Feb 19, 2010
Operator
Ladies and gentlemen, welcome to the Agnico-Eagle Mines year end 2009 results webcast conference call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session with instructions provided. (Operator Instructions).
I would like to remind everyone that this conference call is being recorded today Thursday, February 18, 2010 at 11 am Eastern Time. And I would now like to turn the conference over to Mr.
Sean Boyd, Chief Executive Officer. Please go ahead.
Sean Boyd
Thank you operator, and good morning, everyone, and I know it's a busy day for all of you. There is a number of calls and releases coming out.
So, we'll move through our slide but what we wanted to try to do is just give you an overview of the quarter and how positioned us going forward. As you know, we continue to optimize our newly built mines.
We've seen a significant improvement at many of our operations which has been reflected in very strong Q4 results. However, we continue to optimize going through 2010 and we are also very focused on commissioning the newest mine Meadowbank and that commissioning process is underway.
But as we optimize the operations, we continue to analyze, we continue to study several internal expansion opportunities and we'll be talking about those as we move through 2010 and they have the potential to increase our output over the next several years as we move through this five year phase of continued growth and what that will do because there are internal opportunities that can be funded through internal resources that will allow us to drive our per share metrics production per share and ultimately cash flow per share. But also another area of focus for us is exploration.
There is a 40% increase as you know in our exploration budgets in 2010. We're focused principally on converting more resource into reserves.
We saw a big bump in our resource and we're also focused on extending the resource outlined at several of our deposits. So, from a highlight standpoint, strong earnings, strong cash flow in the quarter driven by record quarterly production and very good cash cost which came in below $300, also we saw the reserve in resource position grow to a combined $30 million.
So, we'll move through the slide and then we'll leave some time to hear the questions that you may have. In terms of the strategy, we've talked about this many times.
There is no need to change as it worked for us. It is still a very much a growth story in production and reserves.
So in 2010 we see our production moving to over the million ounce mark. We talked about the expansions through 2014; lease expansion gives us the potential to add another 50% or so to our output.
Our reserves we expect to continue to grow through 2010 as we work on converting the bigger resource, which was the result of our drilling in 2009. Our strategy to grow the company from an acquisition prospective remains the same, looking at earlier stage opportunities and it's a great position to be because we're not feeling compelled to rush in and we're not feeling the need to do something because we've got growth right out through 2015 from the internal projects.
So anything we would be looking at now, we'd be looking at in the context of coming into production 2015 and beyond. Our cost continue to be well below the industry average and as we grow our output, our guidance, cash cost guidance is around the $400 for 2010, but still well below the industry average.
And our financial position now given our borrowing capacity under the current facility our cash position and our cash flow, growing cash flow gives us the internal resources to generate increasing productions through the build-out of the internal expansion opportunity. In terms of the transformation of the company, as you know we started few years back as a single asset regionally focused company with an ambition to grow to a multi-mine international company by building five mines at the same time.
We're at the end of that phase as we commission our new big Meadowbank mine and as you know that's going to significantly increase our output in 2010 and put us in a position to work on optimization and expanding the five new mines that we built over the last few years. Our exploration and budget has increased dramatically over the period and we expect to see a continued focus on exploration with sizeable budgets because our deposits are large surrounded by large land packages that we own a 100% and are still good potential to grow those deposits.
Operating results in particular for standout record production, the Abitibi mines are performing well; Goldex had a record quarter and has completed construction on its surface crushing infrastructure. So in a good position to ramp up production.
Again, Lapa had a good quarter, still room for improvement there, so we can still do better at that operation. Kittila had a record quarter; we're still optimizing that mine from the recovery and throughput perspective, so we're looking for better performance there.
At Pinos Altos also its gradual ramp up. We have a solution to the issue around filter presses which are adding capacity, we'll talk a bit about that and Meadowbank, we're looking for contribution, future quarters as we're in the commissioning phase now, and we hope to have our first pour before the end of this month.
Moving on to the earnings, a good solid quarter, in terms of earnings above consensus expectations because of the good production in cost performance. Cash flow over $50 million, but we are starting to see the benefits of the investments in these new mines in terms of building our cash position which will fund our internal expansions.
