Q1 2022 Agnico Eagle Mines Ltd Earnings Call

April 29, 2022

Ammar Al-Joundi: Since we last spoke and we've been very busy, we've been working hard and I think what we'll demonstrate today is some very good progress. There's a lot to cover this morning, we're excited about where we are, we're excited about where we're going, and for all of you who know us at Agnico we can go on and on talking about the company. So, we'll try to be quick and leave some time for questions. Before I jump in, really there are four things to take away from this call. One, on the operation side we had a good quarter, a good start to the year. We are reiterating our production guidance, we are importantly in this inflationary environment reiterating our cost guidance and I would say as we go through the numbers, the numbers are strong but I would say particularly pleased given the challenges on the production side and again we'll get into it a little bit ahead of our internal budget in the first quarter which is quite exceptional given the initial challenges with Omicron and the situation in January. And on the cost side, we're a little below our internal budget on costs, which again is exceptional given the inflationary environment. Again, reaffirming our combined company full-year production guidance of 3.2 to 3.4 million ounces and our combined company full-year cash costs of 725 to 775. The second item to takeaway is the integration of the merged entity. We would say it's gone exceptionally well. The senior management team is well in place, everyone knows what they're doing. We took the opportunity to quickly, as promised, streamline the organization and, as you see from our results in our press release, that streamlining has resulted in roughly double the synergy savings that we had estimated.

Speaker 1: quite exceptional given the initial challenges with Omicron and the situation in January. And on the cost side, we're a little below our internal budget on costs, which again is exceptional given the inflationary environment. Again, reaffirming our combined company full-year production guidance of 3.2 to 3.4 million ounces and our combined company full-year cash costs of 725 to 775. The second item to takeaway is the integration of the merged entity. We would say it's gone exceptionally well. The senior management team is well in place, everyone knows what they're doing. We took the opportunity to quickly, as promised, streamline the organization and, as you see from our results in our press release, that streamlining has resulted in roughly double the synergy savings that we had estimated.

Speaker 1: We had estimated approximately $15 million a year in streamlined organizational costs and we're already closer to 30 million on that. Most importantly, however the team the new team is energized, we're excited, and we're focused on the value drivers, which is our third item to take away in this call are the value drivers. Strong pipeline as always but strong pipeline again in the Agnico way largely off existing assets in existing jurisdictions. We'll go through this in detail, but it's interesting that as we talk about the great potential at Detour and we talk about the great potential at Melardic among others, those are the two biggest gold mines in Canada. They are two of the top 10 largest gold mines in the world and the fact that they have decades of future ahead of them from existing infrastructure in safe jurisdictions, again, that's always the best return on capital and the best risk-adjusted return on capital. But we'll go through that in more detail. And then finally, the fourth item to take away, while this was a strong quarter, remember two things: (1) this was a sub-quarter, so we'll really see there's a lot of complexity in this first quarter- the merger, the sub-period but the second, third, and fourth quarter and going forward are going to be full quarters and again we are reiterating that our expectation is the first quarter is going to be our weakest quarter. So we are expecting stronger quarter going forward. So just before we jump into the presentation- pages two to five on the presentation- understand that we will be talking about some non-GAAP numbers and we are also going to be discussing some forward-looking statements and we always need to appreciate that in a volatile industry.

Speaker 1: infrastructure in safe jurisdictions, again, that's always the best return on capital and the best risk-adjusted return on capital. But we'll go through that in more detail. And then finally, the fourth item to take away, while this was a strong quarter, remember two things: (1) this was a sub-quarter, so we'll really see there's a lot of complexity in this first quarter- the merger, the sub-period but the second, third, and fourth quarter and going forward are going to be full quarters and again we are reiterating that our expectation is the first quarter is going to be our weakest quarter. So we are expecting stronger quarter going forward. So just before we jump into the presentation- pages two to five on the presentation- understand that we will be talking about some non-GAAP numbers and we are also going to be discussing some forward-looking statements and we always need to appreciate that in a volatile industry.

Speaker 1: So maybe jumping on to page six, some of the highlights, again, solid quarterly production on a combined entity post-merger, incorporating the Kirkland assets post-merger: 661,000 ounces of production at a cash cost at $811 but for the full company, full quarter, those equivalent numbers are 806,000 ounces at cash costs of $755, so well within our guidance and a very strong start to the year as we discussed. Some exceptional results out of key cornerstone assets, and we'll talk about it but Lauron knocked it out of the Park, Fosterville knocked it out of the park, as did Detour, and then solid results from most of the other operations as well.

Speaker 1: Talking briefly about COVID-19, it seems over the past 12 months it's gone and it comes back, it's gone then it comes back. Omicron was difficult in December and the beginning of January. We feel that's largely behind us. We were back at full production pretty much by the end of January and have continued to progress, going forward. The inflationary environment: that is the big discussion, something we're focused on, something investors are focused on. The challenges are out there, we acknowledge it, but kudos to the team. They did a great job managing costs and so far continue to do a great job managing costs. That said, it is out there and we're all aware of it and focused on it. As we know, the merger completed on February 8th, the integration has gone exceedingly well. The synergies are ahead of schedule and, most important, we are now focused really on the key value drivers that we're going to be discussing.

Speaker 1: We repaid $125 million of debt with cash as it came due and a quarterly dividend of 40 cents once again. Hitting on some of these key value drivers- and I give credit to Brian Christie and his team, they did a great job in the press release and I would encourage you to review that in detail. But hitting some of the highlights: the Odyssey project remains on schedule, on budget. We get asked a lot about: can you find people? And what we're finding is while the labor market is tight, one of the advantages of being the biggest employer and being there for decades is Agnico Eagle and our partners [inaudible] in this project. But this project is the project of choice in the region and we're able to get high-quality people. That is a competitive advantage. We're going to talk a little bit about it, but it's not just that the projects on time and on budget, but it's really the potential of the project.

