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Executives

Sean Boyd - Vice Chairman and CEO

Ebe Scherkus - President and COO

Tim Haldane - SVP, Latin America

Analysts

John Finnegan - Fundamental Equities

Steven Butler - Canaccord Adams

Anita Soni - Credit Suisse

David Haughtonne - BMO Capital Market

Barry Cooper - CIBC

David Christie - Scotia Capital

Steven Butler - Canaccord Adams

Tony Lesiak - Genuity Capital Markets

Presentation

Agnico-Eagle Mines Ltd. (AEM) Q3 2009 Earnings Call October 29, 2009 11:00 AM ET

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Agnico-Eagle Mines third quarter 2009 results webcast and 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 the questions. (Operator Instructions). I’d like to remind everyone that this conference call is being recorded today October 29, 2009 at 11 a.m. Eastern Time.

I will now turn the conference over to Sean Boyd, Vice Chairman and CEO. Please go ahead.

Sean Boyd

Thank you, operator, and good morning, everyone, and thanks for dialing into our Q3 2009 conference call. We have the theories applied to move through some of them in the middle of the body of the presentation quite quickly so that we can get to each of the individual projects.

But what we'd like to accomplish in the next hour or so is to go through the Q3 which from a results point of view was disappointing not from an efforts point of view but we did run into some challenges in starting up thee mines, we'll go through those issues. We will hopefully give you a sense of where we are with respect to those issues as we move through Q4 and also give you a sense of how we are positioned for next year and beyond next year. As we complete the building of these mines, the commissioning of them and then start working on optimization and expansion of these mines.

And before the question-and-answer Session, Ebe would like to give you his impression of where we are particularly on Kittila, Lapa and Pinos Altos but in terms of dealing with them in consecutive order, we'll deal with the third quarter. Our earnings and cash flow were below our expectations simply because we produced about 30,000 ounces last then we had expected to produce.

And that lower output really came from slower tonnage ramp up at Kittila, which averaged about 2000 tonnes a day; we have recoveries averaging about 64%. We are not for the last week and a half or so at 3000 tonnes a day or better with recoveries around approaching the 80% level. So we'll get into more details on those issue that Kittila has been moved forward.

We have more dilution when anticipated about Lapa. In August, we averaged almost 1200 tonnes a day versus the design capacity of 1500 tonnes a day. But we've made some improvements in our mining methods and blasting techniques underground. We have seen about a 10% improvement in dilution that will also get in and discussed that issue in more detail.

And at Pinos Altos we are in the very early stages of commissioning that plant, slower ramp up in terms of our ability to get tonnage through the plant. And that was due to difficulties in the filtered tailing system which is not unusual when you are starting up a filtered tailing system of this size. Those issues have been experienced in properties like El Coco We will be able to fix those and we'll also get into some of the details around that.

Also we had a bit more grade than we expected at Goldex. Where we are now with Goldex, we are in the potential zones for both mining and reserves right now, which was higher than the grade that we extracted some from the Eastern zone in the third quarter. So we are seeing major improvements, these issues are temporary; we move into Q4, we see about a 50,000 pounds improvement in our Q4 output.

As we move into 2010, we'll get into some of the details of each of the individual projects but we decided to take a contingency next year on our 2010 production, largely around the startup at Meadowbank. Internally we are using exactly the same budget of production numbers that we've had as I had October last year or so. There is no change in the internal estimates and Ebe will go through those number and give you a better sense of some of the questions that we've built into those numbers. So if we have an uneventful startup to Meadowbanks and which certainly exceed the operand that the new guidance that we put out last night. That activity is sort of an overall sense of how we are positioned as we move forward.

And what I'll do is I'll move through the slides but I'll move through the front part of the presentation quite quickly as we want to get to the property descriptions.

Moving on to strategy; really no change in the strategy at Agnico, its still optimized and expand the existing projects that will allow us to continue to grow the output out through 2014, 2015. So essentially no change in the overall strategy as we move the company forward.

