Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Agnico Eagle Fourth Quarter Results 2019 Conference Call. [Operator Instructions]. Mr. Sean Boyd, you may begin your conference..

drawdown some cash, drawdown a bit of the line of credit, potentially term some of that $360 million out, not all of it, but we could do some of it. Interest rates would be less than half of what we're currently paying on the $360 million maturity.

So really good financial flexibility as we move forward in a way that allows us to grow production, as we said, 18%, and generate free cash flow. On Page 12 in the slide deck, we see continued growth in operating margin coming out of the mines with relatively flat CapEx as we go forward. We still haven't decided how we're going to allocate that CapEx.

We're still doing assessments on the pipeline, but our focus is on stretching those projects out and stretching that CapEx out. So while we're growing, we're still generating net free cash flow to invest in the business, pay down debt and increase the dividends. And before we take questions, I'll just end on the dividend slide.

Our dividend is now $0.80 a share with the increase in the quarterly amount to $0.20 this quarter. You can see that we've increased our total cash paid out in dividends in the last 6 years and that was during a period of heavy construction as we built the expanded Nunavut platform. So I'll close on that.

And operator, if you can, please open the lineup, and we'll be happy to take questions..

[Operator Instructions]. Your first question comes from the line of Fahad Tariq from Crédit Suisse..

What are the critical steps really to rightsize Amaruq in Q1? I'm just curious, it sounds like the dewatering is kind of done. It's more to do with maybe logistics, like equipment availability, moving the workforce.

Like -- if you could just walk us through like what are the kind of steps that are needed to kind of get back on track at Amaruq?.

Well, it's Yvon. Presently, the drilling is essentially progressing very well, drilling and blasting, that's pretty well under control at this stage. Our inventory of broken material is also under control at this stage. We're opening up more surfaces in the pit and getting access to the remainder of the pit that's under lakebed.

So a lot of digging in these areas. So that's still a bit of challenging because in some cases, we're still getting some influence from the water. But overall, at this stage, other than weather issues presently, we're progressively ramping up and getting a progressive increase in production on -- basically, month-by-month.

And this will continue into the -- pretty well into the second quarter, mid-second quarter, at which point we pretty will be on a rhythm of normal mining going forward..

Okay. And just on like the -- specifically in the release, there was something on equipment availability, moving the workforce.

Like how -- what are the issues that you're encountering there?.

Well, I think in the beginning -- late December and beginning of the year, a lot of focus has been put towards improving use of -- utilization for the equipment. We've had a lot of progress in that area. Where we're still lagging a bit and we're getting some support internally and externally is basically on maintenance.

And I think we've sort of restructured their maintenance areas, where because of delivery -- late delivery of some of the infrastructure, all our maintenance now done -- on the long-haul truck is done exclusively through our Meadowbank maintenance facilities.

And the hauling fleet and mining fleet at Amaruq is essentially done at site with the warehouse present. So the reassembly of the team, the redistribution of the people essentially complete in Q4, and they're in the process of putting in the rest in place. I think up till Q4, we still had significant amount of major rebuild going on.

Those are not all complete, but they're less of a burden on the total group. And basically, it's trying to get the availability up over the next few months..

Your next question comes from the line of Matthew Murphy from Barclays..

Just a question on costs. I mean, there's some discussion in the release about inflation, specifically consumables and labor.

And I guess, how recent have you been seeing that? And to what degree do you think this is kind of a permanent move versus it's a fight to sort of improve productivity and get costs back down?.

Well, I think the inflation has been relatively steady over the years. I think one of the biggest factors we're probably dealing with is, we still have a fair proportion of contractor usage.

And I think the -- with the current economical cycle, the quality of some of this manpower and productivity of some of this manpower is sort of not necessarily helping, which is contributing to, in some cases, greater costs. I think that has been more of the issue and probably more predominant in Nunavut actually..

Okay. And I mean, depending on the trajectory for costs and the gold price, I got a question on the dividend.

