Oct 24, 2013
Operator
Good morning and thank you for standing by. Welcome to the Agnico Eagle Mines Ltd.
Q3 2013 conference call. (Operator Instructions) I will now turn the conference over to Mr.
Sean Boyd, please go ahead.
Sean Boyd
Thank you, operator and good morning everyone and thanks for participating in our Q3 conference call. Just to be forewarned this presentation does include some forward-looking statements and future estimates and that's in our disclaimer on our presentation.
Just in terms of key operating highlights, as we have been saying we did expect our second half to be a stronger half and a first half in terms of production and also on the cost side. And we saw that with our Q3 results, where we had record quarterly production of almost 316,000 ounces of cash cost, a little less than$600 an ounce, the key drivers there were certainly Meadowbank, which had record production of 133 ounces, very attractive cash costs record low of $623 per ounce.
Not only did we have higher grades at Meadowbank, we also saw about a 10% increase in throughput, so the team has done a good job there in terms of managing that asset and trying to maximizing the asset. We also had good steady contribution from a number of our mines, including Kittila, which set a record in terms of production as they bounced back from the extended maintenance shut down in the autoclave in the second quarter.
As a result of the strong third quarter, we have upped production guidance from approximately 990,000 this year to 1,060,000. We've lowered the cast cost guidance, which was $750 per ounce down to $690 per ounce, based on the strong Q3 and the expectation that Q4 should be a good solid quarter.
Our in all in sustaining cost estimate is now $1025. And not only do we have a good quarter in terms of production and cash costs, we’ve also made some really good progress on our restarted Goldex, which is on budget and ahead of the original schedule and is in fact poured its first gold, and also at La India, which, again, is on budget and ahead of its initial schedule as well.
And we expect to pour gold there this quarter and reach commercial production levels in the first quarter of 2014. So just in terms of catalysts going forward, we're on track to achieve our 20% production growth that we laid out earlier this year through 2015.
We expect the grade to remain strong at Meadowbank in the fourth quarter and we're still doing our detailed budget on 2014. But based on what we're seeing, we see additional benches in our pits, which suggests that we will encounter-a higher-grade material certainly in the first half of 2014.
At LaRonde, we should have our cooling plant and system and ventilation system upgraded. The installation will be complete by the end of this year and commissioning in the first quarter.
So, LaRonde will start to see an increase in the grade as we blend more tons from the lower mine with tons from the upper mine. We will have a full year of production at Goldex, which will help 2014.And, again, we talked about La India, which is also a contributor for 2014.
We'll be able to provide more guidance and more color and more detail on 2014 and our guidance for 2015 and 2016 in February, along with a reserve and resource update with our Q4 results. In terms of our ability to generate cash in a lower metal price environment and just an indication of the impact, just the drop in silver price has impacted our cash costs by almost $50 an ounce.
And we've been able to offset that by making reductions in our operating costs and our exploration spending in 2013 amounting to $70 million. In 2014 as you know, we've already announced the decrease in our capital-spending plan by about $200 million.
We've also previously announced a reduction in exploration spending by $50 million. And in this press release, we just announced additional reductions in G&A costs and labor costs about $40 million, which is largely due to the restructuring of our benefit programs in the Company.
So we've been working hard at that. But really, the gist of all of that is to try to make our operations more efficient and more manageable, simply by trying to simplify the way we do business and the way we make decisions.
And essentially, we've had good progress in changing mindset at our mines and our employees have done a really good job in getting engaged in the entire process. And we've been able to set up a process that is engage the work force.
It's resulted in the generation of some really good ideas. The system allows us to capture those ideas and act on the best ideas and also to track the results.
So in February, we'll talk a little bit about some of the things we expect to happen in 2013 around these initiatives and we will see the impact as we move through 2014 on our operating results as we go forward. So the employees have stepped up and have become very engaged in how they can help us make our business better.
As far as the operating results, we talked about that, 316 ounces at cash cost of 591; a dramatic improvement from the first half and certainly the second quarter, where we had the extended shutdown at Kittila going forward. On financial results, based on those operating results, if we look at our cash generated by operating activities before working capital changes, it was a little over $150 million.
