Q2 2020 Agnico Eagle Mines Ltd Earnings Call
Dollars per month.
One of the things that was done early on is that in Nunavut.
The communities are at high risk for coal that 19, it was important to ensure.
And protect their communities that we had to separate our operations from those communities. As a result, as you know we sent our going a bit workforce home they are still at home.
We want them back, but we want them back when theyre comfortable.
I believe we have a safe environment for them to come back, but we are still in discussions with another public health authorities the government of none of it.
Local governments community leaders on when is the most appropriate time to bring them back and ensure that the communities remain protected.
So there is no set timeline for that but as we say we continue to work with that we have back filled that workforce with some additional contract workers and some seasonal workers to help us manage while our none of it workforce is at home.
In terms of second quarter highlights.
We produced a little over 330000 ounces, which is a bit more than we expected when we started to.
See the impacts of the virus there was a lot of uncertainty around the restarts.
Our costs were higher on a unit basis because of producing less gold in the quarter.
Going forward, we expect those costs to come down we'll talk about that.
We tightened up our guidance, we increased the lower end to the range. The Guidances now for the full year 2000, 21.68 to 1.73 million ounces, we had a fairly broad range. When we revised guidance at 1.63 to 1.73.
And we needed to do that because we were still in a period of a lot of uncertainty we weren't sure at that point, when we were going to be able to restart and how quickly we're going to be able to ramp up.
And now we've gone through the second quarter. So we're comfortable tightening tightening up that range increasing.
The lower end.
That range.
In terms of full year guidance.
Or going out into 2021 and 2022, we left that the same.
And what that means a second half of this year, we expect to produce between 480 to 500000.
Yes as per quarter.
Declining costs into next year little over 2 million ounces, which puts us about 500000 ounces per quarter and beyond that over 5000 ounces per quarter as we continue to ramp up.
We.
Continued to declare our dividend of 20 cents a share.
We'll certainly look in the third quarter.
Revisiting that and given our track record of 37 years of consecutive dividend payments and given the free cash flow generation I think.
It's logical to assume that over time that dividend continue to go up also in the second quarter I think was important.
Just to note that we did receive.
Some critical permits in the quarter.
We received a permit to increase our processing rate in Finland to 2 million tons a year.
We received the permit at Meadowbank for the IB, Our open pit and for the Amber underground and we also meliadine received approval to double the amount of water.
Sailing water discharge to the C. So those were three important from it.
That we were anticipating and we did receive them in the second quarter.
In terms of the ramp up we did talk about the faster ramp up in the previous slide.
As we said we got.
Able to restart earlier in Quebec than expected about two weeks earlier.
We got to restart in Mexico.
About 12 days earlier than we had expected as a result, we we closed the quarter strong in June.
And that allowed us to.
Gradually ramp up and in July.
For 160000 ounces of production so that sets us up.
For a strong second half as we said.
On an operational update I'm not going to go into individual slights, although they are in the slide deck, but as we go through the next series of slides I'll touch on each of the operations around.
Prior to the onset of the pandemic, we had completed the plant infrastructure upgrades.
In the West mine area, Ron you are actually developing in the West mine area before we had to reduce activities. There we have been mining in the West mine area and the second quarter and we continue to see higher grade then.
We had forecast in the block model, which I think is important.
To see that realized as we mined out those areas, we're expecting in the second half two average about 85.
100 tonnes a day from the Laronde complex.
3000 tons of that from Els at five.
12% of the tonnage.
Source from the higher grade West mine area at Meliadine in June our.
Throughput in the mill exceeded 4300 tonnes a day, we had always talked about.
4000 tonnes, a day as a level that we needed to achieve we beat that in June.
In the third quarter here, we will replace the repaired apron feeder so to reach 4300 tonnes a day with the repair tapered feeder.
Really speaks to the success of those repairs.
We will put in a new unit in the third quarter, we will upgrade the.
Filter press system and other components that will allow us to go to 4600 tonnes a day in the plant in the fourth quarter of 2020, I think what's also important as we've been able to pump out the third mining horizon at Meliadine, which is always in the plan those are higher grade areas and that set up.
So that we can start mining in those higher great blocks.
In August and September and into the fourth quarter, we did make reference to.
