In terms of the board having confidence to want to go ahead with the project, it was really the focus that we had on detailed engineering. We were at 62% detailed engineering completion when we announced the investment decision in May. Most companies would be at 25%, 30%. We wanted to make sure we were very confident in the costs, and the timing associated with that capital spend. It is a combination of that, I think, and our experience operating in the Arctic, that would have given the board the confidence to give us the approval to move forward with the project.
Excellent. The initial mine life for Hope Bay is about 11 years, but the land package is quite extensive. Maybe talk a little bit about the exploration potential in that region and maybe just to orient people in the room if they are not familiar, how far this project would be from the existing operations in Nunavut.
Sure. Nunavut is a territory in northwest Canada. It is the physical size of Mexico. It is massive. It has a population of 39,000 people. When you are there, it is almost like being on the Moon. It is massively underexplored and barely populated. Agnico Eagle is a third of the economy of Nunavut. We are the biggest employer of Inuit, biggest private employer in the territory. Tremendous opportunity there, not only for gold, but for other metals as well. With the recent kind of shift in the Canadian government and the renewed view that mining is not bad anymore, we actually need it, there has been a great partnership between us and the Canadian federal government. When we announced the development of Hope Bay, the positive decision, at the same time, we announced a memorandum of understanding to work with the Canadian Department of National Defence on supporting them in logistics and other things.
We may well collaborate with them on building infrastructure in the Arctic. Again, we have been doing it for 20 years, and I think the Canadian government recognized that now that they had to spend a certain percentage of targeted spending on defense, that they needed to really increase their skill set and ability to do that. When we talk to investors about Hope Bay, we believe investors should think about this as a massive district where we will be producing for decades. The study that we put out has an assumed 11-year life, about 430,000 oz a year on average. But that covers a small fraction of the overall exploration ground that we own and control there. The project itself will be based on initially what is called the Doris deposit, and about 8 km south of Doris is the Madrid and Patch 7 deposits.
If you go another 50 km south of Patch 7, there is a deposit called Boston that we know has millions of ounces of resources. There is mineralization the entire way down. It has just never been explored. When we go to visit that mine site, far and away, the best part of the trip is visiting the core shack and meeting with the geologists at the end of the visit because of the level of excitement and enthusiasm about the opportunity set there. I think, yeah, we will be there for multiple decades.
Okay, excellent. Just moving down in terms of the growth pipeline. We talked about Hope Bay, which is 400,000 oz-450,000 oz of incremental production. Canadian Malartic could be another 400,000 oz-500,000 oz of incremental production. Maybe talk about the strategy there, and if you could touch on the recent seismicity at the Barnat pit and how that impacts at least near-term production.
Sure. Canadian Malartic, just for context, the two largest gold mines in Canada are Detour Lake, which we own. It is currently an open-pit mine that produces around 650,000 oz a year. Canadian Malartic is in northern Quebec. It is the second-largest gold mine in Canada, currently produces around 550,000 oz per year. Back on July 1st, we had, actually, it was not seismicity, it was more just a pit wall movement that we had been monitoring. As we get to the very bottom of this open pit, the stresses increase. When we had a relatively small pit wall failure, that resulted in sterilizing about half of the remaining 700,000 oz that were in that pit. It has impacted us for this year by 70,000 oz and 150,000 oz in each of the next two years. We had planned on having finished mining from that pit in early 2029 anyways.
It really has no impact on the long-term operation. What we are doing at Canadian Malartic is going from mining and milling 60,000 tonnes per day of relatively low grade, one gram per ton material, and we are transitioning fully by 2029 to underground, where we will be mining and milling 20,000 tonnes per day. So a third of the throughput, but at three times the grade. Production stays about the same, between 500,000 oz-6 00,000 oz a year, but all of a sudden, our mill is only one-third full. So we have 40,000 tonnes per day of excess mill capacity in one of the most prospective, from a gold exploration perspective, regions in all of Canada. We are looking at expanding the underground and potentially adding a second shaft, which could get production up to 750,000 oz a year.
We have two satellite deposits called Marben and Wasamac, and if you factor those in, we get up to about 1 million ounces a year by 2033/ 2034. We will do that, and we will still have 13,000 tonnes to 14,000 tonnes per day of excess capacity at that mill. We are spending a record amount on exploration, in that region, trying to find more deposits and more mill feed for that hungry mill. We see the potential currently to get to 1 million ounces a year, again, by 2033/ 2034. But longer term, we could potentially exceed that if we are able to find more mill feed or higher grade deposits.