Speaker 1: As some of you know, as we transition from Canada's largest open-pit mine to Canada's largest underground mine, we are going to have excess mill capacity in the neighborhood of 35,000 or 40,000 tons a day in the most prospective gold region in Canada and one of the most prospective in the world and we have made some good progress and looking at opportunities to fill that mill and we expect maybe this time next year to give a little bit more guidance on that but good progress on that front. Detour Lake, an exceptional mine, as Natasha [inaudible] said yesterday. We're just now scratching the surface of the life of mine on that project. The mill optimization project is going well. We're going to be giving a technical report middle of the year that talks about incorporating some of the additional ounces, the additional 10 million resource ounces from last year into the mine plan, so a considerable amount of that will be incorporated. We'll be discussing moving from 24 to 28 million tons a year. But again, this is a mine that has decades of run room and we are already looking at the potential to move to the permitted 32.4 million tons a year. And at a very high level when you think about it, and this is just at a high-level conceptually- but a roughly one gram a ton of 32.4 million tons a year, that's about a million ounces a year of production potential on that. We are- and maybe Eric can talk about this later- continuing to find some excellent exceptional frankly, drill results as we continue and we're now even getting excited. Now, this is down the road, but we're getting excited about an underground potential there as well.

Speaker 1: from last year into the mine plan, so a considerable amount of that will be incorporated. We'll be discussing moving from 24 to 28 million tons a year. But again, this is a mine that has decades of run room and we are already looking at the potential to move to the permitted 32.4 million tons a year. And at a very high level when you think about it, and this is just at a high-level conceptually- but a roughly one gram a ton of 32.4 million tons a year, that's about a million ounces a year of production potential on that. We are- and maybe Eric can talk about this later- continuing to find some excellent exceptional frankly, drill results as we continue and we're now even getting excited. Now, this is down the road, but we're getting excited about an underground potential there as well.

Speaker 1: The Kirkland Lake update- we'll talk about that, but the real potential there isn't sort of 20 million here, 40 million there. It's really about consolidating that land package and bringing all of the different opportunities and Holdings we have there together. We're working on that, that's a big project. We'll probably have better guidance on that in about a year or so but there's a lot of potential there. We mentioned Hope Bay, we acquired Hope Bay a year ago, we got our feet wet, we understood what we've got. We made the decision, as you know, at the end of last year to focus 100% on exploration, that was always the plan and we've had some exceptional drill results that Gee can talk about. We mentioned a couple of them here: 23 grams over five meters, nine and a half grams over 15 meters. The potential there, as we've always said, is to develop a project that's 300,000-400,000 ounces a year and we're working on it. Again, we'll leave that for question period, maybe with Gee.

Speaker 1: It's not on the page but we have to highlight Melliadene growing to 6000 tons a day. Larone Mine that's been in place for 34 years had some of the best results ever with three exploration drift. Macaza and Kitilla, the shafts coming in, so a lot of key-value drivers we're focused on.

Speaker 1: Importantly another good quarter of demonstrating our ESG credentials. I'd like to congratulate Detour Lake, who was awarded the leading practice award by the international network for asset prevention, for some of the work and frankly, some of the research that they're doing. So congratulations to the team there. We'll be publishing our 2021 sustainability report in the second quarter and congratulations to our team there as Agnico Eagle was nominated by IR magazine for having been nominated for best ESG disclosure among large-cap Canadian companies. It's important to do the right thing and it's also important to make sure you're able to talk about it and demonstrate it. You see the numbers here on the page, we continue to have one of the lowest greenhouse gas intensities of gold miners anywhere in the world, and we are getting better.

Speaker 1: We've made a commitment to zero net carbon emissions by 2050 and I think we're going to get there before that. But the most important thing is, if you look at our strategy, which is to go to places in the world where we can operate multiple mines for multiple decades and be there for multiple decades, that in it itself frankly, is the cornerstone of why you have to be good at ESG and that's part of who we are.

Speaker 1: If we take a look at some of the operations, again a strong quarter, but I just want to point out some of the mines that again were exceptional. Larone: 105 thousand ounces at a cash cost of $560. We talked about Detour Lake. This shows, post-merger, 100,000 ounces at $600, for the full quarter that's 182,000 ounces- again a stellar quarter. Fosterville, post-merger: 81,000 ounces at a remarkable cash cost of $309 announced, for the full quarter that's 127,000 ounces. And just to be consistent and finish, Macassa shows 24,000 ounces but for the full quarter it was 44,000 ounces, so a pretty decent quarter. Operating margin: incorporating Kirkland assets: post-merger 663 million dollars. For the entire company, for the quarter, that number was closer to 900 million, which shows you the potential of this company. I might ask our excellent CFO, Dave Smith, to talk a little bit about the strong financial position.

Speaker 1: For the entire company. For the quarter, that number was closer to nine million, which shows you the potential of this company. I might ask our excellent CFO , Dave Smith, to talk a little bit about the strong financial position.

Dave Smith: Thanks, Ammar. As mentioned, the strong operations allowed Agnico- as well as good pricing, of course, allowed Agnico to add cash to the balance sheet during the quarter. We had free cash flow of about $200 million. We have liquidity of approximately $2.3 billion, in fact, not including an uncommitted accordian of $600 million. As Ammar mentioned, subsequent to quarter-end, we repaid $125 million of notes that matured. We paid that off with cash, of course, continued our 40-cent per share dividend, and pleased to announce a new tool. Our normal course issuer bid should be in place next week and that will provide us with a very flexible way to continue to increase shareholder returns. I'd like to add as well that financially, our hedge book helped offset some of the inflationary pressures that certainly the entire industry is seeing.

Speaker 2: And I think Agnico is in a great position to continue with a strong year. Every quarter is going to be better than this quarter, we hope. I'm knocking on wood right now and we're very excited to continue delivering very strong financial results to you quarter after quarter.

