Agnico Eagle Mines Limited (NYSE:AEM) Q3 2023 Earnings Call Transcript

Agnico Eagle Mines Limited (NYSE:AEM) Q3 2023 Earnings Call Transcript October 26, 2023

Operator: Good morning. My name is Leora and I will be a conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines’ Third Quarter Results 2023 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. [Operator Instructions] Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi: Thank you. And good morning, everyone. Thank you for taking the time to join Agnico Eagle on this call. We know it’s a busy morning. There’s a lot to do. We always appreciate the opportunity to talk to our owners about how the business is going and it’s going well. In the room with me, I’ve got our senior team. We’ll all be talking and available for questions at the end. But I’ll talk about — before we jump in, I want to talk briefly about operations but then hit some of the bigger points. With regards to operations, we had another solid quarter. With three good quarters behind us, it’s obvious that we’re well on our way to comfortably meet our guidance. With regards to production, we’re well positioned to be above the midpoint of our guidance and if things go well with us in Finland, we will be closer to the top-end of that guidance on the production side.

Aerial view of a gold mine, reflecting the company’s precious metals mining operations.

Importantly on cost, the team has also done an excellent job. We continue to forecast within guidance and towards the midpoint of guidance. It’s clearly been a tough year for everybody on the inflation side. But our team has really, I think, done a remarkable job and we continue to be confident we’re confident in the year. And to be sure we’re confident in the fourth quarter, as well. But the real story that we want to talk about in this call is frankly, the same story we talked about last quarter and the same story, the quarter before. It shouldn’t change, because it really, it’s all about how we’re continuing to build the foundations from which we’re looking to grow our business from which we’re looking to grow our business on a per share basis, with a focus on return on capital, and a focus on risk adjusted return on capital.

And we’re going to talk five big points that are these foundational points. One is Detour. We’re continuing to work towards our target of a million ounces a year at that mine that would be a function of increasing the mill and increasing the grade. And we’ll talk a little bit about that. Two, Canadian Malartic transition to Odyssey from Canada’s largest open pit mine, to Canada’s largest underground mine. It’s interesting, we were just there a couple of days ago, meeting with the team looking at the progress. And we talked about that it was 100 years ago, October 1923, that that mine was first discovered. It’s a mine that’s been around for 100 years. And I think as we all know, in the last four years alone, we’ve added 15 million ounces of resources to it.

The third item is the Abitibi consolidation. We’ll talk about that and some of the good progress that we’ve made. The fourth is the continuing to invest heavily in our operations with the Kittila shaft commissioned the Macassa shaft commissioned in the Melody and expansion, well underway. And then finally Gi we’ll talk a little bit about some of the exceptional exploration results, he’s continuing to get. And so as we go through first, let me point out there the full three pages of forward-looking statements and cautionary notes. And maybe we can just jump up to Page 5. So as mentioned, we had a, we had a solid operating quarter of 850,000 ounces of production at a little under $900 cash cost. What I would say is that, while that’s a solid quarter, up until the middle of August, we were having another record quarter.

We were above budget, we were doing very well. We had a little bit of a setback with a with a transformer failure at Detour. And I say this not as an excuse, but I say this just to emphasize how strong the underlying operations are. We are going to have a good year and we’re going to have a good fourth quarter. We expect to hear from the Supreme Administrative Court in Finland imminently. We are cautiously optimistic that it goes our way. I mean, who knows. But we are cautiously optimistic and that would add another 30,000 ounces of production in the fourth quarter, putting us towards the top-end of our production guidance. Adjusted net income, you’ve all read this, I’m sure $0.44, cash provided by operating activities of $1.01, $1.35 before working capital adjustments, next page.

But getting to the foundational projects that we talked about, I’ll hit a few highlights. Dominique and Natasha will go into in a little bit more detail. But let’s start with the Odyssey mine at Malartic, very good progress. As I mentioned, we were out there just the other day on Monday. The productions are already ramped up to 3,300 tons per day. Remember, our target for 2024 is 3,500. So we’re almost there. And frankly, the ramp development is well ahead of schedule and the shaft is down now to 130 meters. What I think is the most exciting at of course they’re making good progress. Of course, they’re finding a lot of gold but what I really like is the fact that for the first four stopes we’ve had 18% more gold than the block model anticipated.

