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Agnico-Eagle Mines Limited (NYSE:AEM)

Q4 2008 Earnings Call Transcript

February 18, 2009 4:30 pm ET

Executives

Sean Boyd – Vice Chairman and CEO

Ebe Scherkus – President and COO

Jean Robitaille – SVP, Technical Services

David Garofalo – SVP, Finance and CFO

Marc Legault – VP, Project Development

Alain Blackburn – SVP, Exploration

Analysts

Victor Flores – HSBC

John Bridges – JP Morgan

Steven Butler – Canaccord Adam

Mike Curran – RBC Capital Markets

Gail Howard [ph]

Andrew Mikitchook – Thomas Weisel Partners

David Haughton – BMO Capital Markets

Anita Soni – Credit Suisse

John Hill [ph] – Cambrian Fund

David Christie – Scotia Capital

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Agnico-Eagle Mines Q4 and full year 2008 results webcast conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

(Operator instructions) I would like to remind everyone that this conference call is being recorded on Wednesday, February 18, 2009 at 4:30 PM Eastern Time.

I will now turn the conference over to Mr. Sean Boyd, Vice Chairman and Chief Executive Officer. Please go ahead.

Sean Boyd

Thank you, operator, and good afternoon everyone. With us here in Toronto is our full management team and operating team. And once we finish the formal part of the presentation, they’ll be happy to respond to any questions that you may have.

Just off the top, just like to make a comment on gold. I think the conventional wisdom over the last few months is that we needed expectations for inflation to kick in before we would see an upward move in the price of gold. But I think what we’re seeing now is there is an extremely strong desire out there for wealth preservation, and the World Gold Council came out with some supply-demand statistics today and they were very striking in terms of demand in the fourth quarter of 2008.

Total demand in tonnage terms was up 26% compared to Q4 ’07, so what we’re seeing is everybody expected jewelry demand to fall off and that would possibly negatively impact the gold price. But what we’re seeing is extremely strong growth in investment demand which has easily offset any decline in demand for jewelry.

In fact, investment demand according to World Gold Council in Q4 was up 182% over the quarter in 2007; and for the full year 2008, investment demand was up 64%. So I think, the safe haven attributes of gold are coming to the fore, the ability to preserve value is certainly coming to the fore, and it’s just reinforcing that argument that people in the gold business have had that it makes sense in terms of portfolio diversification to have a component of your portfolio in gold, and in our case, in gold equity. So I just wanted to – those statistics came out today. I just wanted to highlight those.

So, we will go through a series of slides. We will cover off all of the projects. We’ll cover off the quarter. Talk a bit about the exploration. We’ve got a reserve update as you see in the press release. And then, we will open it up for questions.

Just moving through the Safe Harbor statements, just in terms of highlights, we are seeing as these new mines ramp up, we’re seeing increased gold production. In fact, we’re at record levels in Q4 of almost 90,000 ounces. We had record annual gold production of about 277,000 ounces. Our reserves continue to grow. And those – that growth in reserves is coming from exploration drilling which is significant. That’s the way that we’ve been able to create value consistently over many years is through the exploration drill bit.

We saw an 8% increase in reserves. We increased reserves 1.4 million ounces net of production. And we also, at the same time, despite transferring a significant amount of resource into reserves, we did increased the resource. At Agnico, the resource now stands at almost 9 million ounces so we’ve continued to grow these deposits, they’re still wide open. We expect them to continue to grow as we gain better access and continue with a very active drill program.

One of the nice attributes about the reserve and resource base at LaRonde, Kittila and Meadowbank, their combined reserve and resource individually, these projects exceed 5 million ounces. And Pinos Altos, significant jump this year. Its reserve and resource is now over 4 million ounces and still growing and wide open. So we have some good potential there to have the Pinos deposit rival the other three deposits in terms of exceeding eventually the 5 million ounce mark.

We had very good cost in the year in terms of cost per ounce of $162 an ounce. But more importantly, the cost per ton performance continued to be very good at LaRonde on budget, and also according to plan at Goldex. So we’re starting to get some very good performance at Goldex. We will talk about that in a minute.