Ammar Al-Joundi: Thank you, Dave. Talking about synergies, we made a commitment to all of you on our last call that we would get into details and we've been doing a lot of work on this. This is important, this is something that investors want us to work hard on, so I'll take a minute to go through this. And again, congratulations to our team on the press release. There are a lot of details in there, as promised. But hitting some of the highlights: on the corporate synergies, as we discussed, we have not only exceeded our expectations, we are at a point now where we are upping our guidance on what we know the synergies are going to be. We had guided 15 to 25 million in the corporate synergies category for this year. We've already achieved 45 million, 35 million of which is that of which is annual and we are now anticipating a run rate of between $40 to $50 million a year, up from $35 million a year and we are guiding to $200 million pretax in the first five years, up from $145 million. And we're guiding to $400 million over the next 10 years, up from $320 million, so a very good start to that. Again, most important, it's not just the dollars, it's that the team is in place and working well and focused. I'm going to jump first to the strategic optimization before operation. On the strategic optimization, we are not changing our guidance, we're keeping our guidance, but I have to say again, we are well ahead of where we thought we would be. We had talked about at a very high level the opportunity to bring amalgamated Kirkland in to the Macassa Mine, that seems to be going very well. We we'll probably make a decision on that before the end of this year.

Speaker 1: and we are guiding to $200 million pretax in the first five years, up from $145 million. And we're guiding to $400 million over the next 10 years, up from $320 million, so a very good start to that. Again, most important, it's not just the dollars, it's that the team is in place and working well and focused. I'm going to jump first to the strategic optimization before operation. On the strategic optimization, we are not changing our guidance, we're keeping our guidance, but I have to say again, we are well ahead of where we thought we would be. We had talked about at a very high level the opportunity to bring amalgamated Kirkland in to the Macassa Mine, that seems to be going very well. We we'll probably make a decision on that before the end of this year.

Speaker 1: And we think there's the potential to bring in potentially another 40,000 ounces a year in production roughly has the potential to generate an additional $40 million a year into that project, with resources in around the 600,000-700,000 ounces and the drilling going pretty well. So you can see that one project alone has the potential to generate well more than half of the total synergies that we anticipated strategically over the next 10 years, and there are other things going on. A very simple example: potentially $20 million in savings on equipment one time associated with the upper Beaver shaft, just from equipment that's available from the Macassa shaft thinking. So, again good progress on the strategic optimization.

Speaker 1: And then on the operational synergies, again a good write up in the press release, but I'll hit some of them. Procurement: we're still targeting $50 million a year by 2024 and we're making good progress there. Some ideas on optimizing availability of the mill at Detour, something as simple as that, potentially $5 million a year. Some good work on the potential to steepen the pit wall slopes at Detour, That one item alone has the potential, given the size and tenor of that mine, of potentially $100 million dollars over the life of the mine. And then a basket of other things we talked about in the press release: centralized control systems, energy management, core scanning, renegotiating refining contracts. Those together potentially $75 million a year. If there are questions afterwards we can get into it. But suffice to say, very good progress and we really have just started.

Speaker 1: So again, Agnico Eagle, we want to maintain a simple consistent, disciplined, and importantly, proven approach to value creation, which has three key components: low-cost, strong margins, strong cash flows, robust production profile with a strong growth pipeline in the safest and best jurisdictions in the world, with proven leadership and a track record of building value per share. Importantly, value per share. It's interesting, I was talking with Dave Smith yesterday about look what's the key message we want to give today and Dave said it's the same one always, we focus on value per share all the time, doing this with ESG leadership it is simply the right thing to do and it is a core part of our strategy: growth potential from existing mines and growth potential from a pipeline of high-quality exploration and development assets, and again, some excellent exploration results in the first quarter that we're excited about and going to build on. And then building on a long history of capital return to shareholders: 38 years consecutive dividend payments. And we haven't mentioned it, but we think the normal course issuer bid will be approved, probably next week or the week after, so that's good. I've been going on for a while. I'm just going to take a couple more minutes to flip through some of the operational highlights. I'll be very quick because we want to leave time for questions. Larone: exceptional quarter, you've seen the numbers, but there are some details that I think are also exciting. 31% of our production mucking was done autonomously at Larone, that's impressive.

Speaker 1: it is simply the right thing to do and it is a core part of our strategy: growth potential from existing mines and growth potential from a pipeline of high-quality exploration and development assets, and again, some excellent exploration results in the first quarter that we're excited about and going to build on. And then building on a long history of capital return to shareholders: 38 years consecutive dividend payments. And we haven't mentioned it, but we think the normal course issuer bid will be approved, probably next week or the week after, so that's good. I've been going on for a while. I'm just going to take a couple more minutes to flip through some of the operational highlights. I'll be very quick because we want to leave time for questions. Larone: exceptional quarter, you've seen the numbers, but there are some details that I think are also exciting. 31% of our production mucking was done autonomously at Larone, that's impressive.

Speaker 1: We are almost at a third being done autonomously and at Larone's own, 21% of mucking done an automated mode. So this is a mine that has been operating for 34 years that we're continuing to invest in. We're investing in three exploration drifts and we investing in modernizing it, an exceptional cornerstone asset for Agnico Eagle, Canadian Molaric we talked about the project on surface and shaft is on budget, on schedule, and then again interestingly, we make the point here and this gets to the full potential of this asset, which is not just the underground but the available mill capacity in the final point on this page, we added the camflow property to the partnership's landholding and this is an asset that has potential to provide some of that feed into the mill.

Speaker 1: Goldx continuing to get good exploration results, continuing to get good production. The rail vayor set a record average for the quarter above the design capacity and a record single-day performance of 10.7 tons- again, exceptional progress. Detour Lake: full quarter: 182,000 ounces. I just have to repeat that, that's quite remarkable, very good cost control in the first quarter, considering fuel and electricity costs and all of those associated things in. And again, to repeat, we will be giving a technical report in the middle of the year, but that's really just the next step in what we think is going to be a long path of value- added in the Detour potential. Macassa, I'll go quickly. Macassa and Kitilla, both having their shafts on schedule, coming in at either the end of this year or early next year. Meliadean going up to 6000 tons a day and Fosterville, again an exceptional quarter and hard work and good effort by our team in Mexico, as always. And with that, I think we will stop and open it up for questions.