Moving on to the next kind of major growth pipeline project, Detour Lake. The strategy seems to be a combination of open pit optimization, underground production, and potential additional mill capacity. Maybe talk about the next few years at Detour and what the plan is there.
Sure. Yeah, I mentioned Detour currently producing around 650,000 oz-700,000 oz a year. It's a big mine as is. But similar to Canadian Malartic, it's a massive open-pit operation where we're processing almost 90,000 tonnes a day of 0.9 g per tonne material. It's a huge rock factory currently. What we've discovered over the past decade is higher grades underground, where we see the potential to actually displace some of the open pit lower grade material with underground ore that's about three times the grade. The plan that we published back in June of 2024 envisions us, by 2030, having gone underground via ramp access and we'll be mining about 11,000 tonnes per day from this underground part of the overall deposit. That alone gets our production up to 1 million ounces a year.
Now, just for context, at 1 million ounces a year in current gold prices, Detour generates $2.5 billion annually of free cash flow. This is just a cash flow juggernaut. The exciting, I guess, upside potential at Detour is that we're not even near our permit limit. Once we're fully ramped up, we'll be operating the mill at a rate of 29 million tonnes a year. The full permit limit is 32.8 million tonnes, and we're looking at scenarios where we could even expand that beyond that. Both at Canadian Malartic and at Detour, we have a plan to get to 1 million ounces of annualized production. There is the potential to even go beyond that in the future as we have additional exploration success and/or ramp- up our operations.
If you look across the world, there's maybe six or seven gold mines or gold mining regions that produce north of 1 million ounces a year. The fact that we will have two, in Canada, both within a nine-hour drive of our head office in Toronto, provides an enviable platform for our long-term production plan.
Then maybe just pausing here for a moment on the three projects we've talked about in Canada, Hope Bay, Canadian Malartic, and Detour. You had mentioned earlier that this, in combination with some of the other projects, is about 20%-30% production growth. What do you think investors are missing about the story in Canada and the growth profile, if anything?
Yeah, I think there's a recognition amongst investors that the Agnico strategy, that focus on being regional miners, that works. I always like to say there's three costs associated with producing an ounce of gold. You can either find ounces or you can buy them. If you can find them, you're at an inherent advantage because, you look at our two biggest mines at Detour and Canadian Malartic, our discovery cost over the last 10 years is $10 an ounce. So if you can find an ounce of gold for $10 an ounce, you've got a pretty good head start relative to having to buy it through M&A for $300 an ounce or $400 an ounce. The second cost associated with producing an ounce of gold is the capital intensity, the capital cost per ounce.
If you can leverage existing infrastructure and not always be having to go build new processing facilities and tailings, well, then you can minimize your capital cost per ounce. Of course, the third component would be your operating costs. Because of our focus on regions and the fact that Agnico's been in operation working in the Abitibi in Northern Ontario, Northern Quebec for almost 70 years, we're the employer of choice in those regions. Our turnover in Northern Ontario and Northern Quebec is sub 5%. The industry is north of 10%. We've helped many of our suppliers start their businesses. We have technical and operational synergies between our mines. We can send ore to any number of different processing facilities, depending on what makes the most sense from a financial perspective. So there are inherent advantages in that.
I think the fact that the majority of our growth is coming from these regions where we already operate, it really de-risks the growth profile. I mean, at Canadian Malartic and Detour, we're expanding existing mines, doing things that we know how to do. At our other projects at Hope Bay, again, that will be the fourth mine that we will have built in Nunavut, so we know how to operate in Canada's Arctic North. Upper Beaver is another development project that's just down the road from Macassa. We visited there last year and walked into the water treatment plant, which was under construction, and we asked the head gentleman who was in charge of building that water treatment plant, how long he'd been with Agnico.
He said he'd been with the company for 27 years, and this was the 13th water treatment plant that he'd built for the company. So that's the kind of inherent in-house knowledge and expertise that we have that I think de-risks our overall execution plan. We talk about 20%-30% growth. That's excluding our recent acquisitions in Finland. That's excluding another project that we have called Hammond Reef that I think in this gold price environment goes as well. That'll be another 300,000 oz a year up in Northern Ontario, again, right in our backyard. So there's, I think, a lot of value in the development pipeline and a lot of optionality just given the regional focus that we have.