In terms of the balance sheet, we strengthened it significantly in the latter half of 2008. The credit facility was doubled to $600 million. We raised a significant amount of equity in the quarter and that puts us in a position to fund the $450 million in planned CapEx for 2009 without the anticipated cash flow that will come from producing almost 600,000 ounces of gold in 2009.

As far as the operating results, again, we pointed out the cost per ounce for the full year was $162. In the fourth quarter, it was over $400, and that was largely due to a significant decline in by-product revenue to the point where we were realizing a zinc price of $0.30 due to settlement losses, and in fact, a negative copper price. So we anticipate that those costs in 2009 will be in the low $300 per ounce range. If you back out the settlement losses, they would in fact have been below $300 an ounce in the quarter. We’re still forecasting $590 for the full year at cash cost that we estimate to be at $325 an ounce.

As far as the financial results, we talked a bit about the impact on Zinc, the impact of significant declining Zinc price in the period on our bottom line. Although we had record gold production, which drove our gold revenues up $16 million in a quarter, this was more than offset by a $52 million drop in by-product revenue due to the settlement losses. So a negative swing of $35 million in revenue which really accounts for the bulk of the change in earnings quarter-on-quarter. And as I mentioned, we had a negative realized copper price and a realized zinc price of $0.30 a pound versus a little over a dollar in the quarter in 2007.

Financial position remained strong, about $100 million in cash. We paid down some debt along that revolver in the fourth quarter. We’ve got available credit line under that revolver of $345 million. Our shares outstanding, fully diluted, at 168 million after the equity financing and assuming the exercise of the warrants that are outstanding which would in fact bring in an extra approximately $400 million, so a very strong balance sheet.

In terms of the strategy, no change in the strategy. We’re going to stay focused in these regions. In fact, the focus for us remains on exploration, remains on tightening up our drill spacing along – within these deposits to convert more resource to reserve, and then put that bigger reserve into our production profile as we complete potential expansion studies on four of these existing projects. So those studies will come out at various times during 2009, and we’ll be able to lay out our plans on how we think our production profile will increase as we move forward through internal growth of these projects.

Our reserve target, we hit 18.1 million ounces, as we said, up 8% by converting 1.7 million ounces of resource to the reserve category during the year. We’re using a 725 gold price to convert those reserves. In terms of the shares outstanding, up about three times in 10 years but the reserves continue to grow as we expand these deposits up almost 14 times over the 10-year period. So that’s how we expect to continue to add value, grow this company. Our target for 2010 reserves is between 20 million and 22 million ounces – at 20 million and 21 million ounces at these projects, and that assumes significant production in’09 and 2010 that has to be replaced. So we will be converting a significant amount of our 9 million resource position to reach that target.

As far as the gold production growth, it continues to be more than a double in 2009 over 2008, and a further doubling again from 2009 to 2010. And as we complete the studies on the four projects that have additional expansion potential, we feel that will continue our growth trajectory into 2011, 2012 and 2013 as we get more information on these expansion opportunities. Again, the focus on per share value continues. And as we complete the construction of the five mines and get our production base up to 1.2 million ounces in 2010, we significantly increased our shareholders exposure to production.

Capital expenditures no change. Still looking at $450 million in’09, about $150 million in 2010, and going to a more sustainable CapEx of about $75 million beyond 2011 and 2012. But that does not include any CapEx that we would expect to expand these deposits further and we’ll have more information as we complete those studies.

Getting into the operations, starting with LaRonde, that’s the flagship. Again, excellent performance from LaRonde in the quarter and for the full-year 2008; very steady metal output. We achieved our budgeted production level in terms of total ounces produced. The cost performance continues to be excellent with our cost per ton for the full-year being $67 per ton Canadian and that’s up less than 30% in total since the first quarter of 2004. So, in five years, up only 30% in total; that’s excellent performance from our flagship mine.