Our balance sheet despite having made a major investment, there are series of major investments over the last several years, they are still strong with over a $160 million in cash at the end of the year. $160 million in available credit and rising cash flow and rising net free cash flow as we move forward and as Dave Garofalo has talked about, we're looking at terming out some of our debt facilities going into the debt market and that will give us further financial flexibility as we move forward.
In terms of the reserve growth, we saw a sizeable jump and in the overall reserve and resource envelope, our reserves had a record 18.4 million ounces with over 11 million ounces of resource, so close to 30 million ounces combined. We will see further conversion of that resource in 2010 into reserves and we are sticking with our target over reserve by the end of 2010 of 20 to 21 million ounces.
In terms of reserve per share on the next slide, we see some of the best growth in reserves per share in the industry. This shows you how difficult it is to grow reserves on a per share basis.
We've been successful doing that because we bought properties early and they have grown and rebuilt successful mines from those deposits. Over production point of view, our production profile remains as guided in December and as we said many times we are looking at several expansion opportunities at Kittila, Pinos Altos and at Meadowbank and we can see being able to do better than our guidance in terms of production through 2014 with growth in 2012, '13, and 2014.
Per share basis we move up into the leadership position in terms of growth per share based on buying assets early and building production platforms on those assets. From a cash flow per share perspective and net free cash flow, again, we move into a leadership position as we complete the build out of these five new mines Capital expenditures, the large investment to build the five mines is behind us, there is still a bit more work to do in 2010 as we complete construction at Meadowbank and commission that mine and work on expansion scenarios on Creston Mascota in Mexico but the CapEx falls off dramatically in 2011 and beyond and that's what we generate.
Moving to the operation, specifically to an update, a status update on the various mines from Q3 to Q4 at LaRonde tonnage increased dramatically from 6500 tonnes a day up to almost 7000 tonnes a day, we saw that reflected not only in output but also in cost per ounce, as Goldex is the key driver there was a difference in the grade as we explained we are in a bit of a low grade cycle in Q3 back into more of a normal cycle in Q4 and as a result, we had record production. At Lapa we see steady improvements in recoveries, it gets better in throughput that resulted in good production and also an improvement in cost, we can still be better from a recovery standpoint, we can still do better in terms of tonnage through the plants and that should be reflected in more outputs in 2010 and a better unit cost on a per ounce basis and we've seen a very good start in 2010 for Lapa right through to January and through to February.
At Kittila, we've seen significant improvements in the throughput from 1900 tonnes a day to over 2700 tonnes a day. We've seen a significant improvement in recovery.
As a result, we have record productions, that lowered unit cost dramatically in a per ounce basis and we also had much better cost performance at the mine site with mine site costs at EUR46 per ton down from EUR78 per ton in Q3. At Pinos Altos, we also saw as we started to commission that mine which went into production at September, the ramp up in the throughput and better grades going through the plant.
As a result, we had more production not quite as much as we'd hoped but we've got a plan to address the issue that we've had at the filter presses and we'll talk about that in more detail in a minute. At LaRonde steady performance, great cost per ton performance on budget, fourth quarter actually $69 per ton which was below budget, ton process for the year essentially on budget and so, good steady output, level developments going as planned.
We've got the underground program remains on schedule for start up in late 2011 and our dilution on the lower levels has been in line and has come in as we expected it. So, we've seen no negative surprises there but reserve and resource group at LaRonde by about 5% its now 6.7 million ounces.
So that continues to be our flagship still a very big deposit and we will see increased output if we get the deeper infrastructure in place to access the deeper ore. Goldex, we talked about that one.
Record tonnage, now record gold production, cost per ton on target at $23 Canadian, development continues ahead of schedule, these new surface crusher has been operational since January and based on our advance and development, we are certainly in a position to do well here at Goldex in terms of being able to increase tonnage. So again, dramatic improvement and a very steady mine which has the potential to do better in terms of the facility to run more tonnage through the plant.
At Lapa, strong Q4 a good start to 2010 as we said in terms of ounce output. As the mines running as expected.
Mill recoveries in Q4 were at 80% so we are nearing a design capacity still from potential to do it bit better there. Getting a bit better on dilution we have seen two [stones] December we're at dilution around the 40% area; we are making improvement on the dilution side.