And that's with the gold price that was $400 lower. And so we've been able to adjust the cost side of our business and also add more ounces and increase the revenue side from our production base to deal with the drop in the gold price.
Our financial position – our net debt is around $800 million. We have a $1 billion available to be drawn under our credit facility.
Our maturities on our debt – the first payment isn’t due until 2017. It’s $115 million.
So, very manageable debt repayment schedule and good liquidity on the balance sheet. As we look out through 2015, we've talked about our ability to drive production growth by about 20% over that period.
That's essentially driven by LaRonde, driven by La India, and driven by the restart of Goldex. And 2014 likely what we're seeing at Meadowbank will continue at least into the first part of 2014, which could have a positive impact.
Our projected capital spending, we talked about that, down from an original expectation going forward of $600 million down to $400 million. And that just increases our financial flexibility in a volatile gold market.
I'll quickly run through some of the operations and then we'd like to open it up for questions. We’ve got our whole team on hand here in Toronto.
And I'm sure they're anxious to respond to any questions that you have. LaRonde, consistent ore production, more from the lower level, almost at 70% being sourced from the deeper mine in the third quarter.
The actual grade of 2.6-grams well below the reserve of 4.5. That begins to ramp up as we move into next year, as we gain more access to the lower part of the mine.
That's a mine adversely affected by certainly the drop in the silver price. Not only did we produce less byproduct as we transitioned to the deeper mine but we're also seeing lower than we had expected byproduct prices, particularly silver.
Lack of good cost per ton performance down 7% from the previous year and below the budget. So, a difficult underground mine – our team continues to do a good job managing in a tough environment, so good solid steady performance.
At Goldex, as we indicated, on budget; ahead of initial schedule first gold core has happened, commercial production this quarter. I think what's important for us going forward is to just understand a little bit more the potential additional investment opportunities we have at the Goldex property.
We have studies underway. We expect to complete those studies by the end of this year and maybe into early next year.
What we're looking to input into the studies is actual live operating data, based on the experience that we have as we restart the operations there. We're expecting costs per ton to be in the $39 to $40 a ton Canadian range.
That’s a key number that will drive our decisions around potential future investment there, so we need to confirm that. We're pretty comfortable with that number, given our experience.
It's a new mining method and we're using pace fill but we’re comfortable with that number. But before we decide on making additional investments there, we just want some operating experience under our belt.
At Kittila, we mentioned record production. Our throughput was up about 13%.
We did get the benefit of grade because we were some mining higher-grade blocks under the open pit. But I think what's important is a couple things.
We did bounce back from the maintenance shutdown very quickly. Recoveries were back up to speed within days, averaging 90%, which is extremely good.
Ability to increase throughput by 13%, so we're not just looking at, you know, where we can squeeze costs out of the system; we’re also looking at ways to increase throughput and add ounces to the plan and we've been able to do that certainly at Kittila. We expect and what we're seeing is some good, robust performance from the autoclave, which is something we thought we'd see after an extended maintenance shutdown, and we're working on the mill expansion of 750 tons per day.
That's on budget and remains on schedule for the middle of 2015. That Meadowbank, as you know, it was one of the key drivers.
Not only did we see we are grade but we also saw increased tonnage. We've increased steadily over the last year or so about 1,000 tons a day average increase in throughput.
So again, that's another operation, which has been able to look at ways to become more efficient and to optimize the infrastructure. They've done that successfully.
Their costs per ton averaged $82 – Canadian, which is also a good performance. It was not long ago that that mine's cost per ton was over a $100.
So, the team has done an extremely good job of managing the deposit. And they've actually put themselves in a position because of some good thinking, changing the mining plan to basically take advantage of some good grade, and that's what's resulted in an outstanding performance from that mine.
We're expecting to see some high-grade pockets in the fourth quarter and our expectations are that we should expect to see those during the first half of 2014. In Mexico, again, another operation which has seen about a 10% increase in its throughput through the mill.
So, again, in that optimization phase that certainly helped that operation in terms of generating cash flow. We're starting to get stronger contribution from Creston Mascota, which is expected.
It started up in the first half again. So that should get better as we move forward.