In terms of the reserve position, we replaced reserves. We continue to grow the resource. We’ve got 5 million ounces in reserves and we’ve got 1.3 million ounces in resource, so it remains our biggest deposit by reserves and resource. Our project to extend infrastructure to access the deeper ore is right on track. The LaRonde extension is right on track. We expect to complete the shaft sinking by the end of 2009.

We’ve completed about 570 meters of shaft sinking. We expect at the end that we’ve had completed 840 meters and we’re down about 2.6 kilometers. We’re seeing no issues with ground at those depths, so things are going extremely well with that program. We continue to do some exploration, but at this point, we don’t see anything of note as we look at the exploration results.

Goldex has ramped up nicely after having some challenges in the middle of the year. In fact, Q4 was a very strong performance at Goldex where we produced 32,000 ounces at a cash cost of $323 an ounce. We’ve seen steady improvement in the tonnage and the rate in the fourth quarter, approximately 6,300 tons per day. The gray is about 2 grams in the fourth quarter. Our recoveries were over 90% and our cost per ton was $24, which is right where we thought it would be at this point in the ramp up.

In early 2009, we continue to work on optimization in the areas of crushing and grinding. We’ve had weekends in 2009 where we’ve hoisted on average each day, 9,000 tons a day, so we’re ramping up nicely and we’ve had no real issues on the blasting side. The blasting at Goldex has gone extremely well.

On the reserve side, we maintained our reserve and resource; our reserve at 1.6 million ounces, our resource at about 900,000 ounces. We continue to study an expansion from the design of about 6,900 tons to at least 8,000 tons a day. So, we’re looking at several potential new tonnage rates and the minimum in that study would be 8,000 tons a day, so we’ll see as we move through to about the middle of the year, we’ll have the results of that study. We continue to explore at Goldex and there's certainly expectations that we can continue to grow that reserve as we drill out that deposit.

In Finland, we are pouring gold. We produced about 3,000 ounces in 2008 from concentrate. We’ve begun pouring gold in January of 2009. Commercial production is expected to be reached in the second quarter. We’re currently focused at Kittila on optimizing the individual circuits and improving the recoveries. Where we had some challenges is in the getting constant mill feed to the plant. We’ve had some freezing conditions in the ore. We’ve had some ore stuck in the coarse ore bin. It’s been difficult to get a steady mill feed. And until we get a steady mill feed, it’s hard to balance and get your recoveries up to speed, but we’ve made some major improvements in the last couple of weeks and expect to be in commercial production at Kittila in the second quarter of this year.

We’re also examining options to grow that deposit. That deposit has continued to grow in terms of the reserves. We grew the reserve base by 200,000 ounces. We grew the resource base as well. That deposit, combined reserve and resource is about 6 million ounces, so that presents opportunity to see a significant increase in output, but it will require a fair amount of infrastructure, including a large shaft and an increase in the plant capacity. So, that study is going to take us through this year and we expect to have results of that study by the fourth quarter of this year.

And as we said, that deposit remains open. We’re spending a tremendous amount of money there in terms of our total budget. We are spending $54 million total in the company. Of that $54 million, $16 million is being spent on Finland and I think that is just an indication of the potential that we feel we have there to continue to grow this deposit beyond the 6 million-ounce market.

At Lapa, the plant is within about two months of starting up. We continue to get good progress in our lateral development. We continue to meet our targets there. We mined the first mining block in December. We’re extracting the second mining block now. We’re drilling the third mining block as we speak. We’re stockpiling ore. We expect to start commissioning the plant before the end of the first quarter of 2009 and get the plant running nicely in April. So, things are going very well at Lapa.

Pinos Altos in Mexico, again, things are going well there. We’ve had probably the biggest jump in reserves at this project versus the other ones. We saw an increase in reserves; up 1.1 million ounces, now at 3.6 million ounces of gold, and our silver reserve jumped 27 million ounces. It is now standing at 100 million ounces of silver reserve. The resource is about 600,000 ounces, so combined reserve and resource just on the gold is now in excess of 4 million ounces.