As far as operating results, we talked about that at the start; short about 30,000 ounces in Q3. As (Inaudible) are looking for about a 50,000 ounce improvement in Q4 over the Q3 number. As we look out on total 2009, we are estimating our guidance of about 500,000 ounces which would mean in the fourth quarter of 170,000 ounces. So as we go through the projects you'll see how we are positioned to achieve that number.

Looking out into 2010, as we said we reduced our guidance from 1.02 million ounces to 1.1 million ounces. And in that number for next year, we are assuming the following production from the various mines. We are assuming at LaRonde 180,000 ounces, at Goldex 160,000 ounces, at Lapa 120,000 ounces, at Kittila 150,000 ounces at Pinos Altos at 190,000 ounces and at Meadowbank 380,000 ounces.

Now that totaled 1,180,000 ounces which is the number that we have been using from the last quarter a while. And we felt it was prudent given that Meadowbank has the largest portion of that number that we should take in contingency and our public guidance in the events that we have some issues in startup. Because dealing with Meadowbank carefully we are giving you a general overview of where we are. We anticipate having 600,000 tonnes of ore stock pile before the plants starts up which we expect to start up in January.

Not an issue of having tonnage available to us. It is a straight forward situation with respect to metallurgy that don’t anticipate issues with metallurgy. But really why we decided to take a contingency on our public guidance is we're standing a large plant up in the middle of the Canadian Artic in January so really we are making allowance that we could run into mechanical issues pumps, pipes, et cetera, freezing conditions. And that’s why we decided to take the lower public guidance.

But again as we said we've made no changes to our internal numbers for budgeting purpose. In capital costs, we've made reference to it in the press release, our estimates in our budgets has been $250 million roughly seen since those estimates were derived. We’ve seen about a 15% strengthening in the Euro and Canadian dollar roughly. So on a US dollar basis those numbers will go up based on the strengthening currencies.

We are also looking at potential additional expansion capital at Meadowbank as we have that study nearing completion and we may move forward some of the Lapa mine capital on a couple of the underground situations as we look to advance the underground development of a couple of our mines. That’s what we are referring to in terms of CapEx in the press release.

In terms of the financial numbers, the earnings were largely hit by a stronger Canadian dollar where we had a foreign exchange translation loss and the fact that we produced well ahead than we had expected. From a working capital cash flow perspective we had a build in working capital in the quarter of over $50 million as we build up inventory for the start up of the new mines.

In terms of the financial position, and where we sit to where we are standing currently we spent for the first nine months about $483 million in capital. We have about a $120 million spend in the fourth quarter and we close the third quarter with $239 million in cash. So we are in a strong financial position to complete the bulk of our construction expenditures as we move forward.

Looking at gross reserves we’ll have an exploration update just by way of note between now and the middle of December and that update will largely come from Kittila where we continue to have doing deeper drilling from the surface that’s an update at Meadowbank and likely some updates at Pinos Altos and we will have our full reserve and resource update available in February.

I will just move through some of these benchmark slides. Our production slide is showing the revised guidance there has been no change to our guidance from 2011 to 2014. So all we have done is gather contingencies for next year based on the start off at Meadowbank.

Just moving along, through the slides as we get to the operations starting with LaRonde. LaRonde continues to be a very steady performer for us in terms of tonnage we have a little bit lower tonnage this quarter than we normally have we did some maintenance on our hoisting facility which was normal scheduled maintenance but on a cost at per tonne perspective. We continue to have good results our 9 months cost per tonne were Canadian $73 which is almost bang on where we are in terms of our budget number or we continue to get good results here we have had very good results on our deeper construction while our shaft is essentially complete and we are in start shortly we can change over instead of developing the underground ramp in ore body as we moved into next year. We are also doing more drilling at LaRonde but that’s in fact were mobilizing a drill on surface to drill the boundary between our property in Westwood. In fact we have been informed by IM Gold that part of it is owned as crops at adapt into our Ellison property.

