Q1 2022 Agnico Eagle Mines Ltd Earnings Call
Good morning, My name is honest and I'll be your conference operator today at this time I would like to welcome every once you dig Eagle Eagle first quarter results 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone.
Keep that you'd like to withdraw your question. Please press star followed by Cheers. Thank you Mr. Amaral, Judy you may begin your conference.
Thank you and good morning, everyone.
So it's been 65 days since we last spoke and we've been very.
Very busy we've been working hard and I think what will demonstrate today has some very good progress and Theres 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 will 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.
On the operations 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, while the 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.
Affirming reaffirming our <unk>.
Combined company full year production guidance of three 2% to $3 4 million ounces and our combined company full year cash costs of 725 to 775.
The second item to takeaways in the 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 we had estimated approximately $15 million a year in.
Our streamlined organizational costs, and we're already closer to $30 million.
On that more 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 takeaway.
In this call are the value drivers.
Strong pipeline as always.
But strong pipeline again, and the agnico away largely off the existing assets and existing jurisdictions will go through this in detail, but it's interesting that as we talk about.
The great potential of detour and.
We talk about the great potential at melodic among others.
Who are the two biggest mine gold mines in Canada. They are two of the biggest gold in two of the top 10 largest gold mines in the world and the fact that 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 takeaway. While this was a strong quarter remember.
Two things one this was a stub quarter. So we'll really see the theres a lot of complexity in this first quarter the merger the stub 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 quarters 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 volatile industry. So maybe just jumping on to page six.
Some of the highlights again, our solid quarterly production on a combined entity.
<unk>.
Post merger.
Incorporating the Kirkland assets post merger 661000 ounces of production at a cash cost at 811.
But for the full company full quarter those equivalent numbers are 806000 ounces.
At cash costs of $755, so well within our guidance and a very strong start to the year as we discussed.
Some exceptional.
The results out of key cornerstone assets, and we'll talk about it but Laura 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.
<unk> briefly about COVID-19.
It seems over the past 12 months. It is gone then it comes back it is gone. It comes back Omicron was difficult in December in 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.
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.
He 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 eight the synergy 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.
We repaid $125 million of debt with cash as it came due and a quarterly dividend of <unk> 40.
Once again.
Hitting on some of these key value drivers and I give credit to Brian Kristy 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 and 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 AG.
Agnico Eagle and our partners Humana 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 as some of you know as we transitioned 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% or 40000 tonnes a day in <unk>.
The most prospective gold region in Canada, and one of the most prospective in the world and we have made some good progress in looking at opportunities to fill that mill.
We expect.
Maybe this time next year to give a little bit more guidance on that but good progress on that front detour Lake is an exceptional mine as Natasha Vaz said yesterday, we're just now scratching the surface of the life of mine on that project. The mill optimization projects are going well we're <unk>.
Going to be giving a technical report in middle of the year that talks about incorporating.
Some of the additional allowances.
The additional 10000 resort 10 million resource ounces from last year into the mine plan. So a considerable amount of that will be incorporated we will 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 roughly one gram a tonne of 32 four.
<unk> tons a year.
That's about 1 million ounces a year.
Production potential on that.
And maybe Eric can talk about this later continuing to find some excellent exceptional frankly drill results as we continue and we are now even getting excited now this is down the road, but we're getting excited about an underground potential there as well the Kirkland Lake update.
I'll talk about that but the real potential there isn't sort of $20 million here $40 million, there truly 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 will probably have.
A better guidance on that in about a year or so.
But theres a lot of potential there we mentioned hope Bay, we acquired hope 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.
Drill results that you can talk about we mentioned them a couple of them here 23 grams over over five meters nine five grams over 15 meters.
The potential there as we've always said is to develop a project thats three to 400000 ounces a year.
And we're working on it and then again, we'll leave that for question period, maybe with <unk>.
Not on the page, but we have to highlight melia and growing to 6000.
Tons a day <unk>.
And that's been in place for 34 years had some of the best results.
Ever with.
With three exploration drifts, Makassar and Keith the chefs coming in so a lot of key value drivers we're focused on.
Sure.
Importantly, another.