Kittila as we said record gold production about 35,000 ounces in the quarter recovery have improved, the mill availability more importantly also improved to 84%. We are still optimizing room for improvement on that, we have got 263,000 tons of ore stockpiled in a good position to achieve our guidance of close to a 150,000 ounces in 2010.
Our reserves and resources are flat at 6 million ounces, while our reserve position grew by 25% to 4 million ounces. We were focused on conversation on the reserves and as we move through 2010 with a $16 million budget, it helps to convert additionally resources to reserve and expand the overall reserve outline and good exploration outside of Kittila.
In terms of expansion potential, we are studying production rate increases we're still forecasting the inner position to make a decision on the production rate increases in early 2011. Moving on quickly to Pinos Altos, we do have a plan to improve our throughput, we had good performance here in February where we're running 3000 tonnes or better.
That is simply focused on mechanical availability; better operation within the existing filter tailing system but the permanent solution is to install additional filter capacity. We have ordered two additional filters, that will bring our total when those are installed in the third quarter to five filters that will provide us with what we think is additional capacity and we think that will be important as we studied the potential to increase throughput at Pinos Altos.
So that will be as we have seen steady improvement in Q4 or we've seen further improvement in Q1 and we expect to continue to see improvement up through the third quarter until we get the additional filter capacity in place and we are also working as you know on further expansion opportunities there on satellite deposit as well as looking at increasing the capacity of the plant beyond the 4000 tonnes per day weighted capacity. In terms of reserves and resources the total is 4.6 million ounces it grew about 8%.
We do have an active exploration program. We have been successful in making new discoveries there.
So there is from our prospective good upside at Pinos Altos. At Meadowbank as we said we're in the commissioned phase now in the plant based on where we are in that commission phase, we anticipate first gold pour before the end of the month, we anticipate commercial production in April, so in Q2 and so far so good there, we've encountered as we move through the commissioning process we've encountered, no major issues to date.
We saw a significant increase in the reserve and resource here to over 7.7 million ounces, that's about 38%. So still good potential to increase the reserve base through conversion of reserves and we're also looking at expansion scenarios here.
Likely, we'll be settling on probably 10,000 tonnes a day from 8500 tonnes a day but we're still doing some work on that. We'll have more news on that as we move towards the middle of this year.
So I'll leave it at that. Operator and we'd be happy to take questions.
Operator
Thank you. (Operator Instructions) Your first question comes from Tony Lesiak of Genuity Capital Markets.
Please go ahead.
Tony Lesiak
Good morning Sean, Dave, Ebe everyone. My first question is on Pinos Altos and on the reserve and resource statement.
Could you give me a sense of how much resource was associated with the new targets at Cubiro, Santo, Sinter and San Eligio?
Sean Boyd
Mark?
Sean Boyd
Essentially, that's where we found most of the ounces in 2009 and we're going to be exploring 2010.
Ebe Scherkus
We find (inaudible) on Cubiro and Sinter, and Cubiro is a bit complicate (inaudible)
Tony Lesiak
Was there any change in the Creston resource or reserve?
Ebe Scherkus
No.
Tony Lesiak
Nothing, okay. On heap recoveries, it looks like they declined in the quarter.
Can you comment on that and whether or not you're looking at any changes to the mine plant?
Tim Haldane
Well, its pretty early days, the lead cycle for this core is over a year, get anywhere close to stay.
Ebe Scherkus
Tim, can you get closer to the microphone, you are breaking up.
Tim Haldane
Okay. The lead cycle for the Pinos Altos heap leech ore is more than a year.
So, it will take us a year to get stable with our recovery and there is not a decline in recovery, there is just a change in the throughput. We have some throughput issues with lead ore and we have less tonnes going on with that and rest are being… This very past lead cycle for Pinos Altos heap leach is a little more than a year.
So, it will take a year to get the recovery stabilized and normalized, and we didn't see a drop in recovery, we saw a drop in tonnes going to the pad and fresh ore being leached and we have a little bit bigger inventory on the pad right now. We're not concerned about it.
Operator
Your next question comes from John Bridges of JPMorgan. Please go ahead.
John Bridges
I was just nitpicking really on Lapa. You're talking about the dilution but increased grind costs.
That's an interesting mix. Just wondering if perhaps Ebe had some explanation as to what's actually going on.
I'm just intrigued.
Sean Boyd
You are the grinding expert.