Costs have been good there. The costs per ounce has hurt by the lower silver price and we've been able to make that up through efficiencies and better throughput.
The shaft construction is on schedule and on budget. One topic of note now for Mexico, which impacts us is the tax proposal, which is out and on the table now.
Not unexpected, in terms of the fact that there was going to be a change in the tax regime in Mexico. It's a proposal that will likely pass in roughly the current form.
It will – in our view – definitely have an impact on people's decisions around investing capital in the country, and that's not a surprise. Any time you introduce you taxes and higher taxes, that's certainly, you know, has been impact in people's decision-making around investments.
As far as the impact on Agnico, it – well, our estimate based on the current proposal is that it takes our effective tax rate in Mexico up from what is currently 30% to possibly 36%. If you use spot gold prices and use a 5% discount rate, it likely has an impact on our NAV by about $130 million, based on the current proposal.
Just to put that in perspective in terms of our other operating regions, our effective tax rate in Quebec is in that 50% range. In Finland, good old Finland, it’s 20%.
They have done a good job there, and, you know, that it’s in the low 30s roughly. So you know, this is something we'll manage through.
We like Mexico as a place to do business. We still have a great formula, as seen in our ability to build La India and do it ahead of schedule and on budget and in a period of two years from acquisition through acquiring service rights, getting permits, doing engineering, and completing the construction.
But we thought we would outline based on the proposal on the table; the impact it has on our operations in Mexico. Just to summarize, the quarter was strong.
As a result, we've raised our guidance. We've, also, as you’ve seen, made changes and made some improvements in our – in the cost side of our business and also been able to improve our top line; absent the change in the gold price through more ounces.
We expect to continue to deliver in 2014 and meet the guidance that we laid out earlier this year for 2015. We've positioned ourselves with the broad range of skills in the Company to be able to be able manage budgets and new construction and exhibited that with La India Goldex.
The changes we've made in terms of generating more cash out of our operations has helped our financial flexibility And I just like to wrap up and talk a little bit about the strategy. There is no change in the strategy.
The strategy has worked well for us. It's been consistent over many, many years.
People ask us constantly about our acquisition strategy. It continues to be looking for those opportunities that have tremendous upside that we can get involved and help to realize that upside, based on our experience, whether its exploration or mine building, and those are the things we continue to look at as a company.
So really no change in how we're moving the business forward. We look forward to sort of providing an update in February, and that's when we'll have the benefit of having completed our 2014 budget.
We'll have updated our reserves and resources. We'll have a view on where we've been able to advance our projects.
There'll be an exploration update as well and we'll be able to provide guidance through the end of – on both production and costs through the end of 2016. Clearly, the gold price is something, which drives all of the industry.
Companies are transforming and moving forward based on a volatile gold price. We certainly been able to do that.
We've actually done a midyear reserve calculation at $1200 just to test the robustness of the reserves. So, we have been looking at, you know, downside scenarios, and we'll be able to share some of that in February when we pull all the numbers together.
So, Operator, I'd like to open the line up for questions now.
Operator
Thank you. (Operator Instructions) Your first question comes from the line of John Bridges with JPMorgan.
Please go ahead.
John Bridges
Good morning, Sean, everybody. Congratulations on the results.
Sean Boyd
Yes.
John Bridges
Just wanted to dig a little bit into Meadowbank. I know you're going to give a broader description of what's going on there with the year-end results.
But, you know, the disconnect between the actual and the block model, how much of the existing reserve resource do you think this could apply to?
Sean Boyd
Well, I'll turn that over to, Yvon.
Yvon Sylvestre
Well, a lot of the impact in the third quarter have come from (inaudible) or the pushback in portashe [ph] to the south. And the large portion in August and September on goose.
And we've had stronger continuity in the – at the operation depth that we're in that's the pit at this stage. And that's I think the – we haven’t properly recognized the extent of that super high-grade continuity across the – in the current block model.
So that will mean that over the next two or three quarters we'll continue to get some strong upgrade in that area. As far as the – on portashe [ph] side, we’ve – I think we're also dealing with more complex geological interpretation and folded areas in that area and we've just had stronger tonnage, and in some cases stronger grade as well.
