Agnico Eagle Mines Limited (AEM) Q1 2021 Earnings Report, Transcript and Summary

Good morning. My name is Schwing and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle First Quarter Results 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Chief Executive Officer, Mr. Sean Boyd, you may begin your conference.

Thank you, operator, and good morning, everyone and welcome to our first quarter 2021 results conference call. We are moving through our slide deck and in that slide deck will be forward-looking information. So please review the cautionary language that is in our PowerPoint material. What I’d like to do is, just review a bit of a – sort of an overview of the strategy, touch on the progress we are making on ESG and Greenhouse gas emissions and what our plans are there going forward in terms of additional investments, particularly in the north; review the results of the quarter, talk about our exploration, which is a real push for us with a huge increase in our budget this year. So, if we look at the quarter, again, we essentially were able to build for the momentum and strength that we saw in the second half of 2020 with the second consecutive quarter of record gold production. We did that strong operational performance with probably the most employees we’ve ever had and extremely good safety performance and not only are producing gold we are doing it very safely. Our costs were slightly better than forecast in the quarter. Financial position remains strong. We’ve declared a cash dividend again. So that keeps our track record going. We’ve been paying, as you know a cash dividend since 1983. So the focus continues to be on growth and execution of our Brownfield opportunities and project pipeline. We are still looking for 24% growth in production from last year out through 2024. As we said, we will touch on exploration. It’s a big part of the story. In terms of gathering information on the Brownfields opportunities we are seeing extremely good results at LaRonde. Good results at Meliadine. We featured some results here at Canadian Malartic and Hope Bay. We will talk a little bit more about that. We plan to have a more fulsome exploration update later on in the second quarter. What we decided to do is not pile it all into a quarterly release like we did last time. There was just too much information last February. So, we will be able to break it down and provide some forums with our exploration team to be able to discuss the progress we are making on exploration in a number of areas. Having said that, Guy Gosselin, who runs our exploration group and he has been with us for 20 plus years is on the call here and he is available to answer questions on exploration. So no change in the strategy. It continues to be focused on optimizing the existing assets through taking advantage of the ability to convert more resource to reserve, extending the mine lives of our key mines. That’s a low risk, high quality strategy given that those are high quality ounces near existing infrastructure. And also, we continue to be focused on ESG. We score very well on ESG. We are recognized as one of the leaders in the industry in terms of ESG by a number of external independent rating agencies and research agencies on ESG. We put out our sustainability report. Our Annual Meeting is today. So, we make that available around Annual Meeting time. So, that is out today. And we are adopting a net zero emissions target for 2050. And we’ve begun the disclosure of Scope 3 emissions. We are fortunate and we look at our business because a lot of our production is powered by electricity, over 50% of our production. So on a relative basis, we have very, very low greenhouse gas emission intensity within the peer group. In Nunavut, we are required to use diesel to power those mines. So, as we move forward to achieve our targets of reducing and getting to net zero that will require investments in renewable energy and as we talked many times before, we continue to work with the governments on alternatives like wind power and also a power line from Northern Manitoba up into Nunavut. In fact, at Hope Bay the government has given the okay for a wind turbine there. We still have some work to do on that. So we have made some pretty good progress there. We talked about safety earlier. It continues to be a priority. We’ve achieved one of the lowest combined lost time action records in our history and we continue to win a number of safety awards at several of our mines. One of the highlights over the last year, it’s been challenging for many, but our team have really stepped up in the communities. They’ve done a real professional job, a real classy job of not being asked to help, but stepping up and taking the initiative to provide food in certain areas to provide medical assistance in certain areas. As you know, our Nunavut workforce is still at home. It’s been over a year. We are getting closer as more vaccinations are being put into people in Nunavut. They were able to start the vaccination program there earlier. So we are getting closer to the point where we can welcome our Nunavut based employees back and we look forward to having them back. As far as the quarter goes, record production for the second consecutive quarter as we said. Without Hope Bay, it was 505,000 ounces, which is a record. That sets us up nicely to beat our guidance but also to produce two million ounces for the first time in our history over two million ounces. That’s over 300,000 ounces more than we produced in 2020. So we continue to make very good progress. Our CapEx estimate continues at little over $800 million and we talked about the declaration of a quarterly dividend of $0.35 a share. As we look at the quarter, we are pleased and happy to be delivering strong cash flows, strong earnings, good cost, record production. But I think the real value driver of those continues to be exploration. We saw the beginnings of this about a year ago with several projects. But we highlighted as we said a few of our exploration results in the quarter in this release, East Gouldie, the extensive step out there is potentially significant. Because essentially, what East Gouldie has done is turned what was a very marginal underground project into what will become Canada’s largest underground goldmine which we announced last February. We have always said from the start that given the location of East Gouldie in a totally different rock package than what the main structure is, along that main break in that region, it opens up the potential and we have over 20 kilometers of ground covering that major structure. So, to have a step out over a 1000 meters to the east is important we believe. It just demonstrates the immense potential of that area to find additional gold. And as you recall in our study, which we put out in February, we only assumed that we would mine about 7 million ounces of an overall envelope, which is currently known to be in excess of 14 million ounces. And here we have a step out of 1,000 meters to the east of the East Gouldie mineralized envelope. So, that’s why we view it as potentially significant. It’s close to the boundary of The Rand Malartic property which we acquired a couple of years ago. That’s a property where there is a 2% NSR, but we have the ability to buy it all back for I think $7 million. So, we just like that area. And I think as you recall, we said many times, one of the reasons that we got involved in this back in 2014 is the fact that we were on that – in that region for decades and we felt that there was the potential for significant underground opportunity and that’s unfolding as we have hoped. So, stay tuned for more results there. At Hope Bay, steady pace of work. We’ve got a team in place from Agnico that’s augmenting the team at Hope Bay. We are making improvements in the operations. They are focused on the Doris deposit. Exploration is largely focused on Doris. We think we can extend that part of the operation while we continue