So we’ve mobilized the drill and we will be drilling a deep hole along that boundary to see what we have on that side of LaRonde. So there’s some exploration potential as we move forward on LaRonde. From Goldex perspective in Q3, we are seeing throughput there above rated capacity. We averaged about 7300 tonnes a day but rated capacity 6900 tonnes a day so again a good performance hit Goldex at cost per tonne below budget at $22 a ton.

So steady tonnage, steady cost per ton. Our development is ahead of schedule but our ounce production was down in the third quarter as we were mining exclusively in the lower grade eastern part of the project. We’ve moved into, in October we’ve moved into the central zone, which is higher grade than the eastern zone and we are currently mining grades that are around the reserve grade.

We’ve got a large class set for January in the western part of the ore body which is higher than reserve grade that goes well as we moved into 2010. A good steady performance from Goldex and also good exploration upside there as we really start to drill it after being more focused on getting it into production working out some problems and then they are seeing an expansion program which we did in July.

So that mine continues to perform extremely well. Moving to Lapa, we had lower production than expected and that’s simply because we’ve got a weaker hanging wall than expected. They are certainly weaker than what we had predicted with our rock mechanics model. The solution for this is relatively straightforward. It’s simply to reduce the mining cycle time and we’ve instituted several measures to do that. In fact the LaRonde team who are some of the best guys around from a rock mechanics perspective has been working and helping the Lapa team with this issue.

We moved just to give you a sense of 750 mining blocks to be extracted at Lapa, we have mined about 16 and we subsided after the first 16 that we should move to a similar mining grafting method as the one used at LaRonde we are going to one shot blasting changing to electronic detonation. We have ordered bigger scoops 6 yard scoops to get in and get the ore out quicker. We have got new bolting equipment that’s derived on site so we expect as we continue to push our underground development which is going well and as we open up more mining headings we expect that we can move from around 1200 tonnes a day to a 1500 tonne a day rate by the end of the year and continue to improve our dilution based on the changes in the blasting method and the new mining equipment that allow us to reduce the cycle time.

Also in Lapa we have seen a steady improvement in recovery so this goes well going forward in Q2 we had recovery of 71%. In Q3 we had 75%, in September we had 79% and we are now currently above 81%. So it seems steady improvements in the recovery there which was an issue earlier in the year.

Moving Kittila, Kittila that’s the number one issue at Kittila has been recovery we have made steady improvements in the recoveries we also as we started to get steady tonnage or more tonnage into the plant we had issues with our SAG mill liners which needed to be replaced due to excessive ware because of the interment in production going into the plant or to the SAG mill and we have got our recoveries now around the 80% level. We have been mining over the last week and half or so of processing in excess of 3000 tonnes a day for about a week and a half.

We’ve got a 225,000 tonne stock pile at the end of the third quarter. So people have been asking us how did we get to the point where our recoveries improved dramatically or improved dramatically in the last six months from the low to mid 30s up to the 80% level. While there were several reasons for that. We’ve got improved recoveries in the carbon flotation.

We’ve reduced our retention time for concentrate in the autoclave. We’ve got better oxygen distribution in the autoclave, less oxygen in the front end, more oxygen in the back end. We’ve completed the installation of the larger pumps in the leaching circuit. Our slow client flotation recoveries have been full from about 87% to 93% which is the design capacity and as we said our SAG mill liners have been replaced so going forward we expect improved mill availability in performance which oil bores will help for improved output as we move through the fourth quarter into 2010 in Finland. We continue to as I mentioned earlier that good exploration results from Finland adapt and this will be the focus of our next exploration update which we expect to have out in the next several weeks.

We have got a slide up on the people optimization which is one that we have been updating since the early part of this year. Which shows that potentially, we are tracking in terms of recovery where we are expected to be on the recovery curve. We are seeing steady improvements there. Moving to Pinos Altos, as we started the plant in September the major issue there was in the filter tailings as we mentioned at the start and this is a large filter tailing system.