Ebe Scherkus
The grind cost is really but with the throughput currently we are in the last quarter we were not at 1,500 tonnes per day and we are currently at 1,500 tonnes per day. Its one cost related, typically presently the client is in good mode of optimization and the cost will decrease presently in the (inaudible).
John Bridges
Its related to the narrow vein is it more than anything else?
Marc Legault
I would say it's more related to optimizing the overall circuit and over the quarter we averaged just under 1,200 tonnes per day. We are currently averaging over 1,600 tonnes per day so the cost on the unit basis will decline.
So it's a bit of an aberration.
Operator
Your next question comes from John Flanagan of Fundamental Equity. Please go ahead.
John Flanagan
Sean in view of the much entire capital cost of building Meadowbrook, does the return on investment still seem attractive at these gold prices and what is the total investment now?
Sean Boyd
Well the total investment in terms of construction CapEx was about $700 million. We made the decision to build it and buy it when gold prices were $525 an ounce.
So the rate of return is higher now than it was when we made the decision to go ahead with that project. Also as we've seen in the recent reserve and resource update, we've seen a significant increase of over 30% in the overall mineralized envelope, up to now exceeding 7.7 million ounces.
We made a decision to buy it and build it; it was around 3 million ounces.
John Flanagan
So the ROI meets your standard?
Sean Boyd
That's correct, yes.
Operator
Your next question comes from Ray [Foss] of private investor. Please go ahead.
Unidentified Analyst
I simply wanted to confirm that your resource increases are coming from internal exploration as opposed to acquisition of exploration companies, correct?
Sean Boyd
That's correct. We spent about $60 million in exploration in 2009.
A good portion of that was on the existing property portfolio and that's where we saw the increase in their resource and the conversion of resource to reserve.
Operator
Your next question is a follow-up from Tony Lesiak. Please go ahead.
Tony Lesiak
Yeah, good morning. Another follow-up on the Pinos Altos.
The 5,000 tonne a day mil capacity that you're talking about, would that be available from 2011 on?
Marc Legault
Yes.
Tony Lesiak
So, obviously, there could be some changes in the guidance that you put out in December.
Ebe Scherkus
Well we will be in bit of a transition from the open pit into the underground, so that will be part of our expansion study. So, I think it's a bit too early to say that but definitely having the extra capacity available sooner rather than later is a plus.
Tony Lesiak
Okay. Any Ebe I got you the ramp up at Meadowbank, is it safe to assume that may be out of the 300,000 ounces may be a 100 comes in the first half, 200 in the second?
Ebe Scherkus
I would say that would be reasonable.
Tony Lesiak
Okay. And final question for David, there was an inventory adjustment of about $16 million on each of the mines to calculate cash costs.
Can you elaborate on that?
Dave Garofalo
Yes, there were three metals where we produced more than we sold gold, zinc and silver and essentially those are the inventory adjustments associated with the stockpiling or build up of inventory in those three metals.
Tony Lesiak
Okay, so there was nothing else in there?
Dave Garofalo
No, not really.
Sean Boyd
This is a follow-up Tony, on your question in terms of December update. What we hope to have based on working and analyzing several internal extension opportunity is to have a lot of that work done as we move into the fourth quarter so that we can incorporate it in that update and (inaudible) what these things like, Pinos Altos moving above their current rate of capacity of 400,000 tons a day, a potential new satellite zone that will go into construction in 2011 and production likely in 2012.
We need to work out the details, but it looks like its like the center. We'll have a good sense then of Meadowbank and its ability to go to 10,000 tons a day.
And we'll also have a good sense of where we're headed in terms of Kittila. We may not have all the final numbers, but what we are trying to do is to work through a timeline this year, where we need to make modest investments of $5 million to preorder some equipment ahead of announcing some updated production profile.
We can do that and get that in the pipeline sooner, rather than later.
Operator
Your next question comes from Steven Butler of Canaccord
Steven Butler
Question for you on Kittila. A nice reserve increase as you booked, and were sort of expected to book.
In terms of that reserve increase, is it justified or supported by an incremental capital cost for either shaft or just simply ramping down further, deeper? Thanks.
And how much?
Marc Legault
It is justified by ramping down. This is part of our trade-off study to over the long-term whether we can justify shaft.
So these reserves are just based on operating cost and extending the existing mine.