We’re looking for startup in the third quarter of this year. We’re getting good performance in the pit. We’re meeting targets in the last quarter in terms of our underground development and the plant is expected to be ready in the third quarter for startup in the third quarter.

Exploration continued there. We feel that there is very good potential to increase the size of this deposit and we’ve moved along sharply on the feasibility study and the plant to build a stand-alone operation at Creston/Mascota. That study is complete and we expect to release it in the not-too-distant future.

At Meadowbank, we saw an increase in reserves of 200,000 ounces, now at 3.6 million ounces. We saw an increase in resources of 500,000 ounces, now at 2 million ounces of resource; so, combined reserve and resource at this project now at 5.6 million ounces and wide open.

We’ve completed a lot of construction in 2008. We have our mill building, our service building, the power house, they’re enclosed. There’s mechanical installation underway. Our mine airstrip is now complete, so we’ve made major headway in terms of construction. We’re on track to start this project in Q1 of 2010. We continue to actively explore. There is potential at depth below the plant pit. We’re spending $11 million on exploration.

Our scoping study is underway for a potential expansion. We feel that there is good potential to increase the production rate from 8,500 tons a day to 10,000 tons a day and we’re looking at possibly doing that just from open-pit ore. There is potential for underground ore, but we need further exploration results as we drill that project. So, this one has some headroom as well in terms of overall output.

So, just to summarize, we’ve made major strides in terms of construction. We’ve got Goldex working extremely well, both on the production side and the cost side. We anticipate commercial production at Kittila in the second quarter. We anticipate starting to introduce ore at Lapa next month and starting to ramp up that mill in April.

We expect Pinos Altos to start in the third quarter and Meadowbank to start in the first quarter of 2010 and the remaining focus for us in 2009 is to complete the studies on the potential expansions. And just to remind you, the expected release of those studies is Goldex and Creston/Mascota in the second quarter, Meadowbank in the third quarter, and Kittila in the fourth quarter.

So, I think our timing is quite good. We’re bringing in three projects within the next 11 to 12 months at a time when the gold price looks to be strengthening. So, that’s a quick rundown of where we are. And operator, we’d like to open the line up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Victor Flores from HSBC. Please go ahead. Mr. Flores, your line is open.

Victor Flores – HSBC

Sorry, I was on mute. Apologies. Good afternoon. A couple of questions regarding the ramp up of Goldex and Kittila. Could you give us a sense of how you see production increasing at Goldex, say throughout the year, maybe first half, second half or by quarter? And the same thing for Kittila because you’ve given us a fairly conservative first quarter outlook which implies that then things have to start moving pretty quickly from the second quarter onwards. Thanks.

Ebe Scherkus

Good afternoon, Victor, Ebe here.

Victor Flores – HSBC

Hi, Ebe.

Ebe Scherkus

The actual mining plan at Goldex – we have just started having a couple of major blasts in the range of 270,000 tons to 300,000 tons per day. So we’re starting to get into the core of the deposit. So I think the first half of the year will be very similar to Q4; and then on the second half of the year, as we build up the amount of available ore, we will be able to increase the tonnage coming up from underground to the mill. There are days that we have exceeded over 8,000 tons already in the mill, and we’ve also stress tested the shaft. As Sean mentioned over the past weekend, we’ve been able to hoist over 9,000 tons a day from the underground operation. So we feel it will be a stage Q2 much the same as Q1 and Q4, and then increasing in the second half of the year.

With respect to Kittila, we expect to have steady performance improvements. Currently, we have well over 200,000 tons stock piled on surface. It is more a milling issue of where we have had issues of putting ore into the mill due to freezing. We have several solutions that we are currently looking at, and we expect to have some of those solutions available to us in March; and that’s why we foresee to have commercial production sometimes towards the end of the first quarter, beginning of the second quarter. After that it’s pretty much straight-lined – once we get the production up, it’ll be pretty much straight-lined, 11,000 ounces to 12,000 ounces per month during the rest of the year. The grade is pretty straightforward and then we will be just optimizing the operations, mostly in the mill and also in the open pit.