And that is as some of you know from the internal zones and that is –frankly that’s great news for a CEO when one of the biggest mine is producing 20% more gold than you thought it would. If we switched to Detour Lake, remember our target is to get to a million ounces a year, we’re working on that. There’s two big parts, there’s expanding the mill. And there is the replacing lower grade open pit or with higher grade underground. Natasha will talk about that and talk about the progress made to our target of 28 million tonnes per annum by 2025. Remember to put that into perspective, three years ago, we we’re at 23 million tonnes per annum. So big progress there. And we’ll continue to talk about that. But importantly, we’ve also had some very good drill results, continuing to have very good drill results at Detour at the West pit extension and under the current open pit, with tighter infill drilling, confirming continuity of high-grade zones.

What that means is it’s giving us a higher level of confidence in the underground potential, which gives us of course, higher level of confidence that we can get to that million ounce per annum target that we’re working so hard on. We’ve also made some good progress on the optimization of the Abitibi. As you know, that has been a singular focus for the team. Throughout the year, as you know, we expect to be giving guidance throughout 2024 on specifics and which projects will work in which projects won’t, but we are making good progress. And we’ll talk a little bit about that. And then finally, Hope Bay, we have had some very good drill results. Gi is going to talk about that specifically, he’s going to talk about some of the exciting results at Madrid, where we’re filling in a two kilometer gap between the Suluk and Patch 7 zones at Madrid, that’s important because while there’s a lot of gold that Doris for, as we’ve said before, for Hope Bay to meet our targets, we want to hit 300,000 to 400,000 ounces a year.

And Madrid is an important part of that. And Gi’s exploration results are giving us higher confidence. We’re still working on it, but very good results so far. Next page, please. And then finally, on the optimization of assets. We’ve talked a lot about this. We’re working hard on it, but a couple of points. One is we’re quite confident we’ve talked about Amalgamated Kirkland that was the low hanging fruit. You can expect some of that to be in our guidance next year, probably 20,000 ounces. And in 2025, beyond, it’ll be probably closer to 30,000 to 40,000 ounces per year. So what we promised right from the very beginning, when we talked about the merger, between Agnico and Kirkland Lake, we said that’s a low hanging fruit. It’ll start to come in this upcoming year.

And interestingly, it looks like we’re going to be milling it at with spare capacity at LaRonde Zone 5, which again shows the opportunity to take advantage of existing infrastructure with minimal capital investment. We continue to work with Upper Beaver and Wasamac both as standalone projects and as the potential to mill those and process them at existing facilities. We’ve made some good progress on the analysis with both trucking and rail. And we are in discussions with the rail operators to assess costs. So we’re getting right down to the nitty gritty and the details. What we’ve concluded is it’s doable. We’ve concluded that the CapEx is materially less than building your own mills. And really, it’s about now, fine tuning and making sure that the economics make sense.

Again, we’ll be going through that through next year. And with that introduction, I’d like to turn it over to Jamie Porter to talk about some of our financial results.

Jamie Porter: Thank you, Ammar. And good morning, everyone. We had strong financial results in the third quarter, with an operating margin of $883 million was driven by excellent performances from Canadian Malartic and Meadowbank. Despite lower production at Detour and Fosterville, both operations deliver decent operating margins in the quarter, approximately $180 million and $90 million respectively. Our production for the quarter was 850,000 ounces and we sold 843,000 ounces at an average realized price of $1,928 per ounce which was right in line with the [Indiscernible] fixed price and results in revenues of $1.6 billion for the quarter. For the first nine months of the year, we’ve produced just over 2.5 million ounces of gold, and are well positioned to exceed the midpoint of our production guidance for 2023.

Our third quarter cash costs of $898 per ounce were just slightly above the top end of our total cash cost guidance range of between $840 and $890 per ounce for the year, while our year-to-date total cash costs were $857 per ounce, which is slightly below the midpoint of our cost guidance. We remain on track to meet our cost guidance for the year. With respect to earnings, our adjusted net income per share of $0.44 declined slightly relative to the third quarter of last year due to higher costs given inflation, higher amortization related to our now owning 100% of Canadian Malartic and higher interest costs. We move over to Slide 9, we’ll just talk briefly about our balance sheet. Our overall financial position and financial flexibility remains strong.