to drill Madrid and the Boston deposits. And at Upper Beaver, we have the best reported drill hole intersect ever on that property over 60 grams, almost 1% copper, little over 16 meters at a depth of 1200 meters. So, we continue to drill and work on our analysis of the Hope Bay – of both the Hope Bay and the Upper Beaver opportunity. The next slide is really just the long section of Canadian Malartic. There is ten rigs going. $30 million programs with 50:50 with our partner Yamana. As we said, the structure is wide open and it covers 20 kilometers. You can see on the right, the Rand Malartic property boundary. That’s a property that hasn’t had much exploration on it and that’s why we say the structure is totally wide open and that will be a main focus of our exploration program, because it’s the thickness in grade at East Gouldie which really drives the entire Odyssey underground mine opportunity. We also see on the next slide a long section of the Doris deposit, the Hope Bay Mine. Just to remind you of the program $16 million. Approximately, 70,000 meters of drilling and about 30,000 meters of that is delineating Doris and 40,000 meters will be exploring targets around Doris, Madrid and Boston. From an operational perspective, we see improvement in recoveries at Hope Bay to over 90%. So, step by step, making it a bit better, but the real price we feel here is the two large geological belts 80 kilometers long. That’s going to take some time to drill them. We are not in a hurry. While we optimize and improve what we have at Doris, we will be really focused on what’s the overall size of the mineralized deposits on these two large trends and that will form the basis for our analysis to look at how we can expand the production capacity at this operation at some point in the future. As far as operating results, we got really good contribution from several of our big producers. We will start with LaRonde. The key to the quarter was really excellent productivity in the west mine area and at LZ5. At the west mine area, we’re able to produce more than our forecasted mining rate as we did also at LZ5. At LZ5, we had record production averaging over 3100 tonnes a day, which was well above the forecast and that was really driven by ongoing improvements and optimizing the usage of automated equipment and we are also seeing that at the main LaRonde deposit. We continue to make steady progress as we said at LaRonde 26% of the mucking was done from surface at the LaRonde deposit and at LZ5, 21% of the production mucking was automated calling then from surface. So, good solid progress there. We continue the exploration program. We are developing three exploration drifts to explore areas below LZ5 from one kilometer to three kilometers below surface, which essentially erupts and lacks, prior to that we did too much exploration on. That the same rock package it holds all the deposits on LaRonde. So it’s wide open. So excellent exploration potential. And that type of program is really a key component of our full potential program. If you understand how we can continue to optimize these large cash flow generators and extend the mine life and we see potential to do that at several of our mines including LaRonde. Goldex, steady progress 35,000 ounces, good cost performance, largely driven by the continued outperformance of the Rail-Veyor system. That was above target at over 7,000 tonnes a day on average in the quarter. So that technology, the teams have done an excellent job, but not only looking at how they are going to apply it at Goldex, but actually ramping up and improving its productivity. Continuing to explore that deposit, particularly around the south zone, which is higher grade. So, good solid performance coming out of Goldex. At Canadian Malartic, again good contribution, producing almost 90,000 ounces or half of that operation. We had record tonnes mined in January. Mill performance was above target averaging over 58,000 tonnes a day on a 100% basis. So good performance there. We talked about the Odyssey drilling and that will be a key part of this project as we look forward. What we saw in February, as we said at the time was basically what we would call first cut. This will be optimized continually as we go forward, particularly as we understand how much gold exists in the Pontiac sediments which holds the East Gouldie deposits. So this could have a meaningful impact on the valuation of that opportunity at Canadian Malartic. Kittila set records in March for monthly gold production and tonnage milled. They are also making good progress on autonomous production both in drilling and haulage. The trials are underway in Q1. That will be important for that mine as it looks to expand further. We are impacted by COVID there in terms of the Kittila Shaft and delays there, because the team that was doing the work is out of country. And so, there are travel restrictions going in and out of Finland which has held us back. We’ve been transitioning into local employees there. That doesn’t really impact our ability to do the ounces, because we can simply take them from the ramp system, which is a little bit more costly to be using the ramp. But we’ll get the shaft in place second half of next year, about six months behind schedule. Meadowbank’s steady improvement produced about 80,000 ounces. They set a record in March for long-haul trucking performance. So, good steady solid improvement there with good production coming, particularly in March, which allowed them to post a quarter of about 80,000 ounces. At Meliadine, when you are adding the Tiriganiaq ounces, Meliadine produced more gold than any of our other mines for the first time producing 96,000 ounces. So we have made major advances in terms of productivity. We processed 4600 tonnes a day, which was the target. Over the last year or so, gradually working up to that target, we expect to be at 4800 tonnes a day by the fourth quarter of this year and ultimately continuing to expand to 6,000 tonnes a day by 2025. This is another project which will be long life. We have continued to explore starting exploration drilling back about 18 months ago, once we got into commercial production, we continue to get good intersections at Pump South and Wesmeg, which indicate that the deposit continues to be wide open at depth as we drill them. So, in Mexico, steady performance, good cash generation there. La India, little bit of an issue with water. We would expect to be able to ramp up production in the second half of the year there. But when you add it at all up, pre-Hope Bay 505,000 ounces approximately, which was a record. That generated good earnings, good cash flow per share of $1.47, which is a strong quarter. Our financial position remains strong. We paid cash for Hope Bay including the buyback or buy down of the royalty that was on that property. So, as we move forward, we will continue to rebuild that cash position as we generate strong net free cash flow. So, just a quick summary, as we said second consecutive quarter of record production, we continue to be focused on delivering the growth of 24% from last year out through 2024 as we focus on Brownfield opportunities and our project pipeline. As we get more information on these opportunities through our expanded exploration budgets, we can provide updates on that. Our focus is still on low geopolitical risk regions. We think that’s extremely important as we look at the business going forward. These are places we are very comfortable being in. We’ve operated in them for a number of years. I think part of our strategy is synergies and being able to transfer technology, but also knowledge and experience between these operations to help keep our cost down, but also to help us understand new opportunities that we find through exploration and how we build them into the project pipeline. So, I think what I’ll do operator, is open the line for questions. We’ve got our full team here. And we will be happy to take questions.