Victor Flores – HSBC

Great, thanks. If I could just ask two follow-up questions, how much production do you have to get out of Kittila to consider it commercial?

Ebe Scherkus

The definition is 30 days at rated tonnage at rated recoveries and ore reserve grades.

Victor Flores – HSBC

Okay, great. And then with respect to Goldex, once you get that steady-state mining going in say the second half of this year then that basically carries on for the life of the mine, right? Once you’ve set up, basically, the mining sequence, right? You’re not going to have lumpy production going forward.

Sean Boyd

One of the things with respect to Goldex, all of the blasting will be completed by 2012, and that means around, anywhere between 17 million, 18 million tons of ore will be broken and then it will become strictly a materials handling mine. That’s all conditional that we don’t find any other zones. There are zones that we are looking at, at depth. But currently, we see then the cost per ounce and the cost per ton declining as there will no longer be any drilling and blasting. There will no longer be any drilling and blasting of significance and any development, so then it will be a very simple mining operation. And then if we can find ways of upping the tonnage to in excess of 8,000 tons plus per day, metric tons that is, then we can see an improvement in output and ounces and declining gold prices plus per ounce.

Victor Flores – HSBC

Great. Thanks.

Operator

Your next question comes from John Bridges from JP Morgan. Please go ahead.

John Bridges – JP Morgan

Good morning, Sean, everybody.

Sean Boyd

Hi, John.

John Bridges – JP Morgan

I’m sorry, afternoon. It’s been a long day. Lapa, you’re getting your hands around that deposit now. Have you close that thing off yet or is it still open?

Ebe Scherkus

It is still open at depth like we really haven’t been able to put the drill grips in that we wanted. Also, it is open to the west right now with underground pre-production. The focus has been on infrastructure development and construction and we really have focus at depth and off to the west. Once we get the mine up and running, we do have a longer-term view where we'd like to put these exploration drives out there and open it up for further drilling.

John Bridges – JP Morgan

Okay. And you’ve got a stockpile now of ore. There was an issue at one stage about the refractory nature of that stuff. Are you comfortable of how it’s going to work in the mill?

Ebe Scherkus

I will let Jean Robitaille, our VP of Technical Services answer the question with respect to the refractory nature of Lapa.

Jean Robitaille

Essentially, in the study, Lapa will function up to (inaudible) grade will be between 83% and 86% recovery gold. This is a part of gold in the arsenal, all right? But this is not more than that, so we don’t have a (inaudible). It’s a straightforward, whole or leaching process.

John Bridges – JP Morgan

Okay. And could I ask a recovery question on Pinos? You've got 100 million ounces. What do you think the recovery is going to be of the silver at Pinos?

David Garofalo

Well, just off the top of my head, I think it’s going to be around 53% average life of mine.

John Bridges – JP Morgan

Okay. And then, I think Sean has been getting off quite easy on the course so far. Sean, a bigger picture question, you've got production which gets up to the 120 level in 2010 and then looks pretty stable. Where do you see the company going to from there?

Sean Boyd

Well, we’re working on another five year segment in terms of our strategy and planning. And a big part of that will be these four internal growth opportunities which we’re evaluating and assessing right now. Ideally, given how we’re structured in terms of people and abilities and skills, we’re built to have a couple of projects in the development pipeline while we expand the existing portfolio. But there’s no urgency. There’s no pressure to do that and we don’t have to make a major acquisition to grow the company. So we’d like to do more of what we’ve been doing, but we just won’t do it to the degree where we’re building five new ones from scratch at the same time.

John Bridges – JP Morgan

That’s definitely a challenge, but so far you seem up to it. Well done and good luck.

Sean Boyd

Thank you.

Operator

Your next question comes from Steven Butler from Canaccord Adam. Please go ahead.

Steven Butler – Canaccord Adam

Yes, I’ve had a name change, guys.

Sean Boyd

If it’s only a name change, that’s okay.