We ended the third quarter with $355 million in cash and $1.1 billion in available liquidity under our revolving credit facility. Our net debt position increased slightly to $1.6 billion due to the increased working capital requirements in the quarter from associated with the seasonality of the Nunavut sealift. Our net debt-to-EBITDA ratio remains very low around 0.5, and our balance sheet position remains stable. We anticipate a strong fourth quarter. And with gold prices at current levels, we anticipate adding cash or balance sheet in Q4. Overall, we look forward to it to a great fourth quarter and strong finish to the year from a financial perspective. With that I’ll turn the call over to Dominique who will provide an overview of our Quebec operations.

Dominique Girard: Thank you. Before getting to the result of the Q3, as Ammar mentioned we were there at [Indiscernible] a couple of days this week with our Board of Directors plus the management team. And I would like to thank the team there are very great visits and all of the visitors were impressed by the quality of the people the housekeeping the quality of the installations that we have there. It is such a great project. It was also a good timing, Q3 results are strong, 177,000 ounces at Canada Malartic. And this is partially due the result or let’s see the operation result we have in Barnett pit [ph] are better than expected. The ore is a bit softer. The block model is also on our side. So this is overall good news for Dow and also for the future.

Mill recovery is also better than expected. So strong Q3. And we’re in good position in Quebec for Q4. All of the operation that we see there are in good position to beat or to be at the top end of their guidance for the end of the year. The next slide at Odyssey, you could see on the graph or on the picture there that the red the ramp is achieving the level 649 below surfaces. So the ramp is now heading to the east Goldie zone, where we are expecting to achieve it by the first half of 2024 which is going to be the next mining zone. So the other good news at Odyssey, the paste plant, paste back in plant has been commissioned in July 2023. And we are already achieving our expected let’s say design nameplate. So it’s a good example of the power of adding the synergy or having more mines into the same area where during the commissioning and the ramp up, we get some help from our own from Goldex to the Canadian Malartic team.

And within three months we’re reaching or beating the nameplate. So we have a competitive advantage being in a B2B. Our overall turnover is around 5% to 6%. We are able to attract the eight teams for the construction for the shaft making. And we see how it’s an advantage to develop project into Nunavut, not Nunavut, [indiscernible]. Another example of this is on the automation. We are beating our target right now in the ramp development. And this is out, and this is partially due to the automation. So, even though it is still into the startup they are already able to mine or to do some operation in between shifts by using automation operating the equipment from surfaces. And this is at the end of giving 20% improvement on our productivity on the ramp development.

On the exploration side, the focus continued to be on in filling the internal zone where we could potentially add zones into our plant. We still need to continue to better understand those zones. And also to extend the east to the deposits on the east and on the west side. And on the west side. So on that I will pass the mic I think to Natasha.

Natasha Vaz: Okay. Thanks, Dom. And good morning, everyone. I’m on Slide 12. In Ontario, our operations continue to deliver robust results. I’m particularly proud of Detour. We were on track to have a solid Q3, but then we had an unexpected and rare transformer failure that the team had to manage. But the quick response by the site and being able to leverage our Abitibi procurement network, ensure that the impact to our production was minimized. As for Q4, we’ve had a good start here at Detour and based on our forecasts, we’re planning to have a strong quarter and expect Detour to deliver at the lower end of guidance for the year. And we also don’t expect this type of incident with the transformer to happen again. But we have secured a spare transformer, which is planned to be delivered to the site by the end of this month.

And out of excess caution, we also plan to order a second spare in the next few months. As for Macassa, we continue to see strong operational performance here, the management team has done a great job. And we continue to experience the benefits associated with the view — the new ventilation upgrade that we completed earlier this year. And the commissioning of a Number 4 shaft also completed at the end of the beginning of this year, which resulted in higher throughput and reduce unit costs when compared to our numbers from the prior year. Now moving to Slide 13. This is where the real story is. And that’s the expansion potential that we have here at Detour. As you know, we have a track record of delivering improvements at Detour. And so we continue to — we continue on the journey to generate additional value at the site by as Ammar said assessing the potential to achieve 1 million ounces on an annual basis.