Good quarter demonstrating our.
ESG credentials.
I'd like to congratulate Detour Lake who was awarded.
Leading practice award by the International network for acid prevention for some of the work and frankly some of the research.
That theyre doing so congratulations.
To the team there we will be publishing our 2021 sustainability report in.
In the second quarter and congratulations to our team there as Agnico Eagle was nominated by IR magazine.
Having.
Nominated for best ESG disclosure among large cap Canadian companies it's.
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 intensity of gold miners anywhere in the world.
And we are getting better.
<unk>.
Made a commitment to zero carbon emissions net carbon emissions by 2050, and I think we're going to get there before that but 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 of itself frankly is the cornerstone of why you have to be good at ESG and that's part of who we are.
If we take a look at some of the operations again, a strong quarter, but I just want to point out some of the some of the mines that again were exceptional in la.
<unk> 105000 ounces at cash cost of $560.
<unk> talked about detour Lake. This shows post merger of 100000 ounces at $600 for the full quarter, that's 182000 ounces again.
Stellar quarter.
Fosterville post merger 81000 ounces at a remarkable cash cost of $309.
Ounce.
For the full quarter, that's 127000 ounces and just.
To be consistent and finish Makassar shows 24000 ounces, but for the full quarter. It was 44000 ounces. So.
A pretty decent quarter.
Operating margin.
Post merger.
Incorporating kirkland assets post merger 663.
$1 million 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.
Thank you Mark.
As mentioned the strong operations allowed nikko as well as good pricing of course melodic Nico to add cash to the balance sheet during the quarter.
Free cash flow of about $200 million, we have liquidity of approximately $2 3 billion in fact, not including an uncommitted accordion of $600 million as Martin mentioned subsequent to quarter end, we repaid $125 million of notes that matured.
We paid that off with cash of course continue to our <unk> 40 per share dividend.
I'm pleased to announce a new tool.
Our normal course issuer bids 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.
And I think <unk> 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.
Thank you Dave.
I'm talking about synergies, we made a commitment to all of you on our last call.
We would get into details.
Been doing a lot of work on this this is important.
This is something that our investors want us to.
Work hard on so I'll take a minute to go through this again.
Congratulations to our team on the press release, there is 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 think the what we know the synergies are going to be.
We had guided $15 million to $25 million in 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 million to $50 million a year.
From $35 million, a year and we are guiding to $200 million.
Pre tax in the first five years up from $1 45, and regarding to $400 million over the next 10 years up from 320, 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 I'm going to jump first the strategic optimization before operational 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 Makassar mind that seems to be going very well.
We.
We will probably make a decision on that.
Before before the end of this year, and we think theres the potential to bring in potentially another 40000 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 6% to 700000 ounces.
<unk> 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.
And savings on equipment, one time associated with the upper Beaver shaft, just from equipment, that's available from the Makassar shaft sinking so again good good.
Progress on the strategic optimization and then on the operational synergies again, a good right up.
In the press release, but I'll hit some of them are 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 as something as simple as that potentially $5 million a year. Some good work on the.
The potential to steepen, the pit wall slopes at detour that has the potential of that one item alone has the potential given the size and tenor of that mine of potentially $100 million over the life of the mine.
And then a basket of other things we've talked about in the press release centralized control systems energy management core scanning.
Renegotiating refining contracts.
Together potentially $75 million a year.
If there are questions afterwards, we can get into it but but suffice to say very good progress and we really have just started.
Sure.
So again.
Agnico Eagle, we want to maintain a simple consistent.
Discipline, and importantly proven approach to value creation, which has three key components.
Low cost strong margins strong cash flows.
Our 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 and 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 our pipeline of high quality exploration and development assets and again.
Some excellent exploration results in the first quarter that were excited about it I'm going to build on and then building on a long history, a long history of capital returned to shareholders 38 years of consecutive dividend payments and we haven't mentioned it but we think the normal the normal course issuer bid will be approved.
Probably next week or the week after so thats good.
I have been going on for a while I'm just going to take a couple of more minutes.
To flip through some of the operational highlights I'll be very quick because we want to leave time for questions.
<unk>.