Steven Butler – Canaccord Adam

Yes. Good point, Sean. Okay, the question for you guys on capitalizing or not interest expense on your debt facilities, Dave. How would that go through the income statement eventually?

Dave Garofalo

Once construction is complete, we’re going to have to start expensing that. US GAAP requires capitalization during the construction period to the extent you’re drawing down the debt fund construction capital. And that is essentially why we’re drawing the debt at this stage.

Steven Butler – Canaccord Adam

Okay. So which project – I mean, is it project specific or –?

Dave Garofalo

We’ll know. I mean, we’d look at the capital program as a whole and to what degree we’re spending on construction capital. And I would say this year, we’re capitalizing all but the standby fees on our bank debt.

Steven Butler – Canaccord Adam

Okay. And then ramp it up, I guess, over the next year or two?

Dave Garofalo

Yes, we’ll start expensing – essentially expensing all of it starting 2010.

Steven Butler – Canaccord Adam

Okay. Why the big jump in reserves at Pinos Altos? 1.1 million ounces in gold. It’s a nice reserve add. Where did that come from?

Ebe Scherkus

Marc Legault?

Marc Legault

Yes, Steve. Where it comes from, just exploration, we’ve been doing a lot of underground diamond drilling at Santo Nino and Cerro Colorado. So it is a portion of that in there and another portion comes from Creston, Mascota, and the new zone at San Eligio where we’ve defined open pit and underground reserves there. So all three of them put together top it up to about a million and something ounces of reserve growth.

Steven Butler – Canaccord Adam

Okay. That’s another thing that sounds like a name change is required on that mine. The last question, I guess was TC/RCs, I know you guys don’t really release them, but are we closer to $200 treatment charge on zinc in the quarter than $300?

Marc Legault

Steve, the funds, this is the negotiations part really this week in California, so presently it’s nothing that's firm [ph]. Some indication for 2009, I will say, 170,000 [ph], but the escalation is unclear at this time.

Steven Butler – Canaccord Adams

Okay. Thank you very much. That’s it.

Operator

Your next question comes from Mike Curran from RBC Capital Markets. Please go ahead.

Mike Curran – RBC Capital Markets

It’s like we all moved to Val d’Or. We’ve all got French accents and French names. Two things, guys; one, I’m having trouble with your stock-based compensation expense that’s rolled into the G&A. Your Q3 guidance said you were at $17.3 million; the year-end is $25.3 million; that suggests $8 million more, but then you say it’s actually negative $1.1 million. So, is your summary statement along the way or –?

Dave Garofalo

No. We did a catch-up on capitalization on some stock-based compensation related to people working directly on the projects, which we had expensed in the prior quarters. So essentially, we capitalized over the year.

Mike Curran – RBC Capital Markets

So, the full-year number is $25.3 million.

Dave Garofalo

$25.3 million, of which $15 million is expensed and $10 million is capitalized.

Mike Curran – RBC Capital Markets

Okay, great. And then, I didn’t see it when I was scrolling through, but can you tell us what the change in the gold price assumption for your reserves year-over-year was?

Dave Garofalo

Yes, $725 versus $582 last year.

Mike Curran – RBC Capital Markets

Great. That’s all for me. Thanks.

Operator

Your next question comes from Gail Howard [ph], private investor. Please go ahead.

Gail Howard

Gold went up $18 today and AEM went down 20-some cents. Is this still reflecting a drop in the price of zinc and copper?

Sean Boyd

It’s difficult to say. You get movements within trading days, so that can happen. I think you have to look at the performance over a much more extended period than a simple day.

Gail Howard

Most of the gold stocks did go up today, except for AEM.

Sean Boyd

Yes, I wouldn’t worry about that.

Gail Howard

I do. That’s all I have.

Sean Boyd

Thank you.

Operator

Your next question comes from Andrew Mikitchook from Thomas Weisel Partners. Please go ahead.