And this potential comes in the form of two main projects. As you know, it’s increasing the mill capacity but also assessing the underground potential. So prior to the transformer incident, Detour was in line to achieve 27 million tonnes this year at 2023. And the mill availability was hovering around 92%, which was the targeted rate for 2023. Now we’re expecting to be closer to 26 million tonnes for the full year 2023. Having said that, though, the team continues to focus on delivering 28 million tonnes per year by 2025, if not sooner. And we’re also working on other opportunities, as I’ve mentioned in prior calls before, to further optimize the mill and look at the opportunity to go beyond 28 million tonnes a year. And at the same time assess the underground potential.

We still expect to report the results of the underground study in the first half of 2024. And one last thing on the exploration side. With respect to the underground deposit during the quarter as Ammar mentioned, we completed tighter infill drilling within the underground deposit in two areas. And this has confirmed good continuity of the zones which supports the underground mining plan that we’re currently developing. So good news there. And with that, I’ll pass the call back to Dominique to provide some highlights on our Nunavut operation.

Dominique Girard: Yes, thank you Natasha. For Nunavut, a strong quarter also over 200,000 ounces, produced in Nunavut. And looking forward mill expansion is on track on schedule on costs to achieve the expansion going to 6,000 tonne per day by the end of 2024. Meadowbank is all currently working on a scenario to potentially extend the mine life by doing a push back to potentially go over 2027, so that’s another good news. And on Hope Bay, there’s no bullet point on that. But on Hope Bay, is going to talk about the good interesting drilling results where we might be in a position one day to see another long life mine asset in Nunavut with that project. That’s interesting. On the next slide at Kittila, during the quarter, the production shaft is now commissioned so that the new shaft in ready to do work is ongoing.

And we already see some improvement or benefits from productivity and on cost using that shaft. And concerning the permit, as Ammar mentioned, we’re expecting to receive news in the coming days. And that I will ask Natasha to continue to close the operational update for Australia and Mexico.

Natasha Vaz: Thanks, Dom. Moving to Fosterville, we saw lower production as a result of lower grades that were sequenced but also a result of lower tonnes mined. The lower tonnage, is a result of a redesign of our primary ventilation system which requires additional development. The redesign of the ventilation system will help us derisk not just the construction of these raises, but also, more importantly, the operation in the long term to sustain the mining rates in the lower Phoenix area in future years. So the priority has become the development of this infrastructure, which has resulted in the delayed extraction of lower grades stope this quarter. We expect to achieve similar production levels in the fourth quarter as we continue to prioritize this development on the primary ventilation infrastructure.

As a whole, though, Fosterville remains an incredible asset as it’s an extremely low cost mine on a per ounce basis, with an excellent hardworking management team on site. And then, just over to Mexico, we have seen some strong operational performance and stable production in Mexico. The team in Mexico have also done a great job focusing on operational improvements. And as a result of that, we see reduced unit rates when compared to prior years. And with that, I’ll pass the call over to Gi.

Dominique Girard: Thank you, Natasha. And good morning, everybody. First of all, I would like to mention that we intend to provide a more thorough exploration update in January to streamline a bit the reporting of the operation, so a specific press release will be dedicated to exploration results. So we’ll now go over just a few specific exploration highlight starting with Kittila, where our recent drilling returns some very interesting shallow intercepts 200-meter close to these direct calls. So we step into to a structure that is basically located 150-meter to the east of the mean ore body that was previously under explore, where we got an interesting result of 11.8 grams over 9.9 meter. So we intend to, or we are right away have undertook some follow up drilling on that to better understand the potential in that parallel structure.

And will continue to report let’s say on progress at the upcoming press release. Moving on to Fosterville, our exploration is continuing in both the Robbins Hill and Lower Phoenix area investigating in the Lower Phoenix, the extension of the Swan and Cardinal structure. The Cardinal structure is a split in the hanging wall of the swamp structure. And recent results continue to return very interesting value up to 10.8 grams over 10 meter approximately 190 meter down plunge of the current reserve. So continuing to demonstrate that the lower Phoenix area and now Cardinals play remains open to grow at depth. And finally moving to Hope Bay. We continue to drill with a focus through the second and third quarter in the Madrid area, as Dominique mentioned, and we’re very pleased with the continued the results we continue to see in that area south of the Suluk below the Patch 7.