Our water discharge at Meliadine, we did get approval to double.
The discharge limit at Meliadine, we're doing that by truck in the third quarter. We can continue to do that by truck going forward, but are we feel strongly that the best solution is a water line.
So we're moving forward with the process to get the Waterlife permanent that's going to involve a lot of community discussion.
One of the concerns that the community would have a bottle water line as does it impact the ability of the caribou food.
They had that initial concern back in the early days, a Baker Lake back in 2007, and it was pretty evident pretty quickly once the load was built that the care, but we're not bothered by the road and they easily cross the ROE We think Thats. The same thing with the water life in a 35 kilometer long water line there's 70.
Ross silver points for care, but ultimately if we need to cover the entire waterline, we'll do it.
So longer term Salon and eventually we'll get approved and in the meantime, we can continue with trucking.
The water at Meliadine at Meadowbank.
We made a lot of progress, even though were reduced activities.
To catch up on the backlog of maintenance and you can see that and the results in June.
Were being mined.
Over 110000 tonnes of ore and waste per day, our target as you know was 100000 tons.
Board waste per day, the mill restarted in late May which is a couple of weeks sooner.
We had planned.
Male is currently running in excess of 9500 tonnes a day, both from the mine ore from existing stockpiles.
In the balance of 2020, we expect higher rates between two and a half in three grams per tonne, which.
Helps with our production in the second half and helps us to achieve our increased production for the second half and as we mentioned earlier, we received the permits.
For the Meadowbank complex too.
The IDR open pit and the American underground at kits allowed that was the one mine.
Where we were able to operate our plant continuously through the quarter.
We also received an import permit there, allowing us to.
Move forward with the expansion in the processing facility to 2 million tons. A day, we were impacted with our shaft sinking because the Canadian.
The shaft sinking crew was Canadian.
They were brought home during a pandemic they've now been allowed return and resume shaft sinking activities. We didn't continue on with the other construction related to that expansion product program. Ultimately we believe the future.
Pezzella is beyond 2 million tons a day.
And that's why we're thinking about the opportunities we may see to increase the mining rate. There. We've had some good exploration success, there I'll talk about that and the minute as we step back and look at our production profile, we see our graph I will gradually increase production overtime.
We're now pushing on that sort of run rate of 2 million ounces a year.
We expect to exceed that in 2021 and beyond we continue to work our project pipeline capital expansions under construction so as misleading phase two amaruq underground is in planning.
Was delayed due to co bid.
We're working on ways, where it will not impact our 2022 production number we think we can be successful doing that in terms of timing.
And I'll talk a minute about.
The opportunity at Canadian Malartic underground, which are important project.
Exploration has become.
Continues to be a major focus here, but I think what we've learned in the last 12 18 months as we've said before is there's still a lot of potential left in these mature mining camps, whether its laronde.
Whether its melodic or whether its kirkland lake.
As we mentioned at Kittila, it's a very long life assets, we continue to drill that deposit we continue to intercept.
Ore grade material beyond the current.
Resource limit so we're going to continue to.
Pro that DAP and that's been a big part of our success, we don't mind drilling deep drill holes simply from the perspective, we'd like to know what.
We own for planning purposes, it's the same store at Canadian Malartic underground. The recent east Goldie was found just because we were attempting to drill a hole.
About two kilometers underground.
That was the target.
Tracing the plunge from the old East Malartic underground and we hit the East Goldie.
Deposit we've got tendrils currently working there we've expanded the program to increase the drill meters by almost 20%.
It is important to gather information.
On the potential size, but also.
Tightening up the drill spacing in improving our confidence.
In the east Goldie deposit its east Goldie deposit that makes this underground work without that even at these gold prices Odyssey and east Malartic side.
It was still low grade, it's now the volume and the number of mining horizons and the potential to make this a large tonnage underground mine that east Goldie introduces.
We certainly combined with Humana Nico half the skills to understand.
What we own and what steps need to be taken to optimize it and turn it into a meaningful part of our business. We're doing that now the first stage of that as we said is to increase our drilling we're working on day.
Preliminary economic assessment, which we expect to be ready in early 2021, and the initial work on an underground exploration program, which is essentially the ramp.