Speaker 3: Detour Lake: full quarter: 182,000 ounces. I just have to repeat that, that's quite remarkable, very good cost control in the first quarter, considering fuel and electricity costs and all of those associated things in. And again, to repeat, we will be giving a technical report in the middle of the year, but that's really just the next step in what we think is going to be a long path of value- added in the Detour potential. Macassa, I'll go quickly. Macassa and Kitilla, both having their shafts on schedule, coming in at either the end of this year or early next year. Meliadean going up to 6000 tons a day and Fosterville, again an exceptional quarter and hard work and good effort by our team in Mexico, as always. And with that, I think we will stop and open it up for questions.

Operator: Thank you, sir. Ladies and gentlemen, will we now conduct a question and answer session. If you'd like to ask a question, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two. If you're using a speaker phone, please leave the handset before pressing any keys. One moment please for your first question. Your first question comes from Tanya Jakusconek with Scotia Bank. Please go ahead.

Tanya M. Jakusconek: Oh great, thank you. Good morning everyone and congrats on your first quarter as the new Co. A couple of questions, if I could. First off, just a quick one, maybe Dave can help me on this one. Just to reconcile the numbers that you provide on an annual basis for guidance for production and cost. You mentioned Q1 would have had production of 806 at 755 total cash costs. Do you have the all-in sustaining cost so that I can reconcile that too, please?

Dave Smith: We can give you that Tanya. I don't have that available with me right now, but we'll get you that.

Tanya M. Jakusconek: Okay, that's perfect. And then maybe just keeping on just on the quarter, you mentioned that we're going to see much stronger quarters going forward. In the press release, you did give guidance on your mines and what we're seeing quarterly at Larone, Fosterville, Metal bank, and Kitilla. Can you just give us maybe from a bigger picture, are we looking at like 55% second half or 53% second half? I know quarter-over-quarter improvement, but just a bit more that can help us with some of the other mines.

Ammar Al-Joundi: Well, I think what we said the last time was, roughly the first quarter would be 20,000 ounces less than the next three. I think that's not a bad number for the second quarter, and again, we're working on this, but actually we think that we're going to get stronger throughout the year. So the 55-45 is probably not a bad number at a high-level, Tanya.

Tanya M. Jakusconek: Just maybe on the pressures, just Dave again, just to come back, you've used 90 cents per liter Canadian for diesel. I think the sensitivity for a 10% move was $6 announced, is that still correct?

Dave Smith: Yes

Multiple speakers: You do have about 40% of your oil [inaudible]. That's correct. Can you just remind me when you would be purchasing all of your fuel for none of it? And what are you seeing out there for purchase price?

Multiple speakers: Beginning in July in the forward rate for the remainder of the year on diesel is about $1.13 a liter. Now, that number was about a week old. And when do you expect to have all of this done, having to put it all in and complete? I think the shipping season ends kind of September, October.

Speaker 6: Age then, and and when you have toick, expect to have all of this done. Having to put it all in and complete I the shipping season and kind of September , October .

Speaker 5: Having to put it all in and complete I the shipping season and kind of September , October .

Tanya M. Jakusconek: [inaudible] questions, I just wanted to ask about other inflationary pressures. You say that your labor, you're not seeing it. Are you seeing it in any other consumable?

Multiple speakers: We are seeing it. And interestingly Tanya, probably where we're getting the most pressure is in Finland, and that's because it's closest to where the supply chain disruptions are most acute. So we are seeing it but the team has done a good job and it's a combination of they got out ahead, we got out ahead of some of this. We're trying to manage it contemporaneously, and also some of it frankly is they've done a good job on efficiency of operations, which has offset some of that. But we are seeing inflation in consumables. We're seeing it in reagents, we're seeing it in steel, it's out there. Can I ask what sort of levels are you seeing, the inflationary pressure in those items?

Multiple speakers: You mean percentages? Just a round number. Well, in general, we gave sort of 5% to 7%. I would say the numbers are higher than that, but we've been able to offset some of that. So again frankly, there are some items that are 30% and some items that haven't moved. It moves across the board. Probably, the most sensitive ones-again, there is a geographic split- but probably the most sensitive ones have been around in Finland and it's mostly to deal with steel and items that are derivatives of natural gas, which again is logical. Gotcha, and I'll leave it to someone else. Thank you.

Multiple speakers: Thank you. Your next question comes from Fahad Tariq with Credit Suisse. Please go ahead. Hi, hood morning. Thanks for taking my questions. Maybe first for Dave Smith, just an accounting question. So I can see that the Kirkland operations, the sales, exceeded production by about 56,000 ounces. I just want to clarify, after all the adjustments and everything, those 56,000 ounces are included in revenue but the costs are not included in the quarter. Is that correct?

Multiple speakers: Yes, the inventory cost went through the production costs and you're talking about the revalue right? Correct. Because it had to be revalued to market. Yes, that's correct. So the costs did go through, Fahad. They would go through our costs because you value them at basically a spot, increment. Yes, it goes through the production cost.

Speaker 1: Because there you value them at basically a spot increment. Yes, goes through the production cost.

Multiple speakers: Okay, I understand. And then just switching gears to the operational synergies that you highlighted for 2022, you mentioned in the press release that it could be about $10 announced this year. Is there a particular quarter or timing when that comes in or is it kind of gradually through the year? It's gradually through the year.

Fahad Tariq: leadOkay and then just the last one for me on Macassa. Any update on the battery-electric lead? You mentioned in previous conversations that you might be looking to use conventional diesel or something to get the productivity back up. Any update on that?