We continue to consistently see well mineralized visual intercept with a lot of visible gold occurrences which is quite encouraging. And with the recent result, returning up to 15.9 grams over 4.6 meter at 600-meter depth demonstrating that in that entire area, south of Suluk and below Patch is all staying the extension of the deposit and the deposit remain open at depth and to the south. So we see those recent results as a testimony of what we saw in terms of exploration upside when we when we took over Hope Bay. So this will continue to be the focus of our exploration activity moving forward. And we intend to report the more results on Hope Bay at the upcoming press release. And on that that will return the mic to Ammar for closing remarks.

Ammar Al-Joundi: Well, thank you everyone. And it’s our job as management to focus on the details. We watch every dollar we watch every ounce and we sweat the small stuff and you should want us to do that and we do it. But at the same time, it’s important to step back and look at the big picture and in the big picture, a very solid operating year so far, a lot of hard work to control costs and a lot of progress towards foundational investments in Detour, at Malartic, at Kittila, at Macassa, and throughout the Abitibi throughout all of our mines. We are going to continue to focus like a hawk on creating value per share. That’s all we care about. We don’t care how big we are. We just care about are we responsibly making money for our shareholders?

And our strategy to do that hasn’t changed in over 60 years, which is to be in the best jurisdictions in the world, as measured by geologic potential and political stability, to try to be the best miner in those parts of the world where we focus by being the best member of the community, by being respectful to the environment we’re in, and by building competitive advantages on the ground, knowing the contractors better the suppliers better the permitting process better. And being the employee of choice. We do think we are uniquely positioned that way. And we’re going to continue to play off of those strengths, because we think it makes sense. And again, always, always focused on strong financial returns on a per share basis, strong balance sheet, consistent dividend payments.

That’s, that’s who Agnico has been for over 60 years. And that’s who we’re going to be for the next 60 years. And before I open it up for questions, I’ll just make one more comment. That’s not on the presentation, but it’s close all of our hearts. As you might have noticed, from the press release, we’ve announced that Sean Boyd will be transitioning from Executive Chair to Chair at the end of this year. And I want to make two comments on that. The first comment is, that was always the plan. As most of you will remember, when Agnico merged with Kirkland, Sean Boyd was going to be the Executive Chair, to help through the transition to guide us through the combination of the two companies. And he said at the time, and we said at the time, as soon as that’s done, he’ll transition out of Executive Chair into Chair.

And I must say I think all of us would agree the integration went even though we thought it was going to go well went probably even better than we expected. It’s completely done. And so this is just the natural thing that we said we were going to do. And we’re doing it. The second point is just how grateful all of us are for Sean. I can tell you personally as the new CEO to the job, Sean support, not just to me, but to all of the senior management in the company was invaluable. Some very good strategic advice. And we are delighted that while he’s transitioning from Executive Chair to Chair, he is going to continue to be involved in the company. He’s — he spent, what, 30 years, 39 I should know that 39 years here, and he’s not going anywhere.

And I can again tell you that myself and all of the management are delighted to continue to have him with us. So with that, thank you all for your patience. And why don’t we open it up to questions?

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Mike Parkin – National Bank. Please go ahead.

Mike Parkin: Hi, guys. Thanks for taking my question. On the Slide 16 it’s the cross section of Kittila this parallel mineralized structure, was that something you guys knew what was there is that bit of a positive surprise? And do you have a sense of its potential magnitude like, have you hit it before and the grades weren’t really interesting and now suddenly near surface they are. Just any additional color you give on what the potential upside there could be because it’s obviously pretty interesting with it being so close to the surface with a hit back good.

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Q&A Session

Dominique Girard: Yeah, hi Mike, it’s Gi. So we now we’ve been reviewing. We reprocessing some historical data in the close version [ph], we realized there was a couple of front intercept. And obviously the main target that’s always been the main ore body the main lands at the back. And then we said well, there’s still some opening the guy came to me with some thinking on all that, that plays is taking off to the south and then getting further away to the east. So those were whole, were aiming to address a few of those historical intercept that were, discarded back in the days where we were mining in the main break. And now it’s opening up a new target area. So we don’t know yet how big it will be, but we intend to conduct more drilling during Q4 and next year.