So that has put a lot less pressure on the overall mining plan. And the team at Meadowbank has been able to increase productivity quite significantly during the year.
So all of these factors have meant that the mine plan is less – not – there's less pressure on the mining plan but also means that we've been able to put less margin on the [INDISCERNIBLE] to the plan and better grade through the mills. So, in essence in the short answer is the – that's where we're at.
John Bridges
And the proportion of the goose reserve, which could have this higher-grade material?
Yvon Sylvestre
At this stage, we'll probably come back with some of these numbers back in February when we have better information. We're probably going to do also more drilling over the next quarter or two to get better information in that area.
John Bridges
Okay, great. And as a follow-up, the CapEx for 2014 from 600 to 400, what projects are being – are they losing1 their capital?
And what impact is that likely to have, Sean?
Sean Boyd
Well, it was – as we explained in July, the largest reductions – and these were expected numbers, which we had basically communicated to the market roughly $600 million over the next several years. Or Meliadine, which went from roughly $120 million down to $45 million.
And the focus on Meliadine with the $45 million remains on the ramp. So we're looking to extend the ramp by about 200 meters.
That gives us better access to more of the [INDISCERNIBLE] zone, which is the highest-grade portion of the reserve. That's important information for us, as we update the feasibility study.
So we – by spending more strategically, we still keep the project on sort of a potential timeline for late 2018 or early 2019, if the board gives the go ahead before the end of next year. The other decline would be Kittila.
And that is just more of timing thing ultimately around shaft. We know with this deposit, it does tend to get better as we go to the north, in terms of grade, and in some areas, thicknesses.
So that really tells us that we need a shaft there at some point. We know that mining below 700 meters is that done more efficiently done through a shaft rather than the ramp due to haulage distances and the impact on cost.
So, there's a two-year window that we see in terms of having to commit to the shaft, to be in a position to mine below 700 meters. But those are the key things that we had flexibility in and we decided to pull back a bit on them.
John Bridges
Excellent. Okay.
Congratulations again. Thanks, Sean.
Operator
Your next question comes from the line of Andrew Quail of Goldman Sachs. Please go ahead.
Andrew Quail
Good morning, guys. Congratulations on a good quarter.
And I’ve got a couple of questions – firstly at Kittila. Just on the expansion, can you remind what the expected CapEx was?
And are you seeing any cost deflation with the lead items?
Sean Boyd
No. It's about $100 million and we're not seeing any sort of reductions in the lead items.
We would have placed those orders a while back. So, we're still seeing that on budget and on time.
But we'll be able to provide a fuller update in February so we're not seeing any significant cost savings so it will come in around $100 million.
Andrew Quail
Cool. And on Meadowbank – just obviously a good quarter and we get an update on the grades in February.
Do you think the highest through put level is sustainable from sort of the Q3 through the next few quarters?
Sean Boyd
Yes, it is. And they've really done a good job there because originally, 8500-ton a day operation.
And one of the key investments we made there was the secondary crushing unit, which has been able to get the throughput up.
Andrew Quail
And last – I’m sorry.
Sean Boyd
Also, the change in the mining plan to remove marginal ounces created the conditions by allowing us to eliminate a lot of waste development to feed the plant. And as we go forward, we also have the vault pit, which will also supply ore.
So, that's why we're comfortable with being able to continue at that production rate in terms of ton.
Andrew Quail
And last one, Sean. On costs, I know you've been talking about how they've come down over the last few quarters.
Do you still sort of any more low hanging fruit at the cost side of Meadowbank? Or are you sort of comfortable with flat costs per ton from here on in?
Sean Boyd
Yes. I think we’re looking at the low $80 per ton Canadian.
Certainly, the Meadowbank team was sort of first out of the gate in their program to engage the work force, and, you know, they did a really good job in laying out a fairly comprehensive program around efficiencies and we're seeing some of the benefits of that. As we said it went from sort of $100 per ton Canadian down to the low 80s but I think that’s – that’ll be would be a comfortable level going forward.
Andrew Quail
Thanks, guys, and congratulations again.
Operator
Your next question comes from the line of Josh Wolfson of Dundee Capital Markets.
