Q2 2020 Agnico Eagle Mines Ltd Earnings Call
We want them back, but we want them back when they're comfortable.
We believe we have a safe environment for them to come back, but we are still in discussions with a number of 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 backfill that workforce with some additional contract workers and some seasonal workers to help us man as 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 and quarter.
Going forward, we expect those costs 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.
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 were 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.
Lower end of that range.
In terms of full year guidance.
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.
Ounces per quarter.
Declining costs in the 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 overtime that dividend continue to go up also in the second quarter I think was important.
That 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 IDR open pit and for the Amber underground and we also at Meliadine received approval to double the amount of water.
Sailing water discharge to the C. So those were three important permit.
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.
Over 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 at Laronde.
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 in the second quarter and we continue to see higher grade then.
We had forecast in the block model, which I think as 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 lawn complex about 3000 tons of that from Els at five.
12% of the tonnage will be source from the higher grade West mine area.
Meliadine in June our throughput in the mill exceeded 4300 tonnes a day, we've always talked about.
4000 tonnes, a day as the level that we needed to achieve.
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 in April Peter.
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 was always in the plan those are higher grade areas and that set up.
So that we can start mining in those higher grade 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 waterline permanent thats 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 care boot and bootie.
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 road was built that the care, but we're not bothered by the road and they that easily cross the ROE, We think thats. The same thing with the water life in a 35 kilometer long water like Theres 70.
Ross silver points for care, but ultimately if we need to cover the entire waterline, we'll do it.
So longer term so.
Eventually, we'll get it approved and in the meantime, we can continue with trucking.
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.
Where do you mind.
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.
Bill 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 did 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 minutes as we stepped back and look at our production profile, we see our graph gradually increased 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 where we continue to work our project pipeline Ketzel expansions under construction so as Meliadine phase two amaruq underground is in planning.
Was delayed due to co bit.
We're working on ways, where it will not impact on 2022 production number we think we can be successful doing that in terms of timing.
And I'll talk in a minute about.
The opportunity at Canadian Malartic underground, which is important project.
Flirtation this 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 current.
Our resource limits, so we're going to continue to.
Pro that depth and Thats 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 won't be 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.
The target.
Tracing the plunge from the old East Malartic underground and we hit the East Goldie.
Deposit we've got 10 drills currently working there we've expanded the program to increase the drill meters by almost 20%, which 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 mill Arctic side.
It was still low grade, it's now the volume and the number of mining horizon 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.
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 a.
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 extend 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 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 a study on the potential at centric or Trued us and I will just.
Add laronde here, we continue to drill a both elds and five the old Bluesky, Eric property to the west of Laronde.
Our intention there is 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 so lands.
So that continues to be a focus for us.
The exploration front.
On the operating results, we talked about most of these mines, but I'll talk about goldex here.
Gold ex was actually doing extremely well prior to the pandemic it was exceeding its budget.
Getting very good productivity from the rails air system.
Getting good productivity and the high grade. So some we expect as we move through this year to be able to increase the mining rate in the so 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.
Alert, we've talked about the underground 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 look at the underground, but theres 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 its 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.
I think what that as Don as it's allowed our teams to.
Really be helpful as a community.
And what we've been able to do and what the team has been able to do is we've brought in additional medical resources and medical personnel to help the communities. We have the logistics, we have better medical facilities in some of the communities.
We're in a better positioned to respond and our team has done an exceptional job.
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 passed through 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 the pullback at Val d'or, which basically pretty 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 that.
We have to test results essentially and if all the tests are positive all the employees are released to work on their 14 day ships. So I think using testing.
The 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 can then.
Found ourselves in a strong position to help the communities and with 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 the 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.
We have now fully repaid a billion dollars 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 and 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 with employees safe, but the assets remain property position.
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 their AD existing mines not only near.
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 up the lines if you could.
And take questions.
Certainly again, if you like asked a question. Please press Star then one on your telephone keypad again star one to Q4 question.
Pause briefly to compile the Q1 day roster.
Your first question comes from Ralph Perfidy with 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 luck can be you talked about sort of a sweet spot being above the 2 million ton per annum rate, maybe can you 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.
How.
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.
For 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.
Mined over a million ounces.
We're in the middle of that program to get the 2 million tons a year.
Started it around a million tons a year I think so doubled it 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 mined out at maybe 10 million ounces, because it's still wide open.
It's still growing.
So I think our next level.
Our team.
It's now starting to think.
The on 2 million tons today, I think a logical next level could be 2.4 to 2.5 million tonnes a day that'll 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 resolve ADEPS 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 we've been 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.
Okay.
A strong geological asset for us.
Yeah.
Okay.
From where 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 replacements, 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 that's 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 top date.
The resource and.
February.
To put a PE 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 or 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 and with a higher grade core.
Still open so I think that's what we're facing in terms of decisions as we move forward.