We're going to begin that this quarter. So we've taken important steps to move that project forward and essentially what that will do is extent mine life at Canadian Malartic and have the potential to extend it for many many years Kirkland Lake and other oil.
Mining can't we continue to drill up for Beaver.
It is a mine now the question is where do we stage it in our pipeline, we continue to drill and continue to assess the economics, we've now.
Started to drill more targets, along that land package, including amalgamated Kirkland, which is.
Close to the boundary with Kirkland Lake bolt.
So we're interested to see what those drill results return in Mexico.
And we continue to get high grade results at the Emilia deposit, it's going to need some more drilling.
Teams focused on completing those drill programs and updating study on the potential at centric or Trued us and I will just.
At Laronde here, we continue to drill a both elds and five the old Bluescape Barrick property to the west of Laronde.
Our intention there as to ultimately mine out several hundreds of thousands of more ounces there and we're also drilling to the east of the main laronde or deposit where we picked up massive sulfide mineralization over the last several months in 20, north zinc Southland.
So that continues to be a focus for us.
On the exploration front.
On the operating results, we talked about most of these mines, but I'll talk about goldex here.
Goldex was actually doing extremely well prior to the pandemic it was exceeding its budget.
Getting very good productivity from the rail Veyor system.
Getting good productivity in the high grade so sewn we expect as we go through this year to be able to increase the mining rate in the south. So we expect more production coming out of gold acts in the second half. So the team has done a really good job optimizing that asset generating free cash flow Apple Arctic we've talked about yes.
Around potential, but the mine during the second quarter actually.
Did extremely well in terms of ramp up in May the monthly tonnage milk was 64000 tonnes a day, so thats a record.
And we have to congratulate the team because they didn't produce in the second quarter. There 5 million pounds. Since the mine started so that's a tremendous achievement in a short period of time, there's a lot more ounces to come particularly as we looked at the underground but.
As a top notch team there that's doing.
A really good job maximizing the open pit and now looking at the opportunity to extend the mine life with the underground component in Mexico. The focus continues to be on.
Advancing satellite opportunities whether at center or per Bureau at Pinos, Altos or chip Riona as the India, but I should also.
Give our thanks to our Mexican team the mines are in a region where communities have been hit.
Fairly hard with the virus. Unfortunately.
And.
I think what that has done as it's allowed our team too.
Really be helpful community.
And what we've been able to do what the team's been able to do is we've brought in additional metaphor resources and medical personnel to help the communities. We have the logistics, we have better medical facilities and some of the communities.
And a better positioned to respond and our team has done an exceptional job of working together with the communities to help from deal.
Pandemic in the communities are screening program has been effective.
For the most part we've been able to screen out employees prior to getting on site. We've had some that were asymptomatic at it passthrough screening we isolated them immediately we are using rapid testing.
Followed by a detailed testing after so the testing has been a big.
A factor in our ability to manage through this.
As I said earlier, our team did an exceptional job implementing testing in April and none of it.
We now have a test facility in Qubec at Val d'or, which basically pre screens in pre test every employee we bring up from the south into none of us some at the time the plane arrives and none of us.
We have to test results essentially and if all the tests are positive all the employees are released to work on their 14 day shift so I think using testing.
Highlights for US was early adoption of testing the fact that our team thought about it we're able to execute and the fact that in the regions, where we then.
Found ourselves in a strong position to help the communities and our team it really stepped up and done that.
Just quickly on financial highlights, even though the quarter was down from a production.
Standpoint, due to cope it we did have good earnings and good cash flow generation.
We expect to all those numbers to improve as we move through the second half.
We didn't draw down a billion dollars on our credit line.
As the pandemic.
Struck.
Just to be extra cautious.
Now fully repaid $1 billion that we had drawn on the credit line.
And we've made reference to the dividends I think it's important to note that over the last six years, even though in a heavy construction period in the gold price averaged around 1200, we increased our dividend in each and every one of those years.
We raised the dividend in February of this year.
Given where the gold prices and given our AR.
Growth trajectory in terms of production.
We would expect that dividend to continue to increase as we move forward. So just to wrap up and we talked about our ability to manage through co bed and make sure not only where the employees safe, but the assets remain property position to to manage and deal with some things that we had to get done.
Largely in Q1, and a little bit into Q2, we successfully did that.