Steven Butler
So, normal course maintenance capital levels, nothing tremendous?
Marc Legault
That's how this is involved however at the current tonnage rate but we are evaluating significantly higher tonnage rates and if we do that then there will be accelerated development and sustaining capital would increase.
Operator
Your next question comes from Barry Cooper of CIBC
Barry Cooper
Question for Ebe or Tim if he's still on the line there. Just looking at Pinos Altos, I know the silver recoveries have been an issue there and knowing right from the get go, I think you're anticipating 48%, 50% recovery, but your gold recovery seems to have come up nicely.
Silver recoveries not so much, at least right now. I'm just wondering is that a situation where you focused on the gold and will now focus on getting the silver recoveries up or perhaps what we're seeing is that the silver recoveries are just a little bit more difficult than where it was initially anticipated?
Could you flush out some of the details there?
Tim Haldane
I think it's fair to say we have been focusing on gold recovery and also we're running the mill right now with a little bit lower cyanide in the late circuit and to make a long story short that's to help us out with our filtration solution or the pulp chemistry and the filtration. So we shall see improvements in the silver recovery long-term and this hasn't been a huge focus for us early.
Operator
Your next question comes from Chantal Gosselin of Sun Valley Gold. Please go ahead.
Chantal Gosselin
I noticed that at five of the six assets, the reserve decreased but the grade increased and the reason provided is higher projection for operating costs, which presumably increased the cutoff grade. Could you share your assumptions in cost that you were used for calculating those cut upgrades and are they different from your last guidance?
Ebe Scherkus
I can touch on just internal and then Marc, you can help me with that. I don't think your statements of the five mines is entirely correct.
If you look at Goldex, we maintained the reserves at LaRonde. I think we were down 3% and the upside potential on LaRonde is at depth and until we get the development in place then we will be able to drill more.
I think so people on the reserves went up at Meadowbank they were flat. So I think the only place where we had issues with the reserve statement were at Lapa and at Pinos Altos.
And at Lapa, yes the cutoff grade did go up because of cost pressure, higher cost because of significantly higher ground control than what we had originally planned for in the feasibility but also when we definition drilled some of the zones at depth, we found them to be too irregular and therefore did not meet our criteria for mining also with respect to Pinos Altos the western part of the Santo Nino pit that tended to be significantly more irregular than we had and disjointed them what we had planned originally. So this material tended to be lower grade and therefore once again did not make our cut off projections.
So maybe Mark you can add more color to that?
Marc Legault
Yeah, its in effect of a large part as when you look at the tables the differences is LaRonde is only natural I mean we produced, we extracted almost 250,000 ounces of rock to produce that 225. So there was at LaRonde we are not seeing any increases in the reserves area with its depletion.
As a matter of fact it only depleted by 125, so we actually got more ounces back despite of lower base metal credit. So, you are rightly either Lapa is the key factor, Pinos Altos is less than 5% decrease.
So, watch to the rest of them.
Chantal Gosselin
Ok. I guess I should have rephrased my question.
Five of the six were a decrease or flat but if you look at the comment at Lapa and Pinos Altos and Meadowbank, seems like you have used a higher cutoff grade. Is the operating cost projection used in those cutoff grade, is it different from your last guidance?
Marc Legault
I believe that Ebe had essentially know we've guided that in December.
Chantal Gosselin
Ok. So, its all there.
The costs per tons were pretty much the same as your last guidance?
Marc Legault
That is correct and then I can also add to that, part of the sort of internal question that we have are there is lack of historical production data and cost data say at the Kittila, even the Meadowbank, and the Pinos Altos and the three Abitibi mines were starting to get some historical cost data and performance data. So it’s a lot easier to calculate those cut-off rates.
So there is a bit of a question mark on the other deposits and we feel as Sean mentioned we can do better and we expect going forward to be able to lower some of those operating cost and to be able to perhaps lower the cut-up rates but in the interim we are tending towards a more conservative position.
Operator
Your next question comes from Greg Barnes with TD Newcrest.
Greg Barnes
I was wondering where recoveries stand at Kittila now. I believe you're heading into a shutdown in March.
And also what you plan to do during the shutdown?