Multiple speakers: Natasha? Yes, sure thanks. our Hi, Fahad. So we are continuing to work with the OEMs on that. In terms of our performance, we are continuing to troubleshoot with [inaudible]. In terms of our battery issues, we're seeing a supply chain concern- I think there's like a chip shortage that's plaguing the automotive industry- but seeing a slight increase in availability, we're fixing some of the issues, but still a lot of work to do on that end. And Natasha, maybe just talk a little about the ventilation progress and the flexibility that will give you. So at the end of this year we plan on completing the ventilation upgrades. So we're going from the 300,000 CFM to about 750,000 CFM with shaft and the two raise board that we're doing. We've completed the excavation of the raise boards. We are putting the fence on later this year and changing out the entire vent system. So we should have additional flexibility in our options.

Multiple speakers: Okay, and just to follow-up on that, Natasha it sounds like the focus is not really trying to go back to conventional diesel just yet, it's still trying to figure out the battery-electric fleet. Absolutely we're committed to pursuing this, but it's nice to have that optionality. That's it for me, thank you very much. Thank you. Your next question comes from Lawson Windsor with Bank of America. Please go ahead.

Lawson Windsor: Good morning, Ammar and Dave. Very nice to hear from you both and thank you for today's update. Ammar, I wanted to address my first question to you. In the Aussie press in late March you made some comments that Agnico wants to own more Aussie assets. Just would be curious what form that expansion might take, and would that be acquisitions of existing operations, development stage, or exploration stage, and would you consider partnering as well?

Ammar Al-Joundi: Hi Lawson, and that's nice to hear your voice. Well, I tell you we had a fantastic trip to Australia and the team there is really a great team, nice people, very capable and they're doing a lot of really leading-edge technical things there. Australia absolutely meets the criteria of geologic potential for multiple mines over multiple decades and meets the criteria, you can actually operate there for multiple decades. So it has great potential. It would be tough for us to go there from nothing because the Australians are good miners. But what we've got now with the merger is an exceptional team, an exceptional asset, and a strong foothold, and also as we discovered some really good relationships with the local communities and government officials. So it is now in the category of good regions in which we operate. To the extent we expand in Australia, Lawson, we do it the same way you would. Any opportunities there have to compete with opportunities everywhere else in the world and we typically think we make a lot more money for our shareholders through the drill bit and so we probably would do what we've done successfully for over 60 years, which is sort of take a small position early, based on knowledge, and then try to create value from there. So good region, good potential, and the opportunity to expand will be a function of what we see and it'll have to compete with everything else.

Speaker 3: It is now in the category of good regions in which we operate. To the extent we expand in Australia lost- and we do at the same way you would. Any opportunities there have to compete with opportunities everywhere else in the world and we typically think we make a lot more money for our shareholders through the drill bit and sowe probably would do what we've done successfully for over 60 years, which is sort of take a small position early, based on knowledge, and then try to create value from there. So good region, good potential and the opportunity to expand will be a function of what we see and it'll have to compete with everything else.

Lawson Windsor: Okay, and then that same sort of vein: are there any assets in the portfolio that might be worth considering divesting?

Ammar Al-Joundi: There are some positions that we have that we look at, those are non-operating assets and we're always looking at optimizing the portfolio that we have. But all of the operating assets we have right now we're pleased with.

Lawson Windsor: Okay great. And if I can ask on the diesel costs again, you guys made a comment in the release that the hedges you have in place you expect to provide some degree of protection against inflation for the 2022 [inaudible] diesel costs. Maybe just little color on that, particularly like in terms of a sort of the strikes on the hedges. I mean, today, is there a large sort of strike- that happens in July when you guys are going to be paying for those diesel costs, and just sort of the moving parts around that would be helpful.

Dave Smith: Yes, it might be helpful. Our hedge rate is 57 cents a liter. The guidance rate was 90 cents a liter. And, as I mentioned, the forward rate was $1.13 a liter. So mark to market our hedge book right now is about $20 million in the money, which certainly will help us.

Lawson Windsor: Okay, got it. Thanks very much, guys.

Operator: Thank you. Your next question comes from Jackie Przbylowski with BMP Capital Markets. Please go ahead.

Multiple speakers: Thanks very much. I want to congratulate you guys, on this synergy so far. It's really terrific to see that's ahead of schedule. And maybe if I could ask you a question just to get some more color on that, are the synergies that you've achieved year to date so far and that you're expecting to achieve this year, are those new synergies that you had not previously identified, or are you bring forward things that you weren't really expecting so far? Maybe if you could just give us a little bit more info on that, I'd appreciate it, thanks. Yes, thanks Jackie. It's a bit of both. As you look at this, we did a lot of due diligence on this deal, including on the synergy potential, and for every 10 units of synergies you identify, four of them don't pan out and then you find four that you never thought of. So it is a bit of a combination, but the biggest thing is-I think David and his team did a great job on cutting some of the financial costs very quickly, within weeks. You don't need two bank facilities, you don't need two insurance policies. So some of that had been identified, but they did it in weeks rather than months, so that's good. A big difference is frankly, on the streamlining. It's hard to know exactly what you were going to have when you get together and then when you put pencil to paper and make the decisions we wanted to move quickly. And the reason we wanted to move quickly on the streamlining, it's not just about cost, it's about human beings. The worst thing you can do is leave people out there and they don't know if they have a job or not or what their future is. So we made a commitment that within 30 days we would have that all worked out, and we did it within 20 days, and so part of it was clearly, we achieve them faster than we thought, but really, to be honest, it was mostly about treating our people fairly.

Speaker 1: Within weeks. This is: you don't need to bank facilities, you don't need to insurance policy. So some of that had been identified, but they did it. They did it in weeks rather than months, So that's good. A big difference is frankly, on the streamlining. It's hard to know exactly what you were going to have when, when you get together and then when you put pencils to paper and make the decisions. We wanted to move quickly, and the reason we wanted to move quickly on the streamlining it's it's not just about cost, it's about human beings. The worst thing you can do is leave people out there and they don't know if they have a job or not or what their future is. So we made a commitment that within 30 days we would have that all worked out, and we did it within 20 days, and so part of it was clearly we achieve them faster than we thought, but it really, to be honest, it was mostly about treating our people fairly.