Exceptional quarter, you've seen the numbers, but there are some details that I think are also exciting 31% of our production marketing was done autonomously.
Lauren that's impressive we're almost at a third being done autonomously and <unk> zone, 521%.
<unk> done an automated mode. So this is a mine that has been operating for 34 years, there were continuing to invest and we're investing in three exploration drifts and we're investing in modernizing at an exceptional cornerstone asset for agnico Eagle Canadian melodic we've 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.
The final point on this page.
<unk>.
We added the Cam flow property to the partnership's landholding and this is an asset that has potential to provide some of that feed into the mill <unk>.
Continuing to get good exploration results continuing to get good production the railway are set.
A record.
Average for the quarter above the design capacity.
And.
A record single day performance.
10 seven tons.
Again exceptional progress.
Detour Lake.
Full quarter of 182000 ounces just have to repeat that that's quite remarkable.
Very good cost control.
In the first quarter, considering fuel and electricity costs in all of those associated things 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.
<unk>.
Value added.
Detour.
Potential macassar I won't I'll go quickly in the Cassa <unk> and key tailor both having their shafts on schedule coming in at either the end of this year or early next year <unk> going up to 6000 tonnes, a day and Fosterville again.
An exceptional quarter and hard work.
Good effort by our team in Mexico, as always and with that I think we will stop and open it up for questions.
Thank you, Sir ladies and gentlemen, let me now.
Quick question and answer session, if you'd like to ask a question Press Star then the number one on your telephone keypad.
Your question Press Star two.
Using a speaker phone please leave dense breast in any case.
One moment. Please for your first question.
Your first question comes from Tanya <unk> with Scotiabank. Please go ahead.
Oh, great. Thank you good morning, everyone and congrats on your first quarter as the newco.
Couple of questions. If I could first off just a quick one Dave can help me on that point just to reconcile.
The numbers that you provided on an annual basis for guidance for production and costs you mentioned Q1.
Production of <unk> seven.
755 total cash costs do you have the all in sustaining cost so that I can reconcile that please.
We can give you that tenure debt.
I don't have that available with me right now.
But we'll get you that.
That's fair.
And then maybe just keeping on just on the quarter and you mentioned that.
Are we going to see a much stronger quarters going forward.
In the press release, you did give guidance on <unk> and <unk>.
Hello, Ron talked about Meadowbank and kept hilla can you just give us maybe from a bigger picture are we looking at like 55% second half.
Neil 53% second half I know with quarter over quarter improvement just a bit more that we can help us with some of the other mines.
Well I think what we said the last time was roughly the first quarter would be 20000 ounces less than the next three.
I think thats not a bad number for the second quarter.
But 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 tenure.
And just maybe on <unk>.
And just again just to come back on.
<unk> 90.
90 per liter Canadian diesel I think Ken the sensitivity for a 10% move was $6 an ounce is that still correct.
Yes.
You do have about 40% of your oil.
Excellent.
That's correct.
Can you just remind me when you would be purchasing all of your <unk>.
And none of it.
What are you seeing out that far purchase pipe.
Beginning in July and the forward rate for the remainder of the year on diesel as a better stock 13 a leader.
So that number was about a week old.
And when do you have to have all of it done.
And having to put it all in and complete.
The shipping season ends.
Kind of September October .
Okay.
Okay.
Atkins I just wanted to ask about other inflationary pressure you say that you may buy you are not seeing yet.
And any other consumable.
We are seeing it and interestingly Tonya, probably where we're getting the most pressure is in.
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.
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 but we are seeing inflation in consumables. We are seeing it in reagents, we're seeing it in steel.
It's out there.
And Aflac slight levels are you seeing the inflationary pressures that.
And those items.
You mean, you mean percentages.
Just a round number.
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.
Finland, and it's mostly to deal with steel and.
Items that are derivatives of natural gas, which again is logical.
And I'll leave it to someone else. Thank you.
Thank you.
Your next question comes from Fahad Tariq with Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my questions, maybe first for Dave Smith, just an accounting question. So I can see that the.
Kirkland.
Operation This sales exceeded.
Production by about 56000 ounces I just wanted to clarify after all the adjustments and everything.