Which sets us up for a strong second half and strong 21, and 22 and again renewed exploration focus where we feel we can continue to add a lot of value on some of our mature mines. There is still good opportunity there and those are high quality ounces given there at existing mines not only near physically.
Sure, but near.
Our skilled workforce has demonstrated a track record of being able to add value. So operator, that's the formal part of our presentation, we'd like to open the lines if you could.
And take questions.
Certainly again, if you like to ask a question. Please press Star then one on your telephone keypad again star one to queue for question.
Pause basis compiled the Q and a roster.
Your first question comes from Ralph Perfidy with paid capital your line is open.
Hi, good morning, everyone.
I'd like to two questions. If I may please firstly.
What's your gut feel on how big kit to lot can be you talked about sort of a sweet spot being above the 2 million ton per annum rate, maybe can give us some context around what you're thinking how big the investment can be and and is this going to be sort of a larger high grade or a larger low grade deposit compared to what we see now.
Mhm.
Oh.
Our sense is that we're just taking a step at a time I think that it's pretty clear that.
We bought it initially.
150 million Canadian.
When it was a little over 2 million ounces resource because we expected it to get bigger.
I think the reserve and resource roughly 8 million ounces or so.
We've mined over a million ounces.
We're in the middle of that program to get the 2 million tons a year.
Started at around 1 million tons, a year I think so double that the challenge. We always had was to try to match the production rate with the size of the ore body. It's an anomaly as you know in Scandinavia, most deposits tend to be around a million ounces. This one will likely mine out at maybe 10 million ounces, because it's still wide open.
It's still growing.
So I think our next level.
Our team.
He is now starting to think.
The on 2 million tons today, I think a logical next level could be 2.4 to 2.5 million time today that will take a few years, but we're already in the initial stages of thinking about how that could be done as we drilled the says our zone at depth to maybe that opens up another mining horizon for us to allow us to increase the mining rate. So it's still early.
But given the size of the opportunity the fact that weve staging investments.
Over a number of years to increase capacity there.
I think that was the right approach and we'll continue with that steady sort of measured approach to maximizing what is a <unk>.
A strong geological asset for us.
Yeah.
Okay.
Some will we see from east Gouldie.
More drill results before the year end 20 reserve and resource statement comes out and and maybe just a broader question given the care and the due diligence and you know you're doing around all these operations when it comes to reserve and.
Resource replacement, how are you guys shaping up as you bring back to full capabilities of the exploration program.
Okay, we'll start with the east Goldie.
Our plan is to have drill results come out with the Q3 results.
Exploration activities were suspended in Quebec.
For actually longer than the production activities were suspended so we weren't able to drill things like laronde deep and the targets at Canadian Malartic underground. So thats resumed as we've said in the release with 10 drills. So there's certainly lots of information that will be available to us prior to the end of October will be put out our Q3, so the expectation.
Is that we will put those results out.
And then the plan is to update the.
The resource and.
February.
To put a P.A. at some point in the first part of 2021, but our sense is that we'll have to make a bigger decision.
For the overall project, which would include a shaft and we'll have to make that decision based on resource we won't have a our won't be in a position to the drilled at all off.
To the levels of a reserve.
We're comfortable doing that based on what we know we believe.
We think the.
The drilling now where we tighten up the spacing will increase our confidence level to be able to do that we've done. This a number of times. So I think what we're seeing in east Goldie is sick and higher grade with a higher grade core.
Still open so I think that's what we're facing in terms of decisions as we move forward.
That's why we're not rushing it.
We're taking this a step at a time, but I think it's important.
I think humanity Nico both recognize now.
That it adds a lot of value because you could have potentially a significantly sized underground mine from a tonnage perspective that would extend the life of Canadian Malartic for a long time.
So now it's to sort of put our collective experience together.
Try to work it into our own respect the pipelines.
Clearly our priority given the potential here and that's how we're going to work. So that's going to require us to regularly update the market on our thinking.
Which were in a position to do as we go forward.
Reserve resource replacement another question.
I would expect we're working on a number of areas, where we believe we can convert our resource to reserve we had a slight decline this year, but it's not just drilling its completing studies.
It's a great question as we spent some time.
Well, our drills were down talking about strategy around what resources do we need to put to work in the second half of the year.