[Operator Instructions] Your first question comes from Fahad Tariq from Credit Suisse. Your line is open.

Hi, good morning. Thanks for taking my questions. Maybe first on Nunavut, you talked about in the release, have you starting to have discussions with local authorities, but reintegrating the local workforce. Can you remind us what that would mean from a cost perspective? I know there is a number of initiatives that Agnico spent on while those employees were unavailable, but as they come back, can you just remind us from a quarterly basis what that means from a – maybe a cost savings perspective?

Tariq it’s Mart here. We will end up saving money when they come back as I think we’ve expressed before the additional cost, we are still paying those employees 75% of their salaries. So, that works out to about $1 million a month. There is a lot of work that’s gone into transitioning them back, mostly about safety for the communities, as well as the employees. But, yes, there will be a savings of about $1 million a month as they come back into the workforce.

Okay. Okay. Thanks. And then, - and sorry, just a follow-up on cost, as well. So, I know, one of your peers talked about like the stronger Canadian dollar having an impact on – to the Canadian exposure or Canadian exposed cost and operation. 32% of your exposure it has I think in 2021. Any color on, if FX rates stay where they are today for the rest of the year, what does that means for maybe annual cost guidance including CapEx? Thanks.

Yes, on – it’s about – sorry, it’s Dave, do you want to take that or should I take it? Go ahead,

Go ahead, Mart.

Okay. It’s about 32 – as you mentioned, it’s about 32% hedge. The sensitivity we’ve been able to offset obviously you saw in the first quarter, we dealt with that. The dollar right now is – was averaging about 126 versus our budget of 130. So, we are more than able to offset that. But it is something that we are on top of all the time with regards to mitigating it. Right now, we haven’t adjusted our guidance even with the movement in the currency. Yes go ahead, Dave.

Yes, I would just add – sorry, Sean, what were you going to say?

No, I was just going to turn it over to you, maybe just give some color on your thoughts on hedging and what’s in place.

Yes, yes, absolutely. Thanks for the question, Fahad. It’s an interesting time because with the Canadian dollar lower than 1.23 at the moment, and the guidance was set at 1.30, you get into the interesting situation, where you probably end up trying to protect things like 1.28 that you probably wouldn’t have considered previously. But there does seem to be some strength in the Canadian dollar. The Canadian government is making some noise about raising interest rates. The U.S. government is not making noise about raising interest rates. So, I think that has contributed to the strength of the Canadian dollar. And one of the things we just talked about a couple of days ago was to perhaps use some more exotic instruments to try and benefit the company. But pay a little bit more attention to the volatility and really pick our moments here, because, we, with the addition of TMAC, I would say we are feeling a little bit under hedged. We would normally be around 50% hedged for CAD on the year at this point. And so it’s something that we are looking to add to opportunistically. And I think there is always volatility. So, I believe we’ll get our chance.