Josh Wolfson
Hi. Good morning, guys.
Just want to ask on Kittila, the grades were higher this quarter. Is that expected to continue?
Or is that a function I guess of higher proportion underground versus the open pit, which I guess, is closing down soon?
Yvon Sylvestre
We'll continue to mine slightly higher than reserve grade in Q4. We've taken some [INDISCERNIBLE] mining recovery program.
We've got two stopes that we're taking in the quarter and we'll have another stope in Q4. And we're planning to mine two of those next year in the summer period.
But plan for next year with reserve grade basically at Kittila after Q4.
Josh Wolfson
Okay. And in terms of the seasonality I guess in Mexico, we had heavy rains in late September.
Would you expect to see an influence of that for the leach pads at Creston Mascota or for I guess the La India startup?
Yvon Sylvestre
No. I think the rainy season is behind us now.
And we didn't have any big impacts from that. And La India is in commissioning and wasn't affected.
Josh Wolfson
Okay. And then just last question in terms of your budgeting outlook, which you mentioned you're going through now.
How are your viewing your dividend in light of the debt balance of $1 billion and you’ve talked about $1 billion of capital required? Sir, how do you view the tradeoff today as standing such a high payout and managing the business conservatively for the future?
Sean Boyd
Well, we review that on a quarterly base with the Board, and we've certainly seen this quarter our ability to generate more cash flow both from more ounces and getting our costs down. You know we're still going through our 2014 budget.
We're still going through our capital allocation process. Our teams are still formulating investment opportunities and proposals for us.
And for us, ultimately, it comes down to the right balance and we successfully balanced that for 31 years. We've been able to pay a cash dividend for 31 years and I think we’ve been able to get the right balance between dividend, exploration, and reinvestment in our property, and that’s something that’s ongoing.
The key driver is clearly the gold price and that's something we don't control. So that's the basis for making those decisions, as well as what opportunities do we have whether internal or external.
And that's just an ongoing process and we continue to do that and talk to our Board about that on a regular basis.
Josh Wolfson
Sir, in that case, is it fair to say if you see your organic growth projects as being attractive shaft expansion for Kittila you would consider I guess lowering the payout to achieve some of the growth earlier than the current plans?
Sean Boyd
I think it's too early to comment because I think you have to make those decisions in the context of all of the information at the time, which include the gold price, which include investment opportunities, which include input from the exploration team, et cetera, et cetera. So, information flow changes and inputs change and we sort of make the changes as we get the information.
Josh Wolfson
Thanks so much for taking my questions.
Operator
Your next question coming from the line of Mike Parkins [ph] of Deijading [ph]. Please, go ahead.
Unidentified Speaker
Hi, guys. Good quarter.
A couple of questions on Meadowbank. In terms of the block model, what did that indicate for the grade nor the third quarter?
Yvon Sylvestre
That was quite a bit below. I don't have the exact number but we were most likely about a gram per ton lower on the reserve.
Unknown Speaker
Okay. And then on the revised guidance I assume that's based off the block model, not factoring in positive grade reconciliation for the fourth quarter?
Yvon Sylvestre
We will get stronger grade reconciliation in Q4 like we've said. And we're factoring some of this re-reconciliation within that revised guidance.
Unknown Speaker
Okay.
Sean Boyd
I will just add to that, Mike [ph], we were constantly upgrading our forecast almost on a monthly basis at Meadowbank, as we were getting sort of results of actual mining. And we do know that initially, our forecast was probably 20% or so, 25% above the reserve grade.
And we ended up achieving more than that due to the upgrading. In some cases, we saw visible gold, which clearly was not in the block model.
So, it was – it's just been an exercise of sort of constantly keeping up with the information flow day to drilling and mining experience.
Unknown Speaker
And remind me again, do you have a gravity circuit there to take out VG?
Sean Boyd
Yes. Unknown Speaker Yes, okay.
And on the lower grade stockpiles, can you give us a sense of like what percentage of the mill fee came from the stockpile in Q3 versus Q2 or a year ago?
Yvon Sylvestre
I don't have the exact number with me today. But essentially in Q3, very little.