To make up for that lost time of drilling, but also to ensure that we get the studies done on a timely basis to move resources to research. We're confident that we can at a minimum maintain what we have.
Hopefully we can grow it.
This isn't a prediction, but all I can say is the plan is designed to ensure that we get.
We we pick up the pace of drilling in the second half to make up for the time, we lost in Q2.
Well well positioned to complete studies, we feel we need to get completed to convert resource to reserve what a final number is we never know.
I think we're well positioned.
All right.
That's great. Thanks.
Your next question comes from Jackie Chris Blocky with BMO capital markets. Your line is open.
Thanks, very much I just want to on to ask I guess another exploration question. The results that you put out on the on the zinc deposit mettler on look look fantastic I know, it's still very early.
I guess it more strategically how do you guys think about zinc in your portfolio is this something that you'd be comfortable mining yourselves and having in your portfolio longer term absolutely one point.
Our friends at Barrick years ago, when an eco was 50% zinc revenue and 50% goal will that have laronde and we were happy to take that zinc because we're selling it at $1.50. My friends at Barrick used to see me at conferences and say how's the zinc mine going Sean.
So you haven't history of saying, we've made a lot of money as zinc we've used the money we made it zinc to build a gold business, partly to build a gold business.
So we really comfortable with that we hope that say sizeable lens. These things are lenses.
It's relatively near infrastructure down there it would certainly give us flexibility the NSR value of some of these holes as very high.
[music].
So it's not a surprise we you know it's something we're used to seeing and I think that the fact that we've hit something I think just reinforces. The fact that we have to continue the systematic drilling so what we've decided to do is.
Focus more drilling there ultimately.
Do we need to extend the ramp eastward to give us a better platform to drill below three kilometers as we move to the east and potentially move onto the adjoining property, which we own which used to be barracks called l. cocoa because that was it really drilled.
At all.
As we move to the West bear on Bousquet never really drilled that at the depths we're mining at Lumwana. So there's lots of potential there and really what you have as you have a very well our wide Celtic package or rocks.
But you run through that belt.
There's still lots of open areas, which havent been drilled so it's our job over the next few years too sure we keep drills turning to see what we have there.
So it's not only the physical infrastructure, we can leverage off of hits the skill sets that we have in place there. So that's part of our strategy.
That's great thanks very much on.
Your next question comes from John Tumazos, with John Tumazos very independents. Your line is open.
Hello.
On the good times. Thank you.
As you go forward.
How do you plan for 2021 or investment decisions.
Other it's.
Probably not $1200 code from two years ago, but you probably are using.
1950 for today either.
How do you plan vis-a-vis.
Hello protocols and managed clearly if you have less people, what's your site, it's spread so as far as one that's accrued advance. Thank you.
I think we're assuming that.
Most of the protocols remain in place ultimately I guess theres, a vaccine, possibly or there is an effective treatment and if that occurs then I'd say faced coverings go away and testing goes away, but I think hygiene and the focus on hygiene and possibly screening I think probably stays.
Going forward I think the way we've looked at the strategically not knowing whether there's a second wave or weather.
We stay at an increased level going forward, what we tried to do in the second quarter is.
Get to our government's who made a call that mining does not essential.
And the fact that we were able to open up earlier or mining was able to open up early I think some might say the governments in those regions.
Have concluded that mining can operate safely because there's a lot a natural physical dispensing.
The government's got very comfortable with our screening and hygiene and testing procedures. So I think that was part of the equation and part of the reason for doing it was the I know.
If there were more cases in the regions, we operate and we want it to be able to.
Make the strong case that mining was essential to be able to continue to operate I think we've done that and I think the fact that we've been able to open up.
Earlier than other industries is a testament to that but I think in our dialogue with the governments the governments have.
Said to us.
They've congratulate us on.
The methods and procedures to keep our employees Safend communities.
Things like sending than another workforce home.
The extra testing.
But they've also add.
That they have concluded that mining will be important going forward because of the economic damage done to large parts of the economy and I think they concluded as all of US have concluded that mining, particularly gold mining can be very profitable, which means we're paying a lot of taxes and we have a lot high paying jobs. So I think we've made the case.
That we can continue to go as far as investment decisions as we look on out.