Okay. Great. Thanks for the color.

Thanks.

Your next question comes from Tyler Langton from JP Morgan. Your line is open.

Yes. Good morning. Thanks for taking my question. Just a follow-up question on cost. I mean, are you seeing the exchange rate pressure? Do you thing that it came with sort of labor, labor tightness, like other materials, just any concerns there for the cost guidance?

I’ll start and then I’ll turn it over to Dominique Girard. In terms of labor tightness, that’s been pretty stable in terms of what we see is sort of annual increases in our wage cost, particularly in Canada which is the biggest part of our business, which has been sort of 3% or so a year. We don’t see any sort of pressure on that as we look forward. As far as inputs, I’ll turn that over to Dominique Girard who is on the call on the input price side.

Yes, we start to see some increase, let’s say in the coming time mainly steel, concrete and also tires, but what we are doing, our procurement team is well tuned on that and try to take some opportunity on that. Let’s say, when we get a contract, people start to be hesitant a bit to give a – because it is really volatile. So far, prices are still into our range. But again, this is as everybody have their situation in our own life, that’s we see pressure coming. And maybe on the workforce, as Sean mentioned, this is still well – we are in a good position except on the drillers where we see a bit more competitivity into Canada and Europe. But other than that, this is still okay.

Okay. Great. Thanks. And then just, I know, I think that the cash cost in the quarter is around $6.28 an ounce and I think that’s a decent amount below the annual guide of around $7.30, $7.40. Can you just talk about, I guess what, and you talked about good productivity, but was there anything else in the quarter and just kind of how you think about costs for the remainder of the year at the mines?

Well, on cost per ounces, we produced more ounces. So that’s the main driver. We have better grade into the mines with their good productivity. I think an interesting look at the cost, if you look to that, I think it’s likely be 17 or 18 where you see the Nunavut operation, cost per tonne in Canadian going down. So that trending is still continuing with the, less appreciation at sites, more productivity, better control on cost. I think we are going to – just continue to see that in the coming quarters.

Okay. Great. Thank so much.

Your next question comes from Anita Soni from CIBC World Markets. Your line is open.

A question on cost – on the unit cost, alright, across the board the unit cost seem to have been better than what you had put out for guidance in February. Can you just give me – like run down some of the assets and some of the main drivers and try to get – get me to understand why those costs would maybe revert to what you were guiding to? Or do you expect those unit cost to continue to outperform?

Well maybe I’ll start and Dominique said a lot of that was few more ounces in the quarter which certainly helped from a unit cost perspective. But in terms of the drivers, we will see some impact on FX. I think some of the input prices we can offset just through productivity. Will we be able to lower that cost guidance? I wouldn’t think so given that the FX continues to be volatile and unknown to us. So, that’s why we felt that it was sort of premature to make any sort of longer term call or extend our view on the cost performance going out. We do have opportunities at some of the mines to produce a bit more gold. We’ll see how that unfolds as we get through the next quarters. As we said in the release, Q2 is a bit less. We have planned shutdowns at LaRonde, Goldex. Kittila had some work being done as well, Meliadine, so there is several of the operations that are down for a few days, which puts a little bit lower production in Q2, but that comes back strongly in the second half. So, if you look at achieving the guidance we are looking for really strong Q3, Q4 from an ounce perspective. So that will help the unit cost at the back end of the year.

Okay. So, maybe on the Canadian dollar cost, say, it would be the same, but if we are looking at the U.S. with the stronger dollar, the overall per ounce guidance on U.S. dollar is what you were saying. And then, second question would be with respect to the TMAC acquisition. So, the Hope Bay, I noticed you had some pretty good grades for TMAC. I mean, I had the pleasure of covering that for the – before you bought them out. So, 10.8 gram per tonne material is pretty good grade. What could we expect? Does that’s like similar, what similar throughput levels or will it be variable with variable throughput and variable grade?

Dominique, you handle that one.

Yes, good. I think that one, the throughput is I think between 600 tonnes per day to 700 tonnes per day and the grade is going to vary, I don’t know, 9, 10 grams per tonne, which bring us to the 18,000 to 20,000 ounces per quarter. In the first part of the – as I said in the first quarter, we were more in the BTD zone, which is more higher grade. Through the year, we are going to move to the DCN zone, which I think is around 7, 8 grams per tonne zone. So, a bit lower grade, but with a bit more tonnes. So, that’s really the plan. It is honestly very interesting grade, and it’s good to see progress at the mill reaching 91% in the first quarter. We are bit higher than that Q2 up to date. Let’s see if we could maintain that, but that’s interesting and if the mine is able to produce more with optimization, that we have room at the mill. So, it’s encouraging to see the continuous improvement there.