If we saw costs remaining fairly sticky and the gold price going back to $1,400 or something like that, what's the thinking on funding the dividend?.

The dividend at $0.80 is secure. On -- from a cost perspective, as we said in the release, we expect to have unit costs lower as we move through 2020 and into 2021 and '22, and we have a growing production base.

So a combination of the growing production base and costs that are trending down on a unit cost basis allows us to pay that dividend of $200 million -- roughly $200 million a year..

Your next question comes from the line of Josh Wolfson from RBC..

Going back to the Nunavut costs, I think, historically, if you had looked at the life of mine costs for Amaruq, guidance there was around $800 an ounce. Meliadine was in the low $600 per ounce.

Would you expect changes to those long-term numbers? And what sort of order of magnitude would that be?.

I'll start with the cost at Amaruq for now. I think the -- this year's -- 2000 numbers -- 2020 numbers are mostly aligned with the higher stripping ratio and lower grade overall in the pit, which contributes to the lower production profile and essentially higher cash costs.

The -- we're also processing some low-grade material, also contributing to some of the cost structure for 2020. As we move into 2021 onwards, strip ratio remains a little bit high, but the proportion of high-grade ore increases. And thus the -- from year-to-year, the production profile at Amaruq will increase, I think, 120,000 ounces more next year.

So the cost structure will come down with time. At Meliadine, I think the -- we have available capacity in the plant. And so far, the mine has responded quite well. And we'll continue to ramp up tonnage wise. I think so far, early in the year, we're surpassing 4,000 tonnes per day from the underground mine, and we have stockpile on surface.

So we will maximize that tonnage through time and the cost will also come down a bit and go back to the life of mine numbers that we're showing at this stage..

Okay.

Maybe put another way on that, I guess, the historical cost targets, is it safe to assume that the inflation experience in Nunavut would be above that roughly 3% to 5% that was discussed in terms of the underlying sort of related items?.

Well, I think the first half of the year will show similar or some cost pressures. But as we pursue the ramp up and we get to, I guess, steady state, the costs are expected to go down because we've added quite a bit of resource to support continuous improvements initiative to get productivity and cost structures down.

So at this stage, we're expecting some -- and we've already seen some results so far. But the -- we're not just hoping that costs will go down. We're putting efforts and an action plan in place to ensure that..

Okay. And then second question on the cost side of things. For Mexico, we saw a general increase in 2019 costs over 2018 and the guidance seems to be similar year-over-year for 2020.

Should we be assuming kind of steady state La India, Pinos Altos costs going forward at their current figures?.

In short, yes. I think the costs that we saw last year are from some instabilities that we had at Pinos Altos, mainly. At La India, it was the effect of clay in the ore. But measures taken during 2019 were to mitigate those into bringing the costs down and bringing the production up, which is the underlier in 2020.

So you will see the costs reduce during 2020, but essentially it's where we are..

Your next question comes from the line of Anita Soni from CIBC..

So my question, I guess, is a little bit more on Meliadine. Not to put too fine a point on it, but in terms of the throughput rates, you mentioned that you were at 4,000 in December.

So once you have the apron feeder fixed, I guess, in the first quarter, would you expect to get back up to the 4,000 tonne per day? Is it like really low in Q1 and then Q2, Q3 rebound?.

Well, we're at 4,000 tonnes per day, that's the underground mine. The mill has been operated actually in 2019 anywhere between 3,000 up to almost 5,000 tonnes per day. So once the crushing part of the equation is out of the picture, it is expected to bring back up past 4,000 tonnes per day.

And in Q4, as the -- as we sequence mining wise with the pit comes into play, it's already expected that there'll be a little ramp up around 4,600 tonnes per day at that stage, but we'll probably be in a catch-up mode before that..

Okay.

And then just on the costs, not to beat a dead horse on the -- on Amaruq, but 145, how much of that is just equipment availability issues and how much of that is just the fact that the mill is kind of -- or are the milling rates are sort of 7,700 tonne per day and that's a 10,000 tonne per day mill? Like how much will -- how much is it dependent on getting new ore sources in, in 2022?.