Thats why were not rushing it we're taking this a step at a time, but I think it's important.
I think humanity eco both recognize now.
Matt 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 of pipelines, it's clearly our priority given the potential here and that's how it's going to work so thats 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, because 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 loss time of drilling, but also to ensure that we get the studies done on a timely basis to move resources to reserve, we're confident that weekend 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 had we pick up the pace of drilling in the second half to make up for the time, we lost in Q2.
We're well positioned to complete the studies, we feel we need to get completed to convert resource to reserve what the final number is you know we never know.
I think we're well positioned.
All right.
That's great John Thanks.
Your next question comes from Jackie Prince Blocky with BMO capital markets. Your line is open.
Thanks, very much I just want to on to ask I guess another exploration question did results that you put out on the on the zinc deposit at Laronde 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% gold at Laronde and we were happy to take that zinc because we are 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 we haven't history of saying, we made a lot of money it saying we views the money we made in zinc to build a gold business partly to build the gold business.
So we see 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 if somebody's holes as very high.
[music].
So it's not a surprise, we 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 air 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 a.
At all.
As we move to the West bear on Bousquet never really drilled that that's the depths where 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.
You run through that dealt.
There's still lots of open areas, which haven't been drilled so it's our job over the next few years too sure we keep drills turning to see what we have there.
Because it's not only the physical infrastructure, we can leverage off with its the skill set that we have in place there. So that's part of our strategy.
That's great thanks very much.
[music].
Your next question comes from John Tumazos, Swiss John Tumazos, very independent Sir Your line is open.
Hello.
So on the good times. Thank you.
As you go forward.
How do you plan for 2021 or investment decisions.
Whether its.
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 man and clearly if you have less people, what's your site, it's spread swus virus and that's a great 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's an effective treatment and if that occurs then I'd say face 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 this 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 up call that mining was not essential.
And the fact that we were able to open up earlier or mining was able to open up early I think I'm buying the governments in those regions.
Have concluded that mining can operate safely because there's a lot a natural physical dispensing.
The government, Scott 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 wanted 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.
Congratulate us on.
The methods and procedures to keep our employee safend communities.
Things like sending that I know that 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 lightning, particularly gold mining can be very profitable, which means we're paying a lot of taxes and we held our 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.
I think there's a few things there and that's sort of the number one question we're getting.
And.
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. The gold price went from sub 300 to over 1000 in a short period of time.
Yeah, the industry made a strategic mistake, where they calculating reserves as you know at a higher and higher price every year, which saw a dramatic dilution in the quality that businesses 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 upon 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 its 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.
I 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.
It's 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.
Does it matter to you.
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.
Our 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 100 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 with CNBC. Your line is open.
Hi, good morning, everyone.
My question, let's come back to our team Lark, you can east Goldie so.
Im just wondering what kind of I know, it's fairly early stage, they're going to do a PFS and nothing to be out in early two.
2021, but its were trying to figure out how to envision the sum this opportunity here, what kind of tonnage wouldn't be able to pull from the underground you got 50000 company now that you're going to eating into yes, it's too early.
To really give some clarity on that but I think the reason that I think both humanity 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 these malartic.
And then you add east Goldie, which is sicker and better great what that ultimate number is.
It's too early to put a number out we still need to do the work, but I I think it's at a level, which gives both humanity eco some comfort and when you layer into higher grade from East goal. The you know what you 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 quarter.
Important we had that permitted a while ago, but.
But it makes sense now to move that forward that creates a under ability to drill it better.
And planning.
The exploration ramp.
Can easily be converted to a production ramp and ultimately leading shop, so we've cut or 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 our shops is completed.
Not that significant helpful, but not that significant ultimately you 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 cost so second half of the year, we're guiding you're guiding after 746 90 on the cash cost range and you know you can see that with key crops, you put out that you're starting to hit those.
Kind of number was higher production level so is that.
Is that and okay run rate to be using for next year. Considering you know that production levels are similar 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 is sort of an ongoing $500 million to $700 million.
That people should be using for their combined growth capital and sustaining capital projections. When your next question on top of that.
Do you think that that continues to remain valid assumption or should we be EM.
Sort of tweaking things in terms of the exploration with a higher gold price or.
Some projects moving forward accelerating some spending.
I think the fact that a catalyst starts to come down.
Gives us some room to add things.
Next year Canadian Malartic, it's not that significant it's the ramp.
Which is not a totally big number.
So we'll move some things in there to replace things like kept the 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 of this year.
And last question since that's been the focus of questions from investors just about the gold companies and general Jeez I mean, I was there any view to changing nickel price assumptions that you're using on your reserves are going into next year.
Not significantly no that's always a healthy discussion.
Here exploration there bias is for more ounces, which they'd like a higher price but.
Our our operating teams of how one that arm wrestling match for the last several years.