And then, just a follow-up on that. The development work – when do you expect, like the capital levels that you’re spending this quarter, that probably maintained for the course of the year. I think I saw in your guidance that as we move forward into next year and the year after, when we have to invest to really get to continue to produce these ounces?

You mean in 2021 or?

Like, you are looking at the 2022, 2023, like, or should we expect a similar capital levels for – going in longer term?

I don’t have answer to that question. Yes, the thing is we are revising a new base plan, because now with – the Madrid ore body current amendments we postponed that, that’s helped for the CapEx, because we avoid some cost at the short-term. We still need to do some thinking to really put the right position for the ramp in the infrastructure. And from that new baseline, which is going to be ready in 2022, we are going to have a better view in Q2. We are going to have a better view, but, so the spending right now it’s approximately $10 million per quarter. I believe that’s what we are doing in terms of CapEx at the Hope Bay.

Okay. Thank you. That answer my question.

Yes, Anita, just on the strategy there, the strategy is sort of be cash neutral on that as we drill and get more information. What we think, based on what we’ve seen so far is we think there is more at Doris. So that would extend Doris longer. As we said, we step back at Madrid, because we just don’t like the location of the ramp, particularly the type of rock it’s in. So, it’s required us to sort of rethink that. But again, as we’ve said, we are not in a hurry. We are in a hurry to drill it and to understand, but we are not in a hurry to ramp up CapEx. We just see this thing is very, very long-term. We are going to find more ounces there. So, we are going to take our time in terms of next big steps. But in the mean time if we can keep it sort of cash neutral and keep those drills turning, that’s a good objective for us.

Yes, I mean, it looks like the focus will be on finding similar grades and more ounces there, rather than necessarily improving the nodes mining at 91%, so.

Yes.

Okay. Thank you.

Thank you.

Your next question comes from Puneet Singh from Industrial Alliance. Your line is open.

Hi, thanks. Good morning. Just related to Q2, are there any higher grade stockpiles that you already have at some of these assets that has potentially lowered the impact of maintenance in Q2?

Dominique?

Yes, not really. We don’t – when we have high-grade stockpile, we’ll pressure them. We don’t wait for that. And the – let’s say the shut down in Q2 are there. The position of the mill liners are varying that their life time is done. There is a shut down at Kittila for the – where we need to do dentist job because the scaling is built up – we need to clean it. It’s a ten day shut down. There is one at LaRonde, it is also a ten day shut down where we do more at in deep electrical maintenance. We use that season – that part of the year because it’s a better season to do it and also it’s prior to summer holiday. So strategically, it happens that we have more shut down in Q2. But that’s normal operation. We are going to see that – we are going to see Q2, the second half of the year better grade at LaRonde – not at LaRonde, at Meadowbank and also a good productivity everywhere and that’s going to be a better second half. But it’s just a question of timing.

Okay. Great. And at Meadowbank, you did really well this quarter – calling for a similar production rate next quarter, do you think you will still have some of that softer ore helping you next quarter? How should we think about that?

Let’s see, the mine – the mine is better – it’s producing better than planned at the mill is also able to process more. Part of that is related to the softer ore, part of that is related to the very good performances on maintenance availability and operation productivity. So, there is opportunity to do better. Let’s say the bottleneck remains the hauling in between the two, the mine and the mill. We saw – we put numbers in March at the 11,000 tonnes per day. So there is also four other trucks coming on the barge. So that’s going to give us more flexibility for the second half of the year. If we are able to do more transportation, there is opportunity to do more tonnes.

Okay. Great. Those are all my questions. Thank you.

Your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open. Again, your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open.

Hello, John.

And at this time, that question has been withdrawn. Your next question comes from Greg Barnes from TD Securities. Your line is open.

Thank you. Sean, just bit step at Malartic, East Gouldie. Did that potentially change your development approach underground and the way you would a- or your mining?

Yes, I think it’s too early. I’ll let Guy in a minute just give you his color on what we are seeing. I think that what we do know there is that, there is tremendous capacity in the plant once we transition into an underground. So, I think we need to drill the Pontiac sediments and see if there if East Gouldie is bigger, if there is another repeat of something like East Gouldie. If it’s on non-royalty ground, then certainly the economics could be better. So, this could be, I don’t know, it’s early. It could be something like the LaRonde area where we have multiple shafts over 20 years. So, we don’t know, it’s too early.

Okay.

But I think when you see something like this, I think our experience tells us you pay attention. You follow it up and you understand that and then you try to factor it in for additional development. And so, I think when we look at Kittila, we always thought it was a potential LaRonde in terms of multiple shafts over time given the size of that deposit, we continue as we move to the north, continue to see that deposit grow, as we go deeper, we continue to see that deposit grow. LaRonde was the example of multiple shafts over 30 plus years. Could the Malartic area be something like that. I think what’s interesting to us is, here you have an underground mine and area that was mining initially in 1950. We shut down and then the Osisko team was astute enough to get the open pit up and running and that gives us an opportunity now to build what we see as being Canada’s largest underground mine. How long does it go? I think that’s the question and the other question as you just said is, is there an availability because of multiple sources of ore that we don’t know of yet, to actually have more tonnage coming from underground. I think that’s the question we have to answer. Guy, can you provide some of your color? I know you are probably feeling lonely there. We will – questions without an exploration, but I think.