And obviously, as you mentioned, it could provide some additional flexibility being so close on surface and go from infrastructure. So quite interesting. And I’m having the same question than you do on. Though, while big it could be and what was the grade? So very interesting.

Mike Parkin : And just in terms of what do you kind of throwing in terms of resources and in terms of rig count?

Dominique Girard : Sure. I’m trying getting you. All right. And we’re going to have a couple of rigs that we’ll be performing maybe one or two rigs from surface, very shallow. So we can do a lot of drilling at that those kinds of depth. And we’ll see, we’re currently looking at the budget for next year. And obviously, based on the first follow up drilling program, we may intensify the drilling activity on that, depending on how results will pan out.

Mike Parkin : Great, thanks very much, and congrats on the good quarter.

Dominique Girard : Thank you, Mike.

Operator: Your next question comes from the line of Anita Soni from CIBC World Markets. Please go ahead.

Anita Soni : Hi, good morning, everyone. And congratulations on a good quarter and being able to reiterate your guidance at the feet in this environment. My question was with regard to the lay back that you said you were talking about potentially doing at Amaruq? Could you give us a little bit more color on what you’re looking for? And how many years that can potentially add to the mine life?

Dominique Girard : Yeah, we didn’t find yet another new open pit. But what we see is potentially extend, do a push back at the IVR Pit. So we know that the underground resources are there continue to provide ounces for a while. But we need to find a pit and now the team have looked back to the resources and how could we do a push back, to add a couple of years maybe to the operation, this is what is in play right now?

Anita Soni : Okay, and presumably be higher strip than the original strip of the pit, which I think was around eight or nine.

Dominique Girard : No, what year it was kind of seven, six, so not too bad.

Anita Soni : Okay. All right. Okay. And then, in terms of the sort of the Fosterville development work, could you and Natasha talked about it a little bit, but could you just give us an idea of how that might — what thinking are you — what are you thinking there in terms of the development work going into 2024? And how that could potentially impact the guidance. I know you had about 30 or 40,000 ounces that potentially could have been added in 2024 with the approval of the higher throughput rate. But would that be sort of taken out of the mix with this development work that you’re doing?

Natasha Vaz : Hi, Anita, it’s Natasha. But we, we are doing a little bit more development with respect to the ventilation. And so as a result of that we have delayed some of our Stopes out. We along with those Stope 2 also have to do additional development that comes along with it. So we are in the process of resequencing everything with respect to online plans, starting now into the end of the year. So we’ll provide a little bit more guidance on that towards the end of the year.

Anita Soni : All right. Thank you.

Operator: Your next question comes from the line of Josh Wolfson from RBC. Please go ahead.

Josh Wolfson: Yeah. Thanks very much. Having heard some of the positive commentary on the Odyssey throughput ramp up underground and the comments as well about the positive grade reconciliation from the internal zones. I’m curious to understand a bit better maybe why the volumes in terms of the production output are still quite light and tracking sort of below with the 50,000 as guidance was for the year.

Dominique Girard : Yeah, Josh. Dominique speaking. When we did the — we had the paste plant commissioning, we had challenges with the pipe underground. So we had to change the pipe that we receive were not the elbow were not in good shape. So we had to replace over 100 of those available when we started. So that brings delay to do paste backfill and then as an impact also on the — that is how fast we were able to mine. But other than that there’s no there’s no other challenges. And we’re going to finish the year. We’re planning to do 50,000 tonne, we’re going to be close to 40,000 tonne coming from the Odyssey South. Yeah.

Ammar Al-Joundi : And paste backfill maybe is performing very well. Now Dom, maybe you can comment.

Dominique Girard: Yeah, the paste backfill, the team is very happy because we’re beating what we were expecting. So we’re able now to recover from that and to be we’re back on track on paste backfill.

Josh Wolfson: Got it, okay. And on the cost side of things, one of the tailwinds, the company has benefited from this year has been this hedging program. Is there any way that the team can quantify maybe, what that benefit would be maybe as $1 per ounce figure so we can better understand the cost structure going forward?