Jackie Przybylowski: That's great, thank you. And maybe I can ask about the SCIB that you announced in February and now that you've approved. Can you talk a little bit about- and I know it's always hard to know exactly- but can you talk a little bit about what this strategy will be in terms of how quickly that gets executed? Is this something you expect to do fairly quickly, or is it sort of like five million over a year, or something like that?

Speaker 14: Can you talk a little bit about- and I know I know So it's hard to hard to know exactly- But can you talk a little bit about what this strategy will be in terms of how quickly that gets executed? Is this something you expect to do fairly quickly, sortd like five million over a year, or something like that?

Dave Smith: Well, I think it's a very flexible tool that we have and we'll try and be opportunistic in the buying and I anticipate it will probably be spread out over most of the year, but again, that could change if there is a moment that we feel we should be opportunistic. And that's what I like about this tool in terms of return of capital, we've always represented that this would be our variable, very flexible tool that we have for return of capital.

Jackie Przybylowski: Thanks Dave. Maybe if I could just ask one last question. Ammar, you mentioned this earlier and you promised us that we could ask about this on the Q&A so I'll bite. Can we hear a little bit more color from D about the changes to Hope Bay and the exploration that's going on so far and what the different thinking is for once it restarts production?

Dominique Girard: Hi Jackie. So we've been ramping back up our capacity to drill and the first thing we really want to wrap our head around was the potential At Dep and Doris. As you know there was all of the mining infrastructure, and we came out of our due diligence with some good ideas about potential to connect some of those deep patches at Doris, basically below the dyke. And we've been positioning some drill specifically [inaudible] in the first quarter and we got, as you can see in the press release- some pretty nice 10 gram plus even 25 gram over five meters in an area that was left untested before we took over. So we're quite pleased to see that within those fold [inaudible] depth, because it's a tight fold- that, at Doris that we're dealing with that not only we're getting good results in the [inaudible] inch, like we were used to mine in [inaudible]. But now we're developing and confirming that within the [inaudible] there is some pretty decent high-grade vein system and it's wide open at depth laterally. So we're going to continue to ramp up drilling in this area.

Speaker 1: And we've been positioning some drill specifically answer PHAs in the first quarter and we got, as you can see in the press reition- some pretty nice 10 gram plus even 25 gram over five meter in an area that was left on tested before we took over. So we're quite pleased to see that within that that, those fold limamb at depth, because it's a tight fold- that, at theor, is that we're dealing with thatnot only we're getting good results in the fuld inch, like we were used to mine in the P, but now we're developing and and confirming that within the fuld lim there is some pretty decent high grade vein system and it's wide open at depth laterally. So we're going to continue to ramp up drilling in this area.

Dave Smith: And again, it's not just at Doris. The key there Jackie is, and maybe Dominic can talk a little bit more about this. We know what it takes to operate in the North and our vision is again sort of 300,000-400,000, maybe more for that project. And Madrid has had a lot of drilling and we know there's gold there and we know we can bring it in. But Doris is important in and of itself, but as part of the bigger strategy, it is additional high-grade tons that are right there, right beside the mill that would supplement the Madrid and we haven't even talked about Boston yet. But again, it's not just Doris, but it's how Doris fits into the overall strategy. I don't know Dominic if you wanted to make a few points on that.

Multiple speakers: Yes, we're looking to have, let's say, a first project, 300,000 ounces, 10 years kind of project to kick out and to start the foundation. Looking to work, probably with the current meal, improve the throughput to 4000 tons per day. So this is our first initial project and as the exploration goes, eventually increase that to, I don't know, could be 500,000 ounces at some point. It's still early, I'm very happy that we see a good hit and right now really the focus is full glass on drilling and exploration. And if I may add the [inaudible], we all are excited as we'll go back to Boston as soon as possible. And one of the things- we had to bring supply on the barge last summer and we did the winter rolled [inaudible] to bring all of the new equipment to refurbish that cam that dates from the eighty's when people came together.

Multiple speakers: So we had to give a little bit of love to that cam to be in a position to resume drilling and because we know that the deposit remains open down there with some very high-grade setting at depth in kilometer- but also phases almost to open with 56 gram over 10 meters at the kilometer depth. So we know there's a lot more to find over there as well. It's all that we can ramp up activity from the small scale, it was on their [inaudible] bring more rig and increase our drilling capacity over there. That's a super helpful update. Thank you. Sounds like there's a lot of opportunity there. Thanks very much.

Multiple speakers: Thank you. Your next question comes from Greg Barnes with TD Securities. Please go ahead. Thank you. Ammar, I just want to talk about Detour in the upcoming mine plan. Do you see that more as an incremental step than 18-24 months or 12-18 months from that point you have another mine plan with the expanded mill, the underground and would the undergrounds be the source of all [inaudible] fill a mill from 28-30 million ton? Well Greg, thank you for asking the question because that's exactly right and we want to make that point. We see this update mid-year as just an increment to a much longer path. Again, I've said it and like Natasha's quote yesterday, this is just scratching the surface of the life of mine potential. So yes Greg, I think that's the right way to think about it. The update in mid this year will be the work that's been done to incorporate some of the drilling from last year and to incorporate some of the steps to go from 24 to 28 million. Probably John and Natasha are working on this closely together, the next step is to look at the potential to go from 28 to 32 million tons a year.

Speaker 18: 18 totwent four month 12, eighte mons from backpoint, have another mine plan with the expanded mill. The underground with the undergrounds be the ssul of all of feet to fill a mill from twent eight to thiry million ton. Well Greg, Thank you for asking the question, because that's exactly right and we want to make that on. We see this update midyear as just an increment to a much longer path. Again, as I'm going, I've said it and I, like natas quote yesterday, this is just scratching the surfaceof the life of mine potential. So yes Greg, I think that's the right way to think about it. The update in mid this year will be the work that's been done to incorporate some of the drilling from last year and to incorporate some of the steps: go from twenty eight to twenty eight million, probably in John and thenatashaare working on this closely together. The next step is to look at the potential to go from twenty 8, 32 million tonns a year.