No I think – yes, no, it’s a pretty good question. But when you look at it, it’s certainly doesn’t move the center of gravity of the ore body yet, because with the core part of the East Gouldie that has now around 6.4 million ounces and more with good grade and we actually see also that we’ve provided results from the types of the infill drilling within the main ore body. So that is not changing the center of gravity or something that is already quite sizable with the total 14 million ounces. So I think that from that perspective, but as Sean mentioned, our team basically when we were looking at the ore body, because the ore body at East Gouldie is quite predictable. It is simple like we see plywood shape and we’ve basically looked at that structure and let’s say, well, it’s using the known geometry, projecting it, the kilometers to the east. We were having some ongoing drilling at the Rand Malartic. We’ve extended those and even a week before we got to the team and told us, well, we should get into the zone at 2250 meter down the hole, we’ll be cutting to the zone at 10 meter off from their predicted target. So, we got into the structure right where it was supposed to be with exactly the same type of ore, cut and paste of what we see within East Gouldie and we were quite amazed that we were able to project and predict the location of the ore body a kilometer to the east and getting to it right where it was predicted. But, yes, well, that first drill is interesting in terms of the fact that the zone is predictable and where it was supposed to be and are we yet in the best part of the deposit at that these things all up more drilling will be planned moving forward to better understand. Had that east thing, where the center of gravity is and as we see in the known part of East Gouldie there will be higher grade. The grade varies from 2 grams to 8 grams with an average of about 3.5, 4. So, pretty interesting.

So, I understand the hole was drilled from the Rand Malartic property. Given the mineralization higher up in the hole on that side of the property does it?

Yes, yes. We usually within the Rand Malartic, there are known periphery intrusion like periphery drill that – but with some 1 gram, 2 gram over 110, 115 meter. But at the end of the day, we view that hole and we push it way deeper, enter into the Pontiac for 600 meter to reach out for the East Gouldie. So, we have multiple targets in every single of those holes. But we usually start quite far to the north, get into the entire volcanic sequence of the PC, the Cadillac break and then keep going into the sediment to the south.

Great. Thank you.

Your next question comes from Tanya Jakusconek from Scotiabank. Your line is open.

Hi. Yes. Good morning, everybody. I have a couple of questions if I could come back just to again the cost structure. I just want to – back on just the couple of things on inflation and currency. Maybe just Dave, just on the sensitivity for the Canadian dollar, I just want to check if this number is still holding. But a 10% from the 1.30 mark having an impact of about $50 per ounce on your cost structure. Is that still a reasonable assumption?

Yes, when we put that number out though we didn’t have the exposure from TMAC yet. So, it would be a little bit different than that. The way I think about it is, we can still protect that 1.30 if we are able to do the same amount. I would say 1.28. So, what we think now with the TMAC is probably $5 or $6 for 1% change here - 100 basis points, pardon me.

Okay. Okay. That’s helpful. Thank you. And, just coming back onto the inflationary pressures and maybe it’s Dominique that’s going to take this one, but you mentioned steel concrete and tires, are you seeing anything in freight, any inflation there or in cyanide?

I don’t have the detail for cyanide straight. I will say most probably, but, again, we don’t see challenges to meet our guidance so far. And let’s say the mine productivity are offsetting those increases. But we keep, let’s say, we keep an eye and keep under the radar, mainly on delivery time and if we see something, for example in tire, that’s a creep up. We could take decision to put more into inventory if needed. So that’s type of thing we are doing a close follow-up. The barge season, lot of material, if I took the north as an example, lot of the material has already been ordered, because that needs to be – for June, July when we start to do the shipping. So, all those ones have been protected. But now we are starting to look, okay, what could happen in for 2022 and maybe to take some position if needed.

Okay. So you are protected for this, just more from that. Okay, perfect. And if I could come back to, I know, the inventory low and maybe Sean, from a bigger picture on the exploration side, and so I just want to understand just the strategy for you this year in terms of reserve replacement. I mean, you’ve got a lot of interesting exploration targets and success. Maybe just review some of the assets for us where you think you are going to be able to replace reserves though the strategy have moved or increased?

Yes, Guy, can you take that?