Sean Boyd
Perhaps you can add a little bit more color to that of the shutdown
Ebe Scherkus
Yeah first of all on the recovery if we just look 2009, the first quarter we are 28, second quarter at 49 as of third quarter, first 28, 49, 64 and third and the fourth quarter at 76 in December, we did 78.6. So we're recovery is going on a good curve.
Presently, we achieved some days and consecutively over a week and more than 1 time over 80% and 83%. Now we just want to have a more stable approach there and in the first quarter we will do some more tests to bring other kind of stabilizer inside of the other play.
We cannot give anymore detail. This is a new [chemical] and that we have some results that we expect to the more stable operations.
But at least we're able to do the demonstrations that we are able to achieve 80%, 83% gold revival.
Greg Barnes
Where is the chemical being added?
Unidentified Company Speaker
Sorry?
Greg Barnes
Where is the chemical being added?
Ebe Scherkus
We add it with the seed?
Greg Barnes
Add it with the seed? Okay.
Ebe Scherkus
Before its shutdown, it’s a long haul shutdown or we will have to go at least once per year in the other place and at the same time we will work on the oxygen pipe for the oxygen distribution. So in the normal inspection, it will be in March or if we can postpone, it will be in April.
Greg Barnes
I thought the shutdown was going to be a bigger maintenance shutdown to be replacing some components, pumps, pipes, things like that. But it doesn't sound like that.
Ebe Scherkus
We'll change some (inaudible) but we had everything and normally, that kind of shutdown it will be roughly a week.
Greg Barnes
Roughly a week? Okay.
Just pushing gears to Dave, the tax rate at 2010 at 40% seems kind of high.
Dave Garofalo
It'll probably be in the 35% to 40% range. It should crank down overtime as we get more income from Finland and Mexico which had lower statutory rates.
And probably over the long-term 30% to 32%.
Greg Barnes
So when would that kick in? In 2011?
Dave Garofalo
Probably 2012, 2013.
Greg Barnes
That's probably. Okay 30 to 32.
Okay Thanks Dave.
Operator
Your next question is a follow up from John Flanagan of Fundamental Equity. Please go ahead.
John Flanagan
Sean I wonder now that you've seen the light at the end of the various tunnels, whether it is time to crank up the dividend somewhat. What's your attitude on that??
Sean Boyd
Well, we paid one for 28 consecutive years which during 10 years has not been easy. So, we are certainly pretty exposed to a dividend.
We set consistently during the building phase once we came through the building phase that we would look at increasing that dividend. So the next time that we would considering that would in December as we put together our revised mind plan which we hope will incorporate additional expansion opportunities in growth and throughput.
So, we are certainly in a good position to be able to do that and given our track record of paying one for 28 years it shows that its something that we pay attention to and would look to increase at some point.
Operator
Your next question is from Anita Soni of Credit Suisse. Please go ahead.
Anita Soni
Could I get you Dave, to elaborate again on the inventory adjustment? I'm just having a little bit of trouble reconciling my cash costs for LaRonde.
Dave Garofalo
Yeah, I mean we sold 5,000 ounces or we produce 5,000 more ounces of gold and sold. We produced about 2,000 tons were sold more zinc than we sold and we produced I guess about a 100,000 ounces more silver than we sold and those aggregate when you acquire the price expansion for those due to an inventory adjustment in order to reconcile from your cost of sales on the income statement due production cost per ounce.
Anita Soni
And you guys quote production cost of sales in terms of production rate?
Dave Garofalo
Our cost per ounce are on the production basis, whereas our realized prices are on a sold basis. Perhaps we do have to do reconciliation from the income statement under SEC rules.
Anita Soni
And I don't know if you can let us know but what are the TCRCs running right now at?
Ebe Scherkus
For 2010 its not zinc expectation on the market I will see 270 within we expect would have been 275, the base at 2514, that’s 7 minus 4 and for the copper I would say a little bit lower than 50 and 5% or 48-47.
Anita Soni
Could you say what the zinc once again?
Ebe Scherkus
275 days, 2500.
Operator
(Operator Instructions) Mr. Boyd there are no further questions at this time, please continue
Sean Boyd
Thank Operator and thank you very much everyone if there is any other questions offline; please feel free to give us a shout. Thanks once again
Operator
Ladies and gentlemen this concludes the conference call for today, thank you for your participation. And you may now disconnect your line.