Well, I think at this stage, it's mostly mining cost and grade. That's the big issue. I think our processing costs haven't -- have been a little bit higher because we've been operating at lower tonnage, but that's -- part of the reality is we're ramping up. So not sure I'm answering your question here..

I think you are. And then just in terms of the LaRonde sequencing, so you're moving to sort of a 350, 360 level on the unit costs. Are the -- sorry, on the production side of the equation.

Are the unit costs like -- is there room for improvement on the unit costs once you get the rock mechanics issues settled and figure out how to improve upon your mining there?.

I'd have to say probably not. I think our biggest challenge going forward is that the -- as we continue to advance the mining sequence in the LaRonde deep, the overall tonnage per day keeps going down in life of mine sequence. So productivity is actually going down. So it will put pressure on the cost.

We're doing some work on the adapting strategies around manpower and automation down the road, which will eventually become like a template for LR3 at depth. But I think that at this stage, I think our cost structure currently is pretty -- is going to stay pretty well in that range..

Okay. And last one on Canadian Malartic. So when do you -- I think there -- I was discussing with Brian last night that there was issues in accessing some of the higher grades in the old stope workings.

When do you think that will be resolved? And when you'll get back into sort of more stabilized mining there?.

We're just adding to LaRonde. I think the -- although tonnage will be going down, the grade is going up. And the -- as the proportion of ore being mined from the Western sector of the mine, grades in that area are in excess of 8 grams per tonne.

So that sort of stabilized, although costs per tonne are going up, the cash costs are basically staying flat. As far as Malartic is concerned, I think we have about 2.5 years of mining left in the pit. We will continue to deal with underground workings like we have in the past.

I think the challenge will be to essentially continue to ramp up, and we're getting good progress in Barnat. We'll probably sequence some of the Barnat differently potentially, but it's a day-to-day challenge with the blasting. And at this stage, the biggest issue has been related towards the -- what do we -- remote mucking, basically.

That's the biggest challenge that we've had, and we're finishing some access work on the main ramps and on the walls that will be -- and the second half of the year will be easier for the operation..

Okay. And then -- sorry, can I just revert back to LaRonde. You mentioned the higher grades of 8 gram per tonne. Obviously, that's -- there are 2 ore sources there, right? So there's not going to be straight 8 gram per tonne material. Yes, but....

That's correct. Yes..

But what -- when you hit the 8 grams, what does that do to the rest of the byproducts? As I recall, is it gold-copper and silver-zinc? Is that -- so you probably get higher copper, but lower sliver and zinc?.

Correct. Yes. Copper was up and zinc is almost nonexistent..

Your next question comes from the line of John Tumazos..

Thank you for your service to the company. Could you give us your philosophy on share buybacks. We all hate volatility, and we got a little taste this morning.

And second, could you talk a little bit about the step-up in inferred resources this year? And you've got 55 million, 60 million ounces total reserve and resources, which is the zones might get into reserves in year-end 2020, '21 and '22? I know the documentation always takes longer..

Sure. Just on share buybacks, I think our focus with the increased cash flow will be to reduce overall debt. At this point, we're not contemplating share buybacks. So I think we'd prefer to improve the strength of the balance sheet. As far as the increase in resources, I'll let Guy provide some of his color on that..

John, so basically, as you saw this year, we've been bringing more resources in Kirkland Lake, for example, as we are continuing to drill and grow the footprint of those deposits.

Same thing in Amaruq, where we've been adding more drilling and enable through a study on the portion of the deposit above the [indiscernible] bring it into reserve in Malartic as well, where continued successful drilling at East Gouldie has grown the East Gouldie zone. On the latest one, I think, more drilling will be needed.

So we're going to continue to expand the footprint to infill it. So it's not going to end it up into the reserve anywhere soon because much more drilling will be needed to get there and better assess the viability.