Yes, certainly. I’ll go over the main assets, LaRonde, LaRonde, as you know some of those mines we know they come in sequence until we kind of treat the concept, expand the production. Last year was a good year at LaRonde where we’ve been adding more reserves at LZ5 with the continued success this year. I do not anticipate, let’s say, for example, at LaRonde specifically that we are going to replace completely what we are going to mine. Although, there is drilling ongoing. We are positioning ourselves, let’s say for LaRonde, the more important thing this year is that we are positioning those exploration drifts beneath the Bousquet but it’s more kind of a long-term pay-off. So, we made this year and next year maybe not completely see a complete replacement and eventually down the road, we will get some more answer showing up on the road. Same thing in Malartic. Malartic quite sizable deposit. As you know, we are depleting 350,000 ounces, but roughly a year, well, until we get the study to bring East Gouldie into reserves, we won’t see a replacement. So, right of the back, if we are not replacing Malartic. So, from the existing mine, those two at those specificity that they are going to come further down the road there will be – the addition of reserves. On the other hand, you asked something like Goldex where we see complete replacement. We think it’s a lot where we see a complete replacement. Kittila, it’s more again. Now we are having the shaft. We are having – a case that we get 500 meters below the shaft, if we are more looking at a long-term, because we know that there is still mineralization a kilometer below the bottom of the shaft. So, now we are moving more into put some more robustness on the researches and reserve beneath the bottom of the shafts. So I think for the near term, we can expect that Kittila will replace what they going to mine for the upcoming two, three years. After that, it’s going to have come with a plan to convert a bigger part at depth. In Mexico, Pinos Altos, I think we are in good shape to replace a fair part of what we are going to mine. La India, it’s more of what remain in the outside until we get a plan to do something with the sulphide. So, we will see a net depletion at La India. Santa Gertrudis will come further down the road. I guess, we are getting good results, good signs. So, eventually, we’ll come out with a reserve. Will it be in two phase, well, we took the oxide first and sulphide further down the road. So we are working on it. And then you enter into the project, obviously, we’ve been drilling a lot – and we anticipate that potentially next year at the February update, we’ll be able to come out with an updated study. We will come with the – some addition of reserves in line with the good results we’ve been seeing. And we are currently looking to the – as I recall resources to made up our mind about what we are going to do with those historical reserve and resources integrating into our business for a era.

Okay. So that I know – so just my understanding, so I just think of more LaRonde and Canadian Malartic and maybe Hope Bay as more resource growth for year end and the other mines you get medium terms of reserve replacement. Would that be a fair way of looking at it?

LaRonde and Malartic, yes. Hope Bay, not sure.

We are still under review of our plan over there.

Okay. That’s helpful. And if I could just ask on Meliadine, Sean, just on the saving water pipeline, just maybe a little update there in terms of where we are with the public hearings which have to be postponed and just getting the permit?

Yes, Dominique, yes, you are involved to that one.

Yes, I can take that one. The relative to the COVID breakout in Nunavut, the public hearing have been postponed. But we don’t have a issue, because mainly with our good performances on grounding practice, we see that the inflows are 50% lower than what we have planned. Plus the mining rate into the pit is going also better than planned. So, we have enough room capacity. It’s not an issue. We are going to continue to follow the process for the hearing. We don’t have news yet when it’s going to happen. Again, everything is – it’s going to depend on how it’s going to with the COVID. But we stay tuned on that.

Okay. Okay. Thank you so much.

Hey, Tanya, before you go, I just want to clarify one thing on the hedging. When we give guidance on the sensitivity to currencies, we do not consider the impact of hedging and because we have hedged CAD, for 100 basis points move from budget, so 130 CAD to 120 CAD would not be the full $50 per ounce on all-in sustaining cost, because of the existing hedges. It would only be about $30 per ounce. I just wanted to make sure you understand that the guidance doesn’t include any impact of hedging.

Okay. Now, that’s really helpful, because that’s meaningful. Thank you.

Yes, it is meaningful, yes. Thanks.

Your next question comes from Ralph Profiti from Eight Capital. Your line is open.

Good morning. Thanks for taking my questions. Sean, I wanted to come back to the East Gouldie step out with two quick questions. First one, it doesn’t sound like, there is going to be an impact on the plant or target positioning of this initial shaft. But when does that definitive decision has to be made in terms of where it goes? And then, my second question is, how flexible is the permitting process, if we run into a situation where we have successful drilling to the east over time and sort of the mine plan can become a little bit more dynamic.

As far as the shaft location, we’ve essentially selected the shaft location there. So that shaft will continue. The question is, is there additional ore that’s now into exploration which causes us to add additional underground access. So, I think that’s the real question here. So, we’ve always looked at this as being large and long life. And so, I think what we are seeing is that, if we were going to incorporate much more than 7 million ounces of the 14 as we go well beyond 2039, I think what the drilling has suggested is, there is a possibility that as longer life, but is there now a possibility for additional sources of ore, because that’s essentially why this is now a successful project, because East Gouldie gave us that additional six higher grade source of ore that allowed us to pull it altogether. So, I think, although it’s early, I think we need to sort of drill that entire length of the Pontiac sediments and do it systematically, but initially follow-up on this drilling that’s been done from Rand Malartic to see what’s around as latest drill hole and that may start to change our thinking in terms of additional investment going forward. So, we have to certainly do that in conjunction with our partner. But what we see so far, we like, and as you heard from Guy, it matches up perfectly where you would expect it to be, given the orientation of East Gouldie and how it plunges. As far as permitting, maybe Dominique or Guy can talk about sort of permit process there. It’s pretty straightforward, because we have an existing operation. So it’s not like we need – we are starting from scratch there. So, the authorities are pretty amenable to that and that helps that us underground, but is there anything else, Dominique or Guy on the permit side if we decided that we had to initiate additional underground access at some point to increase the underground mining rates?