Those 56000 ounces are included in revenue, but the costs are not included in the quarter is that correct.
Yes.
Inventory cost went through the production costs.
Youre talking about the revalue right correct, because they had to be revalued to market. Yes. That's correct. So the costs did go through.
They would go through our.
<unk> costs.
Because there you value them at basically at spot increment goes through the production cost.
Okay I understand.
And then just switching gears to the operational synergies that you highlighted for 2020, you mentioned in the press release that it could be about $10. An ounce. 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.
Okay and then just the last one from me on <unk> any update on the battery electric fleet in.
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.
Natasha Yeah sure. Thanks, Thanks Omar Saad.
So we are continuing to work with the Oems on that in terms of our performance.
Continuing to troubleshoot with sandvik in terms of a battery issues.
We're seeing a supply chain concern I think it was like a chip shortage.
The automotive industry, but.
Seeing a slight increase in availability.
Fixing some of the issues but.
Still a lot of work to do on that Ed and attached and maybe just talk a little about the ventilation progress and the flexibility that will give you at the end of this year, we plan on completing the ventilation upgrades. So we're going from 300000.
300000, CFM to about 750000, CFM with the shaft and that you lease or is it we're doing we've completed the excavation of the raise point, putting the fence on later this year and changing out the entire event system. So we should have additional flexibility in our option.
Okay, and just a follow up on that is in the test it sounds like it's not.
The focus is not really kind of go back to conventional diesel just yet is still trying to figure out the battery electric fleet, absolutely we're committed.
Absolutely we are committed to pursuing this.
It's nice to have that optionality.
Okay, Great. That's it for me thank you very much.
Thank you. Your next question comes from Lawson Winder with Bank of America. Please go ahead.
Good morning, EMR and days very nice to hear from you both and thank you for today's update.
Omar I wanted to address my first question to you in the Aussie press in early March you made some comments that.
<unk> wants to own more assets.
Just would be curious what form that expansion might taken with.
Would that be acquisitions of existing operations development stage or exploration stage and <unk>.
You consider partnering partnering as well.
Hi Lawson.
Just to hear your voice.
I would tell you.
We had a fantastic trip to Australia and the team there is really a great team nice people very capable and lot and theyre doing a lot of really lean.
Leading edge technical things there.
Australia, absolutely meets the criteria.
<unk>.
<unk> potential for multiple mines over multiple decades and meets the criteria of you can actually operate there for multiple decades. So it is.
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 and 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.
The category of good regions in which we operate to the extent we expand in Australia.
Loss when we do it the same way you would it any opportunities there has 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 tried to.
Great value from there so 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.
Okay and in that same sort of zain are there any.
Assets in the portfolio that.
Might be.
Worth considering divesting.
There are some positions that we have that.
We look at.
And those are nonoperating 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.
Okay great.
If I could 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.
Diesel costs.
Maybe just a little color on that particularly like in terms of sort of the strikes on the hedges.
Is there a large sort of strike that happened in July when you guys are going to be paying for those those diesel costs.
Yes.
Kind of the moving parts around that would be helpful.
Yes, it might be helpful. Our hedge rate is 57, a leader the guidance rate was 90 cents a leader and as I mentioned the forward rate was <unk> 13, a leader so mark to market. Our hedge book right now is about $20 million in the money, which certainly will help us.
Okay got it thanks very much guys.
Thank you.
Thank you.
Your next question comes from Jackie <unk> with BMO capital markets. Please go ahead.
Thanks very much.
I wanted to congratulate you guys on the center.
So far it's really terrific to see.
Schedule and maybe if I could ask a question just to get some more color on that.
Are the synergies that you've achieved year to date, so far and that Youre expecting achieved this year are those new synergies that you had not previously identified or are you, bringing forward things that you werent 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 for them don't Pan out and then you find for that you never thought of.
So it is a bit of a combination but the biggest thing is.
I think Dave and his team did a great job on cutting some of the financial costs and very quickly.
Weeks. This is you don't need two bank facilities, you don't need to insurance policies. So some of that had been identified but they did it they did it in weeks rather than months. So thats. Good a big difference is frankly on the streamlining.