And.
So the bias is knowing it's important to deliver on production cost targets you need to stay conservative we feel as.
As we calculate reserve and resource so.
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 comment that congrats Yvonne on on making it out and I know you're still with us until the end of the year, but congratulations and Gelnique I'm not sure.
Yeah. Thank you and you didn't mention Amar Who's got more reports to them and the fact, yeah I'm not sure I should add [laughter]. That's okay. 'cause Amar has been wandering around the halls here first since he came back from America second time with nothing to do so.
We better we've had our gets up to do.
No just kidding I think everybody's earned they're 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 and different levels of responsibility.
Dominant it's a good example that you started at the summer student 20 plus years ago.
And so he's worked at a number of our operations and Yabba Tippi incapsula none of 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 eat some at Gulf All the time and he just couldn't take it anymore. So he said he needed to spend more time golfing.
Alright, Thank you very much in congrats on ours.
Your next question comes from Curian Mccrary with Canaccord Genuity. Your line is open.
Hi, good morning, Sean.
Morning warning, maybe just a question on cash cost for the second half in terms of you've had the quick ramp up now back at Meliadine and Amarin, just wondering what can expect on a cash cost front can most operations.
No no medical yes, we're.
Me too bank, that's going to decrease because you see the a unit is going to decrease Casco is going to be between 11 and 1200, Florida second house at the media attended domain and then media is gonna be news 650 ish or our own that put us in house.
This is what we what we've heard customer now.
And then maybe you know there's no lot of questions around them allergic underground but.
Do you envision that.
This operation will be concurrent with the open pit or really look it's sort of a post stuff.
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 but.
You can see how we manage the timeline is no, but we didn't sort of.
Those go too fast we wanted to make sure that we were careful with respect to the timeline. So.
You 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.
So in the inventive <unk> in the invent event has an underground only scenarios can you just reconfigure the mills are to operate at lower levels of yes, it's essential thinking yes, yes, we can yeah. Okay.
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 semis and what do you guys need to see.
And on the rent to start on the underground again.
Well the development.
No we see we continue to do the ramp.
The undergoing he's an opportunity which is a higher grade that we've put at a with the with the open bid.
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 that.
On the lays out our numbers when we're going to provide information beginning next year I. Both the result of death.
And then how often that asset sent to the mine plan.
How would you went to question how it fits into the mine plan, we will have more detail from.
I am not mine plan in February of next year.
Yeah, that's going to be integrated.
I guess the underground could be as long as we have opened bids so.
We should be able to two ounces starting in 2020 to go into the end of the life of mine that we have right now what 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, 480 to 500000 ounces.
Per quarter coming can second half of the yeah and into next year and you know you choose the gold price you look back at you and be generating a lot of past flow menu.
Yes that 700 million as you know free cash [laughter] no.
[laughter] debt repayment.
Now you know you're going to generate quite a bit as you know really free cash flow unallocated <unk> free cash flow can you talk a little bit about how you see that in your priority for that and what minimum cash balance.
I'm going to keep on the balance sheet. So that we can have an idea where we can now like I said that in.
Yeah.
I'll just start with the.
The allocation of the free cash flow, Dave can talk about sort of a strategy and thinking around.
The balance sheet.
I think it's pretty clear that.
Our current dividend at 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 here 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 are 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.
I think the Canadian Malartic underground has sort of.
Moved up a ladder in terms of priorities. So thats, 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 we 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 you certainly have that.
Potential now that.
Our debt repayment as you mentioned there isn't anything till 2022, so we're going to sort of built up a bunch flexibility, but I'll, let Dave talk about some of his thoughts on on that.
So turning 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 the 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 were.
Would be more like 150 to 200 million of cash is minimum balance just due to that uncertainty.
But as Sean was saying.
Starting basically now we expect to start generating strong net 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 of course to the here. The funding problems of what are you going to do with all the money and Sean already talked about increasing the dividend. So I think we're probably.
Really going to have the opportunity to do that again near term.
Carry 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 a 150 million minimum.
Our path.
So we've got that you know I'm hundred million of exploration, what Sean had mentioned you know going family thought about 700 million or are there about stuff that you know as Pat I'm really not much in terms of debt repayment and anything NFS ascent in 150 million or there about in the balance sheet could potentially go to.
And then again.
Ah, yes theoretically.
It's just how we split it up and.
I I just think that.
It's not all going to go to dividends I think.
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 eliminated when others did a few years back and we were the first two actually started up again, an increase it and it's going up in six of the last and and each of the last six years.
I think.
Sort of demonstrates our mindset around dividends, so kind of means it 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 presenter for any closing remarks.
Thank you operator.
Thank you everyone. Thanks for your attention if theres any follow up question. So.
No I feel free to contact us thanks again bye.
This concludes today's conference call May now disconnect.
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