I think there's a few things there and that sort of the number one question we're getting.
Is so.
Is the industry going to.
Have a better result, this time versus 12 years ago, or so and goal ran and we didnt deliver the margin expansion.
There's a couple of keys to that one is one major differences the fact that.
We're not seeing the input price pressures, we saw 12 years ago across the board.
Probably due to a lack of activity in terms of big projects in the resource space.
And we're also.
We're not in that position were 12 years ago to gold price went from sub 300 to over 1000 in a short period of time.
And the industry made a strategic mistake, where they kept calculating reserves as you know at a higher and higher price every year, which saw a dramatic dilution in the quality that business has over a short period of time.
Here, we are now as an industry, where we've had a relatively stable reserve price anywhere between 11 and 1300 for a number of years, which means the base on which the mine plans are built to deliver the margin expansion over the next three to five years is pretty solid and conservative.
So it's up to the industry to maintain that conservatism in terms of.
The reserves and resources and we're at 1200, so we're not going to be tempted to go a lot higher.
So I think for us it's a focus on free cash flow generation stay disciplined work our pipeline in a measured fashion.
But be mindful that you know the price level is good.
Let's continue to explore let's continue to.
Understand what we own let's continue to look at early stage opportunities, which we could bring into the pipeline. So there's no real significant change in how we think about this its really about how can we continue to be a high quality business.
That can continue to drive per share value. We were asked a question today the fact that.
You know did.
Did it matter to you.
That this week your stock went through $100 Canadian.
And that you've hit an all time high in Canadian dollars.
And that other companies have not returned to all time highs does that matter and I said well it really only matters from the perspective that at actually reinforces that the strategy that we put together in the late Ninety's. When we were single asset 50 million in revenue.
4 million EBITDA one mine.
The strategy was to diversify away from one mine to get bigger, but do it in a way that actually added value I think the share price in August of two of 1998 was less than $5. So the fact that it's hit hundred sort of reinforces that strategy worked.
So it's just stay focused and trying to make sure that were.
Continued to be a high quality business.
Thank you.
Your next question comes from Anita Soni, we'll see RBC. Your line is open.
Hi, good morning, everyone.
My question, Let's go back to ask team lock you can east Goldie so.
Im just wondering what kind of I know, it's fairly early stage, you're going to do a PFS and nothing to be out in early at 2021, but its were trying to figure out how to envision this.
This opportunity here, what kind of tonnage wouldn't be able to pull from underground you got 50000 company now that you're going to just eating into.
It's too early.
To really give some clarity on that.
But I think the reason that I think both humana like Nico.
There's two reasons I think.
It's sort of become elevated in terms of priority.
It was the ability to have multiple mining horizons now when you include Odyssey. When you include the old East Malartic.
And then you add east Goldie, which is sicker and better great.
What that ultimate number is.
Too early to put a number out we still need to do the work, but I I think it's had a level, which give us both humanity eco some comfort and when you layer and a higher grade from East Goldie you know you potentially have a sizable opportunity here. So I think we have to be able to drill it I think the fact that we're starting to ramp this core.
And we had that permitted a while ago.
But it makes sense now to move that forward that creates.
I don't ability to drill it better.
But in planning.
The exploration ramp.
Can easily be converted to a production ramp and ultimately leading shops. So we've got our coming up from a ramp ultimately and the shaft.
When you think about the shaft that further down the line you may have some impact in terms of production.
Before shops is completed or not that significant helpful, but not that significant ultimately need.
The shaft to augment what's coming out of the ramp so we'll provide more clarity around.
Early in 2021 on.
Those types of.
Numbers.
Okay. Thank you and then a question with regards to 2021 car. So second half of the year, we're guiding you're guiding out 746 90 on the cash cost range and you can see that would be craft you put out that you're you're starting to hit those.
The kinds of number with higher production level so is that.
Got it okay run rate to be using for next year, considering you know that production levels are somewhere if not slightly higher.
I think it's reasonable.
We're still in the middle of our budgeting process, but I think it's reasonable.
Okay, and then in terms of capital I know you said, there's sort of an ongoing $500 million to $700 million.
So that people should be using for their combined growth capital and sustaining capital projections and then your next question on top of that.