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 its not its not just about cost it's about human beings. The worst thing you can do.
As Leif 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 are.
People fairly.
That's great. Thank you.
Maybe I could ask about the JV that you announced in February and now that you have approved.
Can you talk a little bit of a no no.
No.
So it's hard to.
Hard to know exactly but can you talk a little bit about what the strategy will be in terms of how quickly that gets executed is this something you expect to do fairly quickly.
<unk>.
$500 million over a year or something like that.
Well I think it's very flexible tool that we have and we will we will try and be opportunistic in the buying and I anticipate it will probably be spread out over over most of the year, but again that could change. If there is a moment that we feel we should be opportunistic.
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.
Thanks, Dave.
If I could just ask one last question you mentioned this earlier and you said 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 you about the changes to co pay and the exploration that's going on so far.
Banking is four one.
Once it restarts production thanks.
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 <unk>.
Potential at depth in <unk> as you know Theres currently there was all of the mining infrastructure.
And we came out of our due diligence with some some some good idea about potential too to connect some of those say deep batch.
At <unk> basically below the diet.
And we've been positioning some some drill specifically answer to face in the first quarter.
And we got as you can see in the press release, you know some some some pretty nice.
I don't know 10, Gram plus even 25 gram over five meter and an area that that was left on tested.
Before we took over so we're quite pleased to see that within that that those fold landmass that because it's a tight hold that at <unk>, we're dealing with that not only we're getting good results in the <unk> like we're used to mine in the past, but now we are developing and confirming that within the fold them theres, some pretty decent high grade vein system.
And it's wide open at depth.
Laterally. So are we going to continue to ramp up drilling in this area.
It's and again, it's not just at doors.
Key there Jackie is and maybe dominant can talk a little bit more about this.
We operate we know what it takes to operate in the north and our vision is again sort of 300 400000, 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.
Madrid, and we haven't even talked about Boston, yet, but it is.
Again, it's not just doors, but it's outdoors fits into the overall strategy I don't know Dominic if you wanted to make a few points on that.
Yes, we're looking to have let's say a first project 300000 ounces 10 years kind of project to kick out.
To start the foundation looking.
Looking to work probably with the current meal improved throughput that two 4000 ton per day.
This is our first lithium salt project and as exploration goes eventually increase that to I don't know it could be 500000 ounces at some at some point.
It is still early I.
I'm very happy that we see a good hit and where.
But right now that's really the focus is a full glass on drilling and exploration.
They add Jackie and while we are excited as well to go back to Boston as soon as possible and one of the thing we've but we had to bring supply on the barge.
At <unk>.
Summer and we did the winter rolled all aimed to bring all of the new equipment to refurbish that cam that data from the eighties. When BHP put that came together. So there was we had to give a little bit allows us to that Cam do we aim to be in a position to resume drilling and because we know that the deposit remains open down there with some very high grade sitting at depth the kilometer, but also phased.
There is almost a low bandwidth 56 gram over 10 meter at the kilometer depth. So we know there's a lot more to final vadera as well its all that we can ramp up activity from the small caveat it.
The small scale it was on their on their T. Mack bring more rig and increase our drilling capacity over there.
This is super helpful update. Thank you it sounds like Theres a lot of opportunity there thanks very much.
Thank you. Your next question comes from Greg Barnes with TD Securities. Please go ahead.
Yeah. Thank you Omar I just wanted to talk about detour in the upcoming mine plan that you see that more of an incremental step then.
18 to 24 months of a 12 to 18 months from that point to a whole another mine plan with the expanded mill the underground with the underground.
The the source of all a feet to fill a mill from 28 to 32 million tons.
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, as I've said, it and I would like to 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.
Our steps to go from $24 million to $28 million.
<unk> and John and Natasha are working on this closely together. The next step is to look at the potential to grow from 28 to 32.
Million tonnes a year.
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 Kallio is on the line he can jump in on the exploration but.
We think the pit can can.
A lot of <unk>.
Throughput through the mill, but the underground when we get to the underground that would be at say three grams to five 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 thats 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.
The mill is licensed to $32 million.
I understand it wouldn't require significant capex to achieve.