In Q2, there was probably somewhere around 100 to 150,000 tons.
Unknown Speaker
I think that's it for me. Thanks very much, guys.
Sean Boyd
Thank you.
Operator
Your next question comes from the line of David Haughton with BMO Capital Markets. Please go ahead.
David Haughton
Good morning, Sean, and thank you very much for the update. I've got a couple of questions for you.
In the quarterly, you mentioned that you had done some impairment testing and the assets came through. At what price did you run those analyses at?
Sean Boyd
The auditors used the same price they used in the July update, which was around $1400 gold. And the auditors generally will choose a number, which is really a consensus of price estimates from major banks.
And so at the year-end, they will, you know, do that analysis again and decide what the appropriate gold price will be and we'll use that as the basis for analysis.
David Haughton
Right. Did they give any sensitivity as to what might happened if they moved it down more like to $1200 mark a number of your peers have run their impairment tests at?
Sean Boyd
No.
Yvon Sylvestre
No.
David Haughton
Okay. I guess we'll see on that.
At the – the next question is looking at the unit costs, I was happy to see lower unit costs, particularly at Laper [ph] and Kittila. And Laper [ph] quite a marked production.
Can you see both of those as having sustained lower unit costs?
Yvon Sylvestre
Well, the great efforts there with the management team on the cost structure. I think we are moving to that Lapers [ph] or the KPIs as we move at that, we'll also increase a bit.
But if the efforts that have been done are quite sustainable. But it will vary as to what elevation we'll be mining in the future in the mine.
David Haughton
Okay.
Yvon Sylvestre
And we'll update that in the guidance in February.
David Haughton
Right. And over in Finland, what observations would you have about the unit costs there at RAT71 [ph] unit ton?
Yvon Sylvestre
At this stage, I think the numbers are – we've had strong production. We're expecting strong production in Q4.
It's more sustaining the availability of the plan that is sort of fixing the overall cost structure per ton there. So, I think, as we get better, robustness out of the autoclave, I think the stag availability will improve with time.
And our cost structure will stabilize. So I think some of that is pretty sustainable also going forward.
David Haughton
Right. And also at Kittila, I think that quarter was the record throughput.
So I presume part of that unit cost improvement might also be the impact that would have on your fixed cost base. Would that be a reasonable way to think about it?
Yvon Sylvestre
Yes, a strong throughput and no shutdowns. So, I think availability is the biggest factor there.
David Haughton
Right, thank you very much.
Operator
Your next question comes from the line of Anita Soni of Credit Suisse. Please, go ahead.
Anita Soni
Hi. Good morning, guys.
Congratulations on the strong results. My question is with regards to Meadowbank.
A couple of years ago you took a write-down to the lower grade tail in the reserves at Meadowbank as a result of the high costs. Is there any opportunity to bring not all of it back but some of the higher-grade portion, lower grade tailback?
Yvon Sylvestre
I think the – most of the write-down was relating to the resources in the vault area. And with the price increases over the bit of the last two years, our reserves have fluctuated in the vault sectors because of the price variations.
Certainly, as we approach more conservative pricing towards reserves, that Meadowbank vault has been on and off that table. So if price of gold were to recover, some of these could reappear in the plan.
The trigger there is probably around 14/50 [ph].
Anita Soni
Okay. So, is the cost reductions that you've seen to date, in terms of moving your operating costs down from say $1,000 per ounce to…
Yvon Sylvestre
Well, they will be integrated in time as we continue our reserve exercise towards the end of the year, and we'll adapt to the context with the current operating costs features.
Anita Soni
Thanks. And then just on LaRonde in terms of the commissioning, can you give us a details update on when you expect the timelines for that.
So, you know… Yvon Sylvestre You know the question I…
Anita Soni
The conditioning of the cooling system at LaRonde.
Yvon Sylvestre
Well, the – essentially, the startup will occur in the cooling system in Q4 and the exhaust raise will be finalized in the first few months of the 2014. So, essentially, the whole system will be operational for next summer season.
Anita Soni
Okay. All right.
Thank you very much.
Operator
Your next question comes from the line of Mike Javenin [ph] of Bank of America. Please go ahead.