Do you think that that continues to remain a valid assumption or should we be EM.
Sort of tweaking things in terms of the exploration with a higher gold price or.
Some project moving forward accelerating some spending.
I think the fact that catalyst starts to come down gives us some room to add things.
Next year Canadian Malartic, it's not that significant just the ramp.
Which is not a totally big number.
So we'll move some things in there to replace things like kept to less so I think it's reasonable to assume we're at the higher end of that range at 700 explorations around 100.
I don't think Thats unrealistic, but we still have to do the work and that's part of the budget process, which concludes in November and December this year.
And last question since that's been the focus of questions from investors about the gold companies in General do you I mean are there any view to changing nickel price assumptions that you are using on your reserves are going into next year.
Not significantly no that's always a healthy discussion.
Here exploration there bias is for a more ounces, which they'd like a higher price but.
Our our operating teams are ones that arm wrestling match for the last several years.
So the bias is now like it's important to deliver on production and cost targets.
You need to stay conservative we feel as we calculate reserve and resource so the.
The way our plans laid out is to maintain reserves you know maybe increase them a bit without having to adjust the gold price, we'll see how that all sort of unfolds over the next six months says we pick up drilling and try to make up for the meters. We didn't get in Q2.
Okay, and then just last comments at congrats on on on making it out and I know you're still with us until the end of the year, but congratulations and just how many comes from us.
Thank you and you didn't mention Amar Who's got more reports to them and the fact that I'm not sure [laughter]. Okay. [laughter], that's okay, because the Mars been wandering around the halls here first since he came back from Barrick, a second time with nothing to do so we figured it always better we've had our getting something to do.
Okay, just getting I think everybody's earned.
They are increasing responsibility I think we're fortunate here that we have some pretty.
Deep bench strength and.
We've been very focused on how we bring along.
Our younger people and give them different exposure in different levels of responsibility.
Dominates a good example that you started as a summer student 20 plus years ago.
And so he's worked at a number of our operations and you have the tibi intent to lead and have it so.
He's gone through.
Tech services mine planning and development strategy.
So I think we're fortunate and.
That's just part about natural process that good companies do.
They developed people and so we're lucky, but thanks for congratulating you body on really though this focus his wife Pizza met all the time and he's just couldn't take it anymore. So he said he needed to spend more time Paul thanks.
Alright, Thank you very much in congrats than ours.
[noise]. Your next question comes from Curian Mccrary with Canaccord Genuity. Your line is open.
Hi, Good morning, Sean morning morning, maybe just a question on cash costs from the second half in terms of you've had the quick ramp up now back at Meliadine and Emmerich just wondering what we can expect on a cash cost front can most operations.
No dominant whole, yes, we're.
Immediate bank, that's going to decrease because you see the a the unit affinity Greaves Casco is going to be between 11 and 1200, Florida second house at the media at them into Bank and then media is going to be in 60 ish or our own thats, what a second house.
This is what we what we forecast where now.
And then maybe you know just lot of questions around I'm allergic underground but.
Do you envision that you know this operation will be concurrent with the open pit or really look it's sort of up close to it.
Yes.
Yeah, that's a that's a tough one now.
Because of the need for a shaft and so the timeline.
Is.
Very much a focus spot.
You can see how we manage the timeline and no, but we didn't sort of.
The goal spoke too fast we wanted to make sure that we were careful with respect to the timeline. So.
We don't want to have to speed up if there's a gap there's a gap.
Because the underground could be around for 10 to 20 years. So we got to make sure we get all the right infrastructure in place.
Right.
And the right timeframe.
Well, so any inventive <unk> in the invent event has an underground only scenario that they can you just reconfigure the mills sorta operate evermore levels that you have to potential thinking yes, yes, we can yeah. Okay.
That's it for me thanks.
[noise] again, if you like to ask the question. Please press Star One. Your next question comes from Tanya Jakusconek with Scotiabank. Your line is open.
Hi, good morning, everybody.
[laughter] technical team, so I don't know who wants to take any bottlenecks tomorrow.
What do you guys need to see and amarin to start on the underground again.
Well the development restarted we see we continue to do a diagram.
The undergoing he is an opportunity which is a higher grade that we've put out a with the with the open pit.