On Finland, Agnico recently consolidated about 2,500 sq km around Kittilä and Ikkari. I believe there is an updated study expected by the end of next year. How is the company thinking about. Well, I will take a step back. What was the attractiveness of Finland as a jurisdiction to consolidate and this specific land package? What is the expectation plan for that next year study update?
Yeah. So, just a bit of background on Finland. Tying it to the Agnico strategy, I mean, we focus on regions where we see the geologic potential to operate multiple mines over multiple decades. So in order to have a view that you are going to be able to operate for multiple decades, you need to be in a place where you are comfortable with the political risk and the rule of law. 20 years ago, I think Agnico saw that in Finland, both with respect to the political stability and also the geologic potential. In Finland, very underexplored. We have just consolidated a 2,500 sq km belt that is largely untouched. There are a few operating mines, but there is a lot of exploration upside and potential. So Agnico started 20 years ago, with the Kittilä mine. Kittilä now has been operating for probably 13 years.
We are producing about 220,000 oz a year, generating about $1 million a day of free cash flow. So it is a great project. It is a relatively small mine for us. But the level of the relationship between the communities and the mine, you couldn't ask for a better place to operate. The first time I visited Kittilä, I didn't know what I was expecting. I thought maybe we would be staying in a camp at the mine site. You are driven to this beautiful ski resort in Levi, which is a half-hour drive from the mine. If you say you work for Agnico Eagle in the village at the ski resort, they give you 15% off. They absolutely love Agnico because we provide year-round employment.
It was a very tourism-focused region of Northern Finland, and since the mine has been there, we have provided 700 good paying jobs and are very welcome within the community. So we saw it as a region where we wanted to expand, and saw an opportunity. We announced in the second quarter, we acquired a company called Rupert Resources. We acquired a joint venture called Fingold Ventures and another company called Aurion Resources. Now, Rupert had a very interesting project, about 3 million ounces-3.5 million ounces. But in order to develop that project, the pit was right on the border of the property line with these two other companies, company and joint venture. So they weren't able to properly explore the deposit and development was very restricted in terms of where they would have had to put infrastructure and everything else.
By consolidating and buying all three of those companies, we've now opened up the entire land package. We're focused on drilling on the boundaries between the three companies, and we think there's the potential to expand not only the Rupert Resources deposit, which is called Ikkari, but we think regionally, there's the potential to find multiple additional deposits over time. We're excited about it. We have the workforce there. If you look in Northern Ontario, Northern Quebec, and Nunavut, we're pretty busy. Our construction development teams, they're flat out right now working on executing on our development growth pipeline. We had capacity in Finland. We've got a separate management team there. They were looking for something to do to grow the business, so it's worked out well. We're excited about it.
Great. I'm going to ask one more, and then I'm going to pause to see if there's any audience questions. Following the acquisition in Finland, of Rupert Resources and that consolidation, you also mentioned earlier that you can either grow your ounces, which is inherently advantageous, or you can acquire ounces. What is the latest view in terms of M&A and additional acquisitions?
Yeah. I would say we're in the position where we want to be, in that we don't need to do anything. We have 20%-30% production growth, and potentially even higher if we include Finland, just within our own organic growth pipeline. So we can afford to be very patient and very selective in terms of any external M&A opportunities, and I think that's the best place to be. Our job is to look at everything, look for opportunities to make our investors money. But obviously, anything that we'd be looking at in terms of external M&A would have to compete for capital with the development project pipeline that we have. And as I mentioned earlier, those projects have 30%-60% IRRs at current gold prices. So I'd say it's a very high bar in order for an external M&A opportunity to make sense for the company.
And from a jurisdictional perspective or other filters, anything you can share in terms of how the management team thinks about what would be attractive or not attractive?
Yeah, I think our job, again, is to look at all opportunities. The way we try to give ourselves an advantage is by knowing all the juniors in the regions where we operate. We try to build up a knowledge advantage over time. We have over 50 companies that we have investments in and technical services agreements, and we are providing support and oversight so that we get a good understanding of their projects and their projects' potential. Obviously, our focus is in the regions where we already operate, Ontario, Quebec, Nunavut. Canada, would we expand in Canada at some point, maybe go out west? Certainly, that would be a consideration. Beyond that, we just did the consolidation in Finland. We get asked all the time about Australia and specific opportunities in Australia.
Australia is a great mining jurisdiction, but we do not have the same level of competitive advantage there that we do in Canada. I would say we are more likely to be active in terms of external M&A on opportunities in the regions where we already operate. We could take on a new jurisdiction at some point, but we have that competitive edge in the regions where we know and have operated for decades.