Ammar Al-Joundi: And importantly, to get to 32 million tons a year, it's not just the underground because the pit continues to expand, and maybe Eric after this, Eric Callio is on the line, he can jump in on the exploration. But we think the pit can support a lot of throughput through the mill. But the underground, when we get to the underground, that would be at say, two and a half, three grams versus one gram. So it would be an opportunity Greg, to add higher grade through the mill which could potentially get your annual production even above- again hypothetically if you do the math, above a million ounces a year. But that's the idea, expand the mill, or at least that's the potential, expand the mill, expand the pit, expand the potential and go underground to get some higher-grade feed.

Multiple speakers: The mill is license to 32 million tons is that I understand. It wouldn't require significant CapEx to achieve those. It is permitted at 32.4, you're exactly right. And we are going through the process of getting there and we were talking to John about this yesterday, John's are local mad scientist. He's got 10 different things he's thinking about. But this is something that's probably going to take us a year, a year and a half, to really come back with something more focused. But what I would ask maybe, Eric- I know you're on the line, Eric. Maybe you can just hit just briefly, some of the highlights on the exploration progress. Sure, good morning everyone. As Ammar said, we feel very positive about the exploration potential at Detour. We had the press release in February and actually from that you could see we had a lot of blue drilling happening on the west side of where previously there was very little drilling done and some very good results, both on the North side and deep, and on the West limits. So we do expect that we can grow the pit when we do the mid-year update already, just from the results we have. And then with the press release we just had yesterday, we announced new holes that were up to 500 meters to the West and even continuing to show broad intersections, but even some very good grades, up to 38 grams over 3, 3.3, 3.5, or 48, 3.1 one over 10. So these are the things that are continuing to make us very positive about growing. So anyway, I think yes, just continuing to look very good and we know the structure from our regional geophysics and things can look like the tracks for at least another kilometer or two to the West. Beyond that we don't know but we're we continue to see a lot of room for growth. Thank you Eric, and again thanks Greg, for asking because that's an important point. Thanks, Ammar

Speaker 19: very little drilling done and some very good results, both on the North side and deep, and on the West limits. So we do expect that we can grow the pit when we do the mid-year update already, just from the results we have. And then with the press release we just had yesterday, we announced new holes that were up to 500 meters to the West and even continuing to show broad intersections, but even some very good grades, up to 38 grams over 3, 3.3, 3.5, or 48, 3.1 one over 10. So these are the things that are continuing to make us very positive about growing. So anyway, I think yes, just continuing to look very good and we know the structure from our regional geophysics and things can look like the tracks for at least another kilometer or two to the West. Beyond that we don't know

Speaker 19: but we're we continue to see a lot of room for growth. Thank you Eric, and again thanks Greg, for asking because that's an important point. Thanks, Ammar

Multiple speakers: Thank you. Your next question comes from Anita Soni with CIBC. Please go ahead. Good morning guys, thanks for taking my call. I just have questions about the nitty gritty as I usually do. So on Macassa, the grades were a little lighter, I guess, than you have just forecast a few weeks ago. So how do we expect the grade to evolve over the year, like bullet rebound? I mean I think you were forecasting 24, it came in at 16. So could you give us a little bit of color on that and how we would expect those to rebound over the course of the year? Hi Anita, it's Natasha. So the grade was slightly down in comparison to what we had predicted for Macassa in the quarter. But in general, as you know, Macassa is a pretty high-grade ore body. It's a small tonnage operation, so we expect to see some grade variability in a localized scale.

Speaker 10: That coupled with some changes in the mining sequence has contributed to the grade variance. So we expect that to stabilize over the next couple quarters to hit our guidance. Ok, similar question- I guess this one goes to Dominic for Meliadean and Middle Bank as well in terms of the grade. Yes, good morning Anita. at Meliadean and Middle Bank, both were affected with say COVID issues early in the year, now mainly because now it's much easier to do with contact and contact tracing. So [inaudible] are back and all the crew is back. Meliadean we had to process a bit more low-grade, open stock by why we had decreased the mining activity, so that affected the answers and the cars. But now we're back on track and grades can increase. At Middle Bank we started January and stopped.

Multiple speakers: We restarted, the grades are going to improve through the year. We did the first quarter at 2.26 ton per ton and we're forecasting the year at 2.5, 2.6. So the more deep we go into the pit, grade is increasing. We're going to see it this year, in the coming years, but also the underground is coming in. So again, we're going to have the first test where we're doing all the commissioning in May and underground is going to be in full production, let's say in Q3, Q4, which is going to be a very good help. And this is a good part of the increased ounces coming in the second half of the year. Ok, was the underground not operational yet from Q-- I thought I'd seen that there was a few stops in Q4, in Q3, so did it contribute at all yet this quarter or no? Well, we had a bit of [inaudible] development ore, but it was very, very minimal. It's going to really start more in May and June, and I'm very happy also with what is an important key KPI is the broken inventory.

Multiple speakers: We are today at 12.5 million on tons broken, so we're in a good position for the remainder of the year. Okay. And then flipping to Larone, which was the opposite, some pretty good grades. I guess you said you were, and I'm not going to remember what zone it is, but it was the higher gold, lower zinc zone. Is that going to persist into the next quarter or are you guys immediately out of that? The upgrade mainly came from the East mine in Q1 and I need to see if this month is still good. Let's say, I was going to go through the year but part of the upside was coming from stope also that we're planning in Q4 that have been moved in Q1. So we're not getting those results but they are still looking to be on forecast for the end of the year.

Speaker 17: The upgrade mainly came from the East mine in Q1 and need to this month is still good. Let's say I we was going to go through the year but part part of the upside was coming from stope. Also that we're planning in Q4 that have been moved in Q1. So we we're not getting those results but they are still looking to be on forecast for end of the year.