Mike Javenin [ph] of Bank of America, please go ahead.
Sean Boyd
Hi, Mike, are you there?
Operator
Sir, your next question comes from the line of Cary MacRury with TD Securities. Thank you.
Cary MacRury
Just had a question on Meadowbank. In terms of CapEx, you've been spending roughly, you know, $90 million to $100 million on an annualized basis.
I'm just wondering are there significant components that are going to roll off? Or is that a level we can expect going forward?
Yvon Sylvestre
Well, we're looking – in the next little while, most of the CapEx was driven at Meadowbank to do – to tailings management and waste management. And going forward, I think the – we've generated and some people have generated some ideas in that area that will significantly reduce that.
So, the numbers of investment that you've been seeing over the past few years will diminish quite a bit and we'll redefine that as we establish guidance in February.
Cary MacRury
Okay. Thank you.
Operator
(Operator Instructions) Your next question is a follow-up by Mike Parkins [ph] of Deijading [ph]. Please go ahead.
Unknown Speaker
Hi. Just one more question.
You said in the release that you've identified $40 million in savings related to labor and G&A. Can you give us a bit more color on that?
Is that – any of that in the corporate office? Or is it all at the various mine sites?
Sean Boyd
It's a bit of both. And it was really around a restructuring some of our benefit programs, which affect operating costs, restructuring the employee share purchase plan, restructuring the restricted share unit plan to put them on the basis of share performance so it really is a way we can tie a lot of the senior employees to the stock price.
And as a result of that, it was previously based on a dollar amount, a fixed dollar amount, so that the number based on the stock price, performance this year will go down. So in years when the stock price goes up, it will go up and we think that was a better way to align it.
We’ll also see lower stock option expense just based on the black show of model. Over the past five years, our stock had gone to $80 three times.
We had a lot of volatility. It created a really high black sholes [ph] valuation for our stock options, which had a lot of extents in them.
So, there's a few areas in there. We did have a program of earlier retirement.
We had a small number of layoffs in the company; just part of our restructuring, just to align the work force with our key priorities.
Unknown Speaker
Okay, great. Thanks so much, guys.
Operator
Your next question comes from the line of Alec Cadepsi [ph] of CIBC [ph]. Please go ahead.
Unknown Speaker
Thanks. I just had a quick – clarification on LaRonde.
With respect to this quarterly, you highlighted that you had about 69% coming from the deeper portion. Where do you expect that to get to for next year?
And just maybe a bit of color around how you expect operations to unfold once the cooling system is in place. Is it going to be, you know, sort of an immediate gain for the development side?
And will you get production increases along with that? Or is it the process of being able to accelerate development.
You’ll see more productivity on the production side or gains on production side later in the year.
Yvon Sylvestre
So, we will continue to merge out at the upper portion of the mine like we've been doing every quarter and we’ll continue progressively. We will continue to merge into the deep portion.
I think the 269 – well, the pyramid that's actually operational at this stage is just above the 269 level. And that's been operational the last two or three years.
The 269 pyramid will get its maturity and flexibility probably by the end of the year and early in the first quarter. We're also going to be mining some – one or –one stope [ph] at least in the 293 pyramid.
So – and that will develop its maturity over the next 18 months. So, it will continue to progress towards mining only over the next two or three years.
Unknown Speaker
Okay. So it's an ongoing process and sort of – you know is it unreasonable to assume sort of the same pace on the, I guess, on a sequential gain – on quarter on quarter gain, as far as the transition?
Or…
Yvon Sylvestre
More on quarter-to-quarter gain. We’ve been getting toughly 3% to 4% per quarter as we get towards the deeper stopes [ph], and we'll also get into the higher grade as we get into the 293 pyramid because the 269 pyramid is basically delivering grades that are similar to what you've been seeing last few quarters, where the impact will start as we mine below 293 levels.
Unknown Speaker
Okay, great. Thanks very much.
Operator
Mr. Boyd, there are no further questions at this time.
Please continue.
Sean Boyd
Thank you, operator, and thank you, everyone, for your participation. And if there's any further questions or follow-up questions, we're always here to help with those.
So thanks again.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for the participating.
Please disconnect your lines.