Andrew Mikitchook – Thomas Weisel Partners

Good afternoon, gentlemen. I just want to come back to the reserves price of assumption of gold. Can you give us an idea what it would have been if you stayed at $585 or –?

Ebe Scherkus

Every 10% movement of gold price has a 2% impact on the ounces.

Andrew Mikitchook – Thomas Weisel Partners

Okay. So, we can back-calculate that.

Ebe Scherkus

Use whatever assumptions you want on that basis.

Andrew Mikitchook – Thomas Weisel Partners

Okay. Then just to confirm my understanding at these mark-to-markets, if we look at these price charts of zinc and copper since January 1, they’ve been fairly flat. So, all else being equal, you would see much less variability for Q1 and going forward than what we saw in Q4?

Ebe Scherkus

Yes, exactly. I mean, zinc and copper prices since the beginning of Q1 have been very range-bound; so assuming there’s no significant move either way between now and March 31, we don’t expect to have any significant settlement changes.

Andrew Mikitchook – Thomas Weisel Partners

Okay, but there still will be a small carryover if there were moves at the end of Q4. That still hits you in Q1, but going forward, there should be less.

Ebe Scherkus

Well, we value our unsettled at the 30-day average at the end of the quarter, so we’ve more or less baked in most of the December move into our unsettled, so I don’t expect any significant variability in Q1, again, assuming we stay in these ranges right through the end of the quarter.

Andrew Mikitchook – Thomas Weisel Partners

Okay. Well, I think that’s it. Some of my other questions have been answered. Thank you.

Operator

Your next question comes from David Haughton from BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Hi. Thank you for the update. I’ve got a question on the depreciation split. Would you be able to provide the split between LaRonde and Goldex?

David Garofalo

Off the top of my head, I can’t remember. I’m going to have to get back to you, David, if I can call you back after. I just don’t have the split with me right here.

David Haughton – BMO Capital Markets

That’s fine. And in relation to the write-off and also the sales of securities, was there a tax impact in that $22 million that you reported for the corporate tax expense?

David Garofalo

No. They’re accounting write-downs, so there’s no tax provision against those.

David Haughton – BMO Capital Markets

Okay, but there would be for the gain on sale of asset?

David Garofalo

Which happened in prior quarters. Is that the one you were referring to? Because we didn’t have any gain.

David Haughton – BMO Capital Markets

Yes, yes. I’m just trying to get a picture of the $22.8 million for the tax for the year. How much of that is associated with non-operating business?

David Garofalo

In fact, we didn’t have any tax on that because we had some unused capital losses from prior years, so we didn’t actually have to provide any taxes on those gains in the prior quarters.

David Haughton – BMO Capital Markets

All right. Now, I was listening to the comments about difficulty of presenting ore to mill at Kittila. Should we be factoring in some seasonality in the profile to take account of winter difficulties?

Ebe Scherkus

No, you should not. These are typical start-up issues similar to what we had experienced at the LaRonde once that operation started up, so these are typical teething pains.

David Haughton – BMO Capital Markets

All right. Thank you very much.

Operator

Your next question comes from Anita Soni from Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

I was looking forward to a name change. I was pretty bang on there. My question is with regards to the ore difficulties that you’ve had and you said that you’d have some solutions. Can you go over a couple of those solutions and what you’re looking at?

Marc Legault

You speak about the Kittila ore bin?

Anita Soni – Credit Suisse

Yes.

Marc Legault

Essentially – presently, we are looking a couple. One of them is to put the temporary crusher plant and process the ore through the crusher separately of the current ore bin, so essentially bypass until we finalize a permanent solution.

Anita Soni – Credit Suisse

Okay. And, Dave, perhaps you can walk me through – sorry, I’m just having a little trouble with the G&A expense and I guess the run rate’s a little lower than I thought for this quarter. Can you just – I think you explained it to Mike, but I missed it.

Dave Garofalo

Yes. We ended up having a small credit on our stock option expense in the quarter because we did a bit of a catch-up capitalization on some of the stock-based comp related to the project-managing people, so that’s why we didn’t have as high G&As we normally do. Normally, we have $2.5 million to $3 million of stock-based compensation expense, but this quarter we had actually a negative, a small negative number, so that’s why the G&A was a little lower in the quarter.