It is permitted at $32 four you're exactly right.
And.
We are going through the process.
Of getting there.
We were talking to John about this yesterday.
John's our local Mad scientist, who has got 10 different things he's thinking about but.
This is something thats, probably going to take us a.
A year or year and a half.
To really come back with something more focus, but what I would ask maybe Eric I know you are on the line Eric maybe you can just hit a couple of the just briefly some of the highlights on the exploration.
Progress.
Yes, good morning, everyone.
Thank you Mark.
We feel very positive about the exploration potential at each where we had the press release in February .
From that you can see we had a lot of new drilling happening on the side of the pit where previously there was very little drilling done.
Good results, both on the north side deep and.
And on the West let's limit so.
No.
We do expect that we can grow that when we do the update your update.
Already just from the results we have.
And then with the press release, we just had yesterday.
New holes that were up to 500 meters.
The west.
And so and some even.
<unk>.
Continuing to sell abroad intersections, but even some very good grades up to 38 Gram over 3233, and a half over 48.
One over 10 so.
These are.
These are continuing to make us very positive about those.
Growing so.
Anyway, So I think.
Yes, just continues to look very good and we know the structure from our from our regional geophysics.
Thank you.
Look like the track for at least another kilometer due to the well beyond that we don't know but.
We are continuing to see a lot of.
<unk>.
Thank you, Eric and again, thanks, Greg for asking because that's.
That's an important point.
Thank you Mark.
Thank you. Your next question comes from Anita Soni with CIBC. Please go ahead.
Hi, Good morning, guys. Thanks for taking my call.
I just had a quick.
It's about the Nitty gritty as I, usually do so on Macarthur.
Grades were.
A little lighter.
And then you have just forecast a few weeks ago.
How do we expect the grade to evolve over the year with well, let rebound I mean, I think you were forecasting 24 and it came in at 16.
Could you give us a little bit of color on that and how we would expect that to rebound over the question here.
Okay.
Hi, Anita Tasha.
So the grade was slightly down in comparison to what we had predicted for mckesson quarter, but.
In general as you know.
Mckesson has a pretty high grade ore body at the small tonnage operations. So.
We expect to see some great variability in localized in a localized scale that.
That coupled with some changes in the mining sequence has contributed to.
The great variance.
So we expect that too to stabilize over the next couple of quarters to hit our guidance.
Okay. Similar question I guess this one goes to Dominique for Melia dine in Amyris as well in terms of the grades.
Yes, good morning Anita.
At media Dine in Middle Bang, both were affected with Covid issues early in the year now behind us.
Mainly because now it's a much easier to do with contact and contact tracing so.
Never mute our back end all the crew is back media Deane, we add to process a bit more low grade <unk>.
But let's say open pit stockpiles, while we decreased the mining activity, so that affected affected the ounces and the cost but.
Now we are back on track in grades going to increase at Needham Bank.
We started January stopped we restarted.
The grades going to improve through the year.
We did the first quarter at $2 26 Gram per tonne and we're forecasting the year at two five to six so more go more deep we go into the pit grade. These increasing we are going to see it this year and the coming years, but also the underground.
So again, we're going to have their first test stope, where we're doing all the commissioning in may and undergone is going to be in full production.
In the Q2, Q3, Q4, which is going to be a very good to help and this is a good part of the increase ounces coming into second half of the year.
Okay, and so is the underground not operational yet from that too.
I thought I had seen that there was a few.
Few starts in Q4 and Q3, so did that contribute at all yet in this quarter are now well, we had a bit of a related development ore, but it was very very minimal is going to really start more in may and June .
And I am very happy also.
An important key TPI is broken inventory, we are today at $2 5 million tons broken so in good position for the remainder of the year.
And then flipping to the ran which is the opposite.
Pretty good grade.
You said you were.
And I'm not going to remember with zone. It is but it was the higher gold lower zinc zone is that going to persist.
Into the next quarter or does that any are you guys immediately out of that.
The upgrade mainly came from the east mine in Q1.
I need to see this month is still good.
See I was going to go through the year before part of the upside was coming from Stope also that were planned in Q4 that have been move in Q1. So we.