Anita Soni: Okay and then last two questions on costs. And I think these relate a little bit more to firstly, on Macassa, costs there were a little bit better than planned. Can we talk about I think it was like 523 versus 692 guide, and that's more in line with what was happening last quarter and the prior quarters under the KL fold. So maybe there was a little bit too much conservativism or are the Macassa costs going to trend up over the year?

Speaker 21: 23 versus 692 guide and that's more in line with what what was happening last quarter in the prior quarters under the ko fold. So maybe there was a little bit too much conservative, or is that going to? Are the mccaic cost going to trend up over the year?

Multiple speakers: We expect to be within guidance, Anita. There were some delays with respect to some of the sustaining capital in terms of the number four shaft and such, so we plan on being within guidance. I guess I was talking about unit costs there. Plus cash cost as well? Yes. Same. Okay, maybe I'll take that one offline. And then lastly, Kitilla right? So you were guiding that they've got a little bit higher, we're seeing more inflation impacts because they're closer to the supply chain issues, so maybe that's one that might be a little bit higher than guide for the course of the year. Is that correct?

Speaker 22: Plus cash cost wells. Yes yes same, same.okay, maybe I'll take that one offline. But the. And then lastly qy, to lie right, So you were guiding that- they've got a little bit higher. We're seeing more inflation impacts because they're closer to the supply chain issues, So maybe that's one that might be a little bit higher than guide for the course of the years. That correct.

Multiple speakers: Yes, we see more pressure in Kitilla energy and, as Ammar mentioned, some supply stuff. Also, what affected the first quarter is also because we had less ounces. Now, it was not the question Anita, but I could answer that one. We had some challenges on the sequence where secondary slope ground condition pushed us to mine, smaller slope at the end of the panel, with a bit more dilution. So the higher grade slope plans in Q1 are postponed through the year. So now the team is back on track and we are currently now in those higher grade slopes. So having more ounces is going to just help to have a better cost. And the last one on the cost was Forsterville, that one was a little high too. Is that because of the restrictions that are happening in Australia in terms of the labor movement or have you been impacted by it, or you've not been impacted by it and it's something else? No, there's no labor impact. COVID-19 did impact all of our sites but we were able to mitigate that. In terms of our cost profile, we've been pretty good in comparison to our budget. Yes, Anita, so there's the cash cost pronounced and then there's the unit cost per ton.

Speaker 17: It was not the question eto, but I could answer that. one and we had some challenges on the sequence where secondary sto ground condition push us to mine, smaller though at the end of the panel, with a bit more dilution. So the higher, the higher grade sto planning Q1 are postponing to the year. So now the team is back on track and we're going to be. We are currently now in those higher grade stoke, So having more ounces going to adjusting help to have it a better cost. And the last one on the cost was that fst a lot, only a little high U and that is that because of the restrictions that are happening, Australia in terms of the labor movement, to have you been impactedby, you're not beenimpacted by. That's something else. Now there's no labor impact. COVID-19 did impact all of our sside but we were able to to mitigate that. In terms of our cost profile, we've been pretty, pretty good in compared. Yes, I need. So there's there's a cash cost peronounce and then there's the unit cost per ton. They do vary a little bit.

Multiple speakers: They do vary a bit but overall though it went pretty well, that's just kind of normal variance. Yes, I know, I was just kind of- one of your competitors reported last week and they were talking about a lot of labor issues in Australia. And then I guess similar to that I want to pull up with-another thing they mentioned was that they were a bit behind in terms of sequencing on some there operations. Is there anything that we should be aware of, like as we come out of- hopefully, fingers crossed- COVID the last two years, where maybe there are some stuff that you might be trying of work to catch up on in the next few years? No, not really. The first quarter of January was tough, and so the guys had to do a lot of work and, as Dominic said, a simple example of that, is Meliadean had to use more of the stockpiles. So we'll be refreshing those stockpiles at again the normal kind of variance. Alright, thank you very much. That sums up my question. Thank you.

Multiple speakers: Thank you. Your next question comes from Mike Park with the National Bank. Please go ahead. Hi guys, thanks for taking the question. Can you just give us an update where permits are remaining outstanding, Detour Lake for if you're kind of going after West Detour in the Saddle' zone, all those permits quite aren't in hand yet? Well, Muhammad, why don't you take that one? Sure thanks, Mike. With respect to the permits remaining for Detour, there's two principal permits that we have submitted to the authorities and we're waiting for their technical review and approval. They would be the closure plan associated to the West Detour layout and includes closure costs as well as what we call the overall benefits permit for the [inaudible].

Multiple speakers: Once those are in place, that would be the two principal permits. Then there's just your construction [inaudible] for the permits. And do you have agreements of all your first Nations as well? Correct we do and, if I may say, note worthy that we have all our agreements in place and updated agreements that include West Detour-- Including a trip next week to sit down with one of the first Nations and celebrate some of those agreements. So very good progress by the team on that.

Multiple speakers: Just to close up--I'm sorry Mike, not cutting you off. Did you have any other questions? No, that's it from me. Well, before we end, I think Dave, you wanted to make a comment. Yes, I just wanted to go back to Fahad's question for clarity. I think Fahad was asking about whether or not the fair value inventory adjustment was included in our non-GAAP KPIs like cash cost. The answer is it's included in the GAAP measures, so it's on the income statement, as I mentioned, in production cost, but it is not as a non-operating, non-cash, non-recurring item. It is not reflected in the non-GAAP KPIs, so I just wanted to make that clear. Thank you, Dave, and so in conclusion, I'd like to thank everyone on the call. Again, 65 days ago, we ended the call by saying we're going to work hard for our investors and our communities, and I think we have been.

Speaker 3: We've made good progress and I'd also like to thank all of our employees who really have been working hard. So thank you everyone, have a great day. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Have a great day.

Speaker 1: Thank you for calling decision. Which call are you joininghi? It's the nle. No eagg's .nico Eagle mshare your first and last. namerachel smithand the company are withaera one momentthank you. The conference is now being recorded.

Q1 2022 Agnico Eagle Mines Ltd Earnings Call

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