But we're making good progress in expanding the footprint as well in Mexico and Santa Gertrudis, where we've been a good contributor through the addition of [indiscernible]. I think we've been getting good news on several fronts from growing resources.

And as you can understand, as -- once in a while, some of those projects will end up being supported by a study and be convert into reserves. So it's an ongoing process.

This year, we've brought additional satellite open pit at Meliadine into the reserves and brought underground, and we're working on the next big block that will be moved from resources to reserves..

Your next question comes from the line of Ralph Profiti from Eight Capital..

Firstly, I see that you've outlined the proportion of the west area at LaRonde in terms of the ore feed.

Just wondering what the plan or the mitigation strategy? If you get into 2020 and in 2021 and those ground conditions sort of don't really support the mine plan as it stands now or your visibility, what would be the mitigation plan then?.

We're sort of applying that already in Q1 because we've resequenced the development into the Eastern sector to compensate for the lost tonnage, and the team has been quite successful at that.

I think longer term to that, we're also in the process of developing other areas within the satellite ore bodies like Zone 11-3 at Bousquet, which will bring some production down the road. So we are thinking all the time about providing not just risk tonnage, but also incremental tonnage to the plant because we've got available capacity.

So I think that's the plan at this stage. And as far as -- the current period, as far as increasing support in the Western sector is essentially to ensure production in that area, and we're pretty confident at this stage that the activities that are being put in place will secure that production for the rest of the year..

I think I'll just add on that, Ralph. As far as sort of strategy at LaRonde, the strategy has been to -- as we go deeper, to take a very measured approach. So essentially, the cautious mine plan calls for about a 13% reduction in tonnage from the original plan as we move into the deeper part of the ore body.

And the strategy over time is to ensure that we can access that higher-grade material by boosting up the ground support in the major infrastructure. So that's just being cautious and that was a recommendation that came to us in January from the team there, who have developed a pretty unique skill set around rock mechanics.

So I think that's critical to the future of LaRonde to be measured as we go deeper. But I think what we're finding in the Abitibi, as we look at some drilling we're seeing on the old Bousquet property, drilling we're getting at East Malartic, at East Gouldie, there's still a lot of life in these old camps.

But in order to access and take advantage and build value as these resources grow, like John said, you need the skills to be able to go deeper. And we certainly see that also at Kirkland Lake, another old camp where we have a buildable mine at Upper Beaver. So I think the opportunity is there.

We just have to be measured, cautious in the approach there, but we have some really good skills that have been developed, that are all in-house. And we sort of take our lead from the team there on how we should approach it..

Yes. Sean, if I can stay with you on a different topic. You talked about this $360 million payment due in April..

Yes..

50% of it, which would be refinanced. It differs a little bit from what I've heard before, which is paying down debt as it comes due.

How are you thinking about sort of capital allocation? Has this changed sort of in the first half of 2020? Or is this cost of financing just too attractive?.

I think it's cost of financing is very attractive. I think the stuff we're retiring now is 6.4% or -- 6.6%, Dave reminds me. And you'd probably replace that for an interest rate of less than half of that. So we will repay some of the gross debt. That's part of the plan. But we're just reviewing those alternatives over the next week or two..

Your next question comes from the line of Tanya Jakusconek from Scotiabank..

I just wanted to circle back, if I could, to LaRonde, so that I just understand what's happening. How I interpreted what Yvon was saying is that we've had a change in the mine plan and that as we've gone deeper with this -- the rock mechanics, looks like this is going to be more a 360,000 ounce long-term mine.

Is that a correct way to interpret it?.

Well, I think the way you need to interpret it is that we cannot sequence as quickly as we had earlier anticipated in the Western sector and that has been evident from the start of development in that zone. The biggest challenge that we have in that sector has not been mining so far, it's been the development.

And the protocols that are necessary in the various headings are like much more important in that area. And the sequence at which we can adopt the rest of the sequence is like affected by it. So this area is a very high-grade sector, and we just need to ensure that we do the mining properly. And so far, we've had a lot of success production-wise.