Undergoing alone is another project, but on top of up to the or with the fifth it is a project. So we're still doing this study on data.
Finalized our numbers.
And we're going to provide information beginning next year a boat the result of debt.
And then how often that they sent to the mine plan.
Uh Huh. So we went to question yet and how it fits into the mine plan, we will have more detailed.
I'm not a mine plan in February of next year.
Yeah, that's going to be integrated I guess, the outcome could be as long as we have opened bid so should.
We should be able to two atlas's starting in 2020 to go into the end of the life of mine that we have right now at 2027.
Okay.
And not to 10 that Okay, and then maybe Sean that's for you I mean I'm just looking at you know the yeah 400, CAD 480 to 500000 ounces that.
Quarter coming can second half of the yeah and into next year and you know you choose the goal I think you look like yeah, yeah, I'd be generating a lot of cash flow and then you get that that 700 million as you know free cash [laughter] no I think.
That may payment.
Now you know you're going to generate quite a bit as you know really free cash flow on an allocated a free cash flow can you talk a little bit about how you see that in your priorities for that.
What minimum cash balance.
I'm going to keep on on the balance sheet. So that we can have an idea of where we can go like it's evident.
Yeah.
Ill just start with the.
The allocation of the free cash flow, Dave can talk about sort of strategy and thinking around.
The balance sheet.
I think it's pretty clear that.
Our current dividend that 80 cents, which is around the $200 million a year based on where the gold prices now we can certainly pay more in a lot more and the propensity in the track record is to pay more so.
That's certainly something we're looking at now now that we've come through the impact so the virus on the operations in Q2 and.
We're heading into a stronger period of production and cash generation. So that will certainly be a priority will continue to work the project pipeline explorations of focus.
For us.
The Canadian Malartic underground has sort of.
Moved up a ladder in terms of priorities. So that's a focus but that doesn't chew up a lot of cash next year. It's more when we decide to go with a shaft. So you need to make room for that as we look at it.
Certainly part of it will be increasing our financial flexibility.
I think this is a period, where the gold industry will find itself with a lot of cash like it did back in the late seventies and 1981 goal from.
Sub 50 to $800.
Certainly have that.
Potential now and.
Our debt repayment as you mentioned there isn't anything until 2022, so we're going to sort of build up a bunch flexibility, but I'll, let Dave talk about some of his thoughts on on that.
Yes, So Tang as you May know, we used to carry a minimum balance of about $100 million of cash for working capital purposes, I think given the buyers and all this uncertainty related to that it's probably prudent to carry more than that at least in the near term. So I would think that we would be.
He more like 150 to 200 million of cash as a minimum balance just due to that uncertainty.
Sean was saying.
Starting basically now we expect to start generating strong free cash flow and I think you're going to see our cash balance start to grow very quickly, especially next year, which leads us to of course to the here. The funding problems of what are you going to do with all the money.
Sean already talked about increasing the dividend sorry, I think we're probably going to have the opportunity to do that again near term.
Hearing more cash I think longer term.
Were bigger company than we used to be so maybe we will carry a little bit more cash for working capital purposes. So, let's just round off my answer at about 150 million minimum.
Okay. Okay.
So we've got that you know I'm 100 million of exploration, what Sean had mentioned you know going family got that 700 million or are there about set back you know as Pat I'm really not much in terms of debt repayment and anything and access from 150 million or thereabout and the balance sheet could potentially go into.
Dividend.
Ah, yes theoretically.
It's just how we.
Split it up and.
[music].
I I just think that.
It's not all going to go to dividends I think I patient, yeah, well have a bigger question on the balance sheet, but I think.
Our track record of 37 years, and the fact that we didn't eliminate it when others did a few years back and we were the first two actually started up again, an increase it and that's gone up in six of the last.
And and each of the last six years.
I think.
So to demonstrates our mindset around dividends, so kind of means going up but it's not really up to the board and we'll have those discussions.
Around Q3 results, Okay. All right. Thank you so much thanks Daniel.
[noise] there no further questions at this time I turn the call back to the presenter for any closing remarks.
Thank you operator, thank you everyone. Thanks for your attention if there's any follow up questions Oh.
Feel free to contact us thanks again bye.
This concludes today's conference call May now disconnect.
[noise].