Great. Why do not we pause there to see if there is any questions in the room? Just wait for the mic, so that we can get you on the webcast as well. There you go.
What is your sensitivity of earnings to the gold price, please?
Yeah. Every $100 move in the gold price impacts our after-tax free cash flow, and that's a decent proxy for earnings by about a $250,000.
Are you thinking that the gold price is going to levitate materially from here? I know it's an opinion, but I'd love to hear your thoughts.
Yeah. I wish I knew what the gold price was going to do. I think, in the short- to medium- term, it's very difficult to predict and figure out what factors are going to ultimately influence the gold price. But I think, if you look longer- term, we're constructive on gold for all the reasons that it's got to the point where it is now. I think, the long term, you don't often talk about supply and demand with respect to gold, but I think longer- term, there's been an absolute lack of exploration for gold deposits over the past several decades. Our VP of exploration, who's in the room here, shows a graph every year at our strategy session in January that shows the number of 1 million ounce plus gold deposits over the past 50 years, and we're at an all-time low.
There's really no new projects coming online. For the mines that are already operating, when the gold price goes higher, that makes lower grade material economic. Unless there's a massive expansion in processing capacity, that means the ounces produced actually goes down. I think at some point, demand's going to stay where it is or go higher and supply is going to be limited. I do think we're at or near peak gold production.
Great.
I just wanted to follow on to Fahad Tariq's last question. When you have such good internal options, Sean Boyd was recently giving an interview saying that you guys are open to big copper gold partnerships. What is the hurdle? Something really needs to move the needle for you guys. So what kind of production profile would you need to be thinking about to compete with what you have internally? Given the relationship that you guys have with the Canadian government, is there an opportunity to leverage any ability there to finance
Internal, like new projects that you have internally or something on the M&A front?
Yeah, no, it is a good question. We are 99% gold by revenue, and Agnico, despite the name being Agnico silver, nickel, cobalt, in the early days, that was the focus. We have been primarily gold for decades now, and I think our investors, I would say for the most part, quite like that. That said, we do have a strong reputation. We are the biggest mining company in Canada. We have a great relationship with the Canadian federal government. For the right opportunity, would we consider leveraging that into other metals? Absolutely, but again, it would have to compete for capital with the projects that we already have that are extremely high return. We set up a 100% owned subsidiary now called Avenir Minerals a couple of years back.
I think we made that public about a year ago and that sub is focused on other metals outside of gold, silver, and copper. They are very focused on working with governments to build some of these potential critical minerals projects over the long term. I guess to answer your question, it is something we would consider, but the hurdle rate would be very high.
You talked today about using spare mill capacity at some of your locations. I would guess at current gold prices, adding a mill would pencil out as well to certain locations. How do you think about that?
Yeah. So that's more or less what we've been doing. We talked about our Hope Bay project in Nunavut. The previous operators were running that mill at about 2,000 tonnes per day. We looked at it and said, this mine's going to be here, going to be running for a very long time, and we need scale, so let's build it at 6,000 tonnes per day. Potentially at some point in the future, if we have exploration success at that Boston deposit that's 50 km away, maybe there's another processing facility there at some point. I think when we're looking at our development pipeline, we're erring on the side of, okay, let's build more processing capacity because we expect we'll be able to use it in the future.
I'll ask one. Something you alluded to earlier, you said, I don't know exactly how you phrased it, but that the relationship with the Canadian government has improved. Maybe just if you could expand on that and what you've noticed in terms of with the current Prime Minister.
Yeah, I think there's just really a broad recognition at the federal and provincial level that mining is an important contributor to the country, to the economy. We turn rocks into jobs, basically. In many of these regions where we operate, if we weren't there, the employment, the communities would really have a tough time. I think, Canada's priorities nationally in terms of resource development have changed pretty dramatically and you pair that with the recognition that we're really supporting the economy. We will pay $3.8 billion in taxes this year, 95% of that in Canada. Outside of, if you back out provincial royalties, we're the largest corporate taxpayer in Canada. In Nunavut we're paying the equivalent of about $13,000 to each person that lives in the territory.
We have a pretty important impact on the economies and on people's lives in the regions where we operate, and I think the government has recognized that and is, in turn, being more supportive of what we're trying to do in terms of building new projects and shortening permitting timelines and everything else. We couldn't be happier with the relationship we have with the current government.
Great. That's great to hear. I think that's a good place to stop. If there's more questions, please reach out after. Thank you very much, Jamie.
Thanks, Fahad.