No constraints from the exploration standpoint.

Well, as you mentioned, Sean, it’s easy to permit an underground. Let’s say, we have get the first East Gouldie two, three years ago and we are thinking the shafts or I guess, if we have another shaft to build that could be the same type of a thinking, yes. So, Gouldie, we’ll drill that.

Understood. Thanks very much.

Your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open.

Thank you. Sorry, I had that mute button on before. Sean, just in case, your good technical people succeed on many fronts and everything comes up roses. Santa Gertrudis, Upper Beaver, Hope Bay, Hammond Reef, and a couple of the exploration projects among the 17 on the exploration spot on your web page. Would you rule out going to 3 million ounces or more? And should we assume that you are just going to rank the projects by internal rate of return at a conservative gold price scenario? It sounds like there is a lot of progress.

Yes. I think that we’ve been pretty consistent in saying that, for a lot of reasons, largely due to risk and not wanting to increase the risk - underlying risk level of the business. Our preferred approach is sort of measured discipline as far as allocating the built capital. It’s okay to pump up exploration budgets, particularly when you are getting results. So that you can get information, which is kind of consistent with the approach we took at LaRonde early. People would say, why the heck are you drilling at 8,000 feet at LaRonde when they are doing it, you are never going to get there. And our view as well, we want to know what we own and I think this is exactly the approach we are taking is that we want to know as soon as we can what we own to actually help us work through the auctions and the ranking – the relative ranking. And I think that’s going to be important. What we don’t want to do is do multiple projects at the same time, blow our CapEx budge out, eat up the free cash flow, that’s not a high quality business. So, I think that we are comfortable with this approach. As we said on something like Hope Bay, we are literally in no rush. When we bought it, people were somewhat nervous, oh my goodness, this is going to blow their CapEx budget up, no it’s not, just because, we view it as long-term. Look at how patient we’ve been with LaRonde for 30 plus years, 40 years, step-by-step as the drill sort of led us to the next step, we just gradually invested in that opportunity. So, this ties into the question about reserve replacement, as well, when we think about it. There is a pretty good chance. Our reserve number in February of next year is the same or higher. We have Hope Bay which isn’t in our 24 million ounces of reserves. So Guy went through the list. And we are getting good exploration results at a number of projects. So, that’s the basis. But I think the nice thing about it, John is we have this combination of Brownfield opportunities at places like LaRonde, Kittila, Goldex, Meliadine, and then we have the pipeline. And it’s how do we put together a mix of both Brownfield and pipeline, so that we can get the best thing for what will be pre-determined capital allocation tied if everybody is competing for internally. And we just find that that’s going to be the most effective approach. And a lot of that is really just – we just happen to be a gold mining business, but just good business. But we like the jurisdictions we are in. We like the fact that, think about it, you know LaRonde has been there many times. We are putting out three exploration drifts for the west in the Bousquet property, something we bought 15 years ago for $7 million Canadian and there is ounces there. We’ve got amounts of sulphide zone to the east of the main ore body at LaRonde. Look at the drill results at Canadian Malartic. There is a lot of life left here. Look at Kittila, as we go deeper, I think it got lost in the February, at least, I think the step out at Kittila was several 100 meters that stepped out from the main deposit there. So, for us, this is all about per share value over time. And if we are patient and keep a lid on the share count and the work the drills hard, we have some pretty solid people throughout the business that know what to do with this stuff when we find it. And so, that’s going to be the approach, because it’s worked for many, many years as there is no need to change it. But I have to say and I’ve been here for 36 years, the best and most exciting part of this has always been the exploration stuff. And we never know. This hole is step out of Malartic, it may not be anything. But it maybe something pretty important. And so, that’s the excitement. That’s what keeps us coming to work every day to see how the teams are able to continue to grow these deposits and then turn it over to the project teams and the construction teams and the operating teams to see as they can turn it into meaningful cash flow generators. So, no change in the strategy.

Thank you.

[Operator Instructions] There is no further question at this time. I would now like to turn the call back to Mr. Boyd for closing remarks.

Thank you, operator and thank you everyone for your attention. We have our AGM today at 11. I don’t think you’ll hear anything new from what you just heard over the last hour or so on the conference call but you are certainly welcome to join us this virtual. But anyways, enjoy the rest of your day and thanks for your time and the questions. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.