Anita Soni – Credit Suisse

And then the G&A ex the stock-based comp, I guess, that was running around $7 million then?

Dave Garofalo

Yes, that’s right.

Anita Soni – Credit Suisse

Thank you. That’s it for me.

Operator

Your next question comes from John Hill [ph] from Cambrian Fund. Please go ahead.

John Hill – Cambrian Fund

Thanks and thanks for a very detailed presentation as always. Just curious, you’ve had some pretty exciting exploration results in Nevada, at the West Pequop property. We’re working towards a resource on that. Obviously no numbers in the press release, but how is it going and what should we be looking for there?

Alain Blackburn

Alain Blackburn speaking. What we are doing now, we are doing an exercise to see what will be the potential for the resource and at this moment, we are looking at the next program next spring. We do not have any program this winter because of the road condition, but we expect to reach the target that we planned during the winter probably in April or May. But at that moment, we don’t have any resource calculation in hand.

John Hill – Cambrian Fund

Okay. So, should we look for – I’m not sure I followed you. Should we look for a resource number in April or May or later in the year from that?

Alain Blackburn

Probably later in the year, but I don’t expect any big number for now.

John Hill – Cambrian Fund

Very good. Thank you.

Operator

(Operator instructions) Your next question comes from David Christie from Scotia Capital. Please go ahead.

David Christie – Scotia Capital

It’s David Christie. Just quickly on the reserve increases and the sensitivity you provided in the release. Which deposit has the most sensitivity to gold? You talked about 2% on a temper – on a moving gold there.

Ebe Scherkus

I can do that in a second. Overall, it’s 2% and it’s (inaudible) to the amount of reserve tons. Just a second.

David Christie – Scotia Capital

Maybe another question while you’re looking for that is to get the 20 million ounces to 21 million ounces, which deposit are you thinking is going to return that number for you in the next couple of years?

Ebe Scherkus

I think we are putting a lot of pressure on – well, actually, we’re putting a lot of resources, as Sean mentioned, on Kittila. I think Kittila presents (inaudible) a real opportunity to increase reserves. We’re seeing really good drill results at depth, really good exploration results – this year resulted in well over 1.3 million ounces of additional resources being added to Kittila. So, that’s where we think we have the most potential for conversion to reserves. We’ve got a lot of – we have nine drills on the property. Currently, we are drilling deep holes, wedge holes to try to increase the confidence level of those resources at depth, which aren’t that deep, release between 650 meters and 1,100 meters. So, we’re putting a lot of resources there, a lot of talented people working on that project. The project that’s got the highest sensitivity of gold price is, believe it or not, Lapa because of the high grades and it is the niche of that department. It’s around, if I can say, it’s around 7%, so it’s – that one there is the more sensitive than others.

David Christie – Scotia Capital

Okay. And one more question, at Goldex, you put out that there’s a $24 per ton milled rate right now. Do you expect that to improve as the ramp up improves over the year or was it going to stay around that level?

Ebe Scherkus

We expect that to improve, Dave. We currently have a portable crusher on site and when we have a final solution to get rid of the portable crusher, we expect that to drop. But I would say the biggest drop would come after 2012 once all of the blasting of the ore body has been completed and all of the development has been completed, so it’s not as great line drop.

David Christie – Scotia Capital

Okay.

Sean Boyd

Yes. Dave, just as a reminder, we were guiding $25 a ton for ’09, so it’s roughly where we are now.

David Christie – Scotia Capital

Yes, I know, I know. I just saw that it was dropping there. I was wondering if it was going to keep dropping. Okay.

Operator

There are no further questions at this time. Please continue.

Sean Boyd

Just to wrap it up here, thanks for your continued attention and if there’s anything else you need post-call, you can give any of our team a call and they’ll help you out. Thanks again.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. Please disconnect your line.

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