We've had very little minimum -- minimal impact on the production side, and we intend to keep it that way. So that's part of why are the reasons we're taking this pause to increase the support..

Yes. No, I appreciate that. I'm just thinking more from a longer-term perspective. I think, the camp, when we talked about it, was going to be, ultimately, about 400,000 ounce producer camp. Is that still what you see excluding this area that you've talked about? I think we talked a bit about lowering the tonnage.

Ultimately, we've got to get to reserve grade.

So I'm just wondering if the balance of lowering the tonnage and getting to reserve grade still keeps us at this 360,000 ounce rate? Or do we move back to that 400,000 ounce longer term?.

We'll be in between the two, I guess. We'll be in the 360,000 to 400,000. A lot of it will come from greater production from LZ5 as we get more productivity from that site. We also have a lot more flexibility for that site, and we're going to maximize it to make sure the complex stays near its objective as much as possible..

Okay. That's helpful. Okay. If I can still just come back to Nunavut, so that I -- again, to summarize on my understanding of what has to be done at Amaruq to get the mine back on track.

It appears that in the pit, what you need to get is just more surface areas exposing there to get to your mining throughput, which you think you'll get there by midyear. And it looks like the maintenance now has been adjusted between what you're doing at Amaruq site versus what you're doing at Meadowbank.

Is it just the utilization -- improvement of utilization of equipment that still has to be done to get you there? And if so, what else -- what's the timing on that?.

Well, it's getting everybody up to speed in its time. I think the -- we are doing all of this. We're trying to optimize probably in the most difficult period of the year under very difficult climatic conditions. So the speed at which we'll do this in Q1 is one. We'll accelerate significantly in Q2.

But at this stage, more is the equipment availability, particularly on the loading side. There's still some challenges equipment availability wise on the drilling side, but it's mostly on the loading side that we need to focus and get some of our digging equipment with more hours. The rest is okay at this stage..

Okay. And then just maybe on the Amaruq underground, if I could just ask. I saw that you have some of the -- that guidance for production into your 2022 numbers and, ultimately, beyond.

Is it safe to assume on the capital side that that's -- most of the spend is in 2020, 2021?.

It would be mostly second half, if we were to approve it and in '21..

Yes. Okay.

And it would be in that $650 million to $700 million range that would be accounted for in that range -- in that guidance range? Hello?.

Yes.

For next year?.

Yes..

Can you hear that?.

Okay. Yes..

$650 million to $700 million in next year..

In next year. So it would be in there. Okay. Perfect. And then if I could just ask 1 question on Meliadine. We talked about what's happening at the mill in terms of dealing with the apron feeder.

Is that something that, Yvon, we're going to need to replace? Or is it something that is fixable short term?.

Yes. We're waiting for parts. It's a unit that's fabricated in Italy. It's a custom unit. So parts and delivery are very long. So we're looking with a local supplier to provide parts that are fabricated to replace them. And the plan is to replace the unit after barge season later this summer.

But once the new parts are put in March, we expect it to be back and running at normal capacity..

Okay. And then maybe just on the underground because we also have changed the mining sequence in the underground for lower grade.

Can you just talk about what happened there for the 2020 plan?.

Mostly, I think the sequence was pretty well mine as planned. The only area -- RP3 area, which was -- we had a little bit more ceiling water in that sector, and we needed to understand the behavior in that area.

Some of these stopes were of significant tonnage and significant grade, which sort of put pressure on the overall grade profile for the rest of the year. This will resorb itself probably in the second half of this year, and we expect that they'll restart mining in that area. So I think we'll be back on grade profile from there..

Okay. So second half of the year..

[Operator Instructions]. There are no further questions at this time. I turn the call back over to Mr. Boyd..

Thank you, Operator, and thank you, everyone. If there's any sort of additional information as a follow-up to this call, please feel free to reach out, and we can set up separate calls, if you like. Thank you very much..

This concludes today's conference call. You may now disconnect..