We're not getting those results.
But they are still looking to be on forecast for the end of the year.
Okay, and then last few questions on costs.
So I think he's relate a little bit more too so firstly on the cancer.
<unk> costs, there were a little bit better than plans can we talk about I think it was like five.
<unk> three versus 692 died and Thats more in line with what.
What was happening last quarter in the prior quarters under the KL fold. So maybe there was a little bit too much conservatism or is that going to have are the makassar cost going to trend up over the year.
We expect to be within guidance.
There was some.
There are some delays with respect to some of the sustaining capital.
And in terms of the number four shaft and such so we plan on being within guidance.
Guidance.
I was talking about unit cost Sir.
Uh huh.
Cash cost per ounce.
Yes.
Thanks Sam.
Okay, maybe I'll take that one offline, but the and then lastly.
Hi, Keith law right. So you are guiding that they've got a little bit higher.
We are seeing more inflation impacts because they are closer to the two.
Supply chain issues. So maybe that's one that might be a little bit higher than guide for the question here is that is that correct.
Yes, we see more pressure in Kittila energy and <unk>.
<unk> mentioned some.
Supply soup lifestyle.
We also what affected the first quarter is also because we had less ounces.
Now.
It was another question on Ito, but I could answer that one.
<unk> had some challenges on the sequins ware.
Ananda, we still grown condition pushed us to mine.
Smaller stope at the end of the panel with a bit more dilution. So the higher the higher grades to plan in Q1 are postponed into the year. So now the team is back on track and we are going to be we are currently now in those higher grade stope, so having more ounces going to adjusting it help to have a better guys.
And then last one on the cost was at Fosterville that one was a little high too and that is that because of the restrictions that are happening in Australia in terms of the labor.
Or have you been impacted by it and youre not been impacted by that and that's something else no. There is no labor impact.
Covid did impact all of our sites.
We were able to mitigate that in terms of our cost profile, we have been pretty pretty good income yes, yes.
Yes, Anita so yes, there is.
Cash cost per ounce and then Theres the unit cost per tonne.
They do vary a little bit.
Sure.
Sure.
But overall, though it went pretty well thats just kind of normal.
<unk> yeah yeah.
Yes, no 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 the last similar to that I want to follow up with that.
The other thing you mentioned was that they were a bit behind in terms of sequencing on some of their operations is there anything that we should be aware of like as we come out of hopefully fingers crossed COVID-19 .
The last two years, where maybe there is some stuff that you might be.
Kind of work to catch up on in the next two years.
No not not really there.
The first quarter January was tough.
And so the guys have to do a lot of work and as Dominic said, a simple example of that is.
Dean.
To use more of the stockpile. So we will be refreshing those stockpiles. It's again, it's the normal kind of variance alright.
Alright, Thank you very much subset for my questions. Thank you.
Thank you. Your next question comes from Mike Parkin with National Bank. Please go ahead.
Hi, guys. Thanks for taking the question.
Can you just give us an update where.
<unk> remaining outstanding Detour Lake.
For the Knick Youre kind of going after west detour in the saddle zone recall all.
All of those permits quite earn and yet.
Well either Mohamad why don't you take that one.
Thanks, Mike.
With respect to the permits remaining for detour Theres two principle permits that we have submitted to the authorities and we're waiting for.
Their technical review and approval as they would be the closure plan associated to the west detour.
Layout and includes the closure and closure costs as well as the what we call. The overall benefits permit for the caribou. Once those are in place that would be the two principle permits then there is just to your construction and various other permits.
Great and do you have agreements with all your first nations as well.
Correct, we do and.
And if I may say noteworthy that we have.
Are all of our agreements in place and updated agreements that include West detour.
Including.
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 just just to close up.
I am sorry market not cutting off Mike do you have any other questions no no. That's it for me. Thanks, Okay, well before we end I think Dave you wanted to make a comment I just wanted to go back to <unk> 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 nonoperating noncash nonrecurring item. It is not reflected in the kpis. The non-GAAP API. 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 we've made good progress and I would also like to thank all of our employees, who really have been working 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 participating and ask that you. Please disconnect your lines have a great day.