One of the other complicating factors there is that the mining was coming from the top edge so we get our organics there and they tend to plug up the filters and the filter blocks. So we have had some issues there which we have been working through and we have seen steady increased in throughput each and every week as we get more comfortable with the filter we have expanded capacity in the filtration system with more plates that folds well potentially down the road as we look at an expansion. But when we look at our experience in the mill for really 6 or 7 weeks we are seeing no concerns on the capacity of the mill we are seeing no metallurgical issues we are seeing recoveries that have already hit the feasibility levels of around 90% or so underground open hit operations have been according to plan. So its really the filter press issue that we have been dealing with and those issues as we said are not in common with these types of systems so we will work through these issues and that certainly goes well for seamless also as we move forward and again we continued drilling the new discovery of Cubiro we have continued to grow filter and those will be part of the exploration updates that we should have in the next few weeks.

At Meadowbank as we indicated at the start it will be our biggest single producer it is the biggest single component of our 2010 production forecast, construction in the plant has gone well mining has started in the ore so we are seeing no issues there or from a mining prospective of metallurgical prospective we see no issues. The reason we have provided the contingency and the public guidance as we said is simply because we are starting a large plant in the middle of the Canadian Arctic in the middle of winter and we want to provide for that in public guidance again we continue to do exploration there and that will be hard of the update as we move forward.

What I would like to do now is turn it over to Ebe and he can give you some of his thoughts. He has been at the site recently and provide you with a bit more detail and color on the project.

Ebe Scherkus

Thanks Sean and good morning everyone. Thanks for listening in. I will just give a brief overview of all of the projects and then just sum up a bit at the end. Last week, we were at LaRonde and as Sean mentioned this has been a great mine for us and we continue to perform very well during the quarter. We also had good fortune to go underground. We were underground at almost 2.85 kilometers underground on the LaRonde extension project and that particular project is on time and on budget and that is really remarkable and bodes well going forward.

During the sinking of the internal shaft we only had one minor seismic event and only one shift lost due to excessive heat. There really haven’t been any ground control issues whatsoever. We are very close to completing the shaft and we expect to be starting changeover within the next 10 days to two weeks or so. And that should be completed by the end of the year and then we will start the pre production development and have the mine ready for the end of the 2011.

Goldex, Goldex has been an amazing performer for us as well in terms of our original feasibility, in terms of tonnage and costs. It has done better than the original feasibility and it’s ramped up its tonnage faster as well. What we have done over the past quarter or so, we have decided on purpose to slow down production mucking from the western part which tended to be a bit higher than reserve grade and why we did that, there is a cross structure at dyke that tended to converse on us. So we kept that scope for on purpose until we could drill and develop and blast the remaining ore in the western side of the deposit. So therefore, we focused all of our production efforts on the eastern side which were below reserved grade but when we reconcile them they did 50 of reserved model for eastern side.

Currently, we have completed the development. Our drilling is progress on the western side and we expect to have a large blast of the big end. Some time early in January but as I said we have started mucking in the central zone and currently we are mucking or extracting or processing or at or above the reserve grades so it goes well for the upcoming quarter.

In terms of what we have lasted, in terms of what we have developed. We were approximately 1.5 years ahead of schedule and our production plan with respect to the amount of ore that we have broken.

Lapa, Lapa is still early days. As Sean mentioned, we have a total of 750 stopes planned over the life of mine. So far we have mined over 20 stopes or the initial stopes that we mentioned the dilution was only 65% to 75% range which was higher than we had planned our reserve calculations are we had dilution in the neighborhood of the bulk 35 to 37%. As of the end of September, we were able to bring that average down to 57% and our strategy is to basically decrease the mining cycle time by improved ground support by improved blasting, quicker blasting and by extracting the ore quicker. We have reconciled the folks where the production to date with the reserve model and incorporating the dilution we have no issues with respect to reconciliation with the reserve model.

At Meadowbank, we expect to start this operation up between January 5 and January 15. Construction has gone very, very well. We completed our sea-lift this year two weeks ahead of schedule and comparison to last year. The main items like power plant have been completed are in the commissioning phase. All of the mechanical equipment has been and processing equipment has been installed. So the remaining outstanding work is basically piping and electrical. So we are working seven days a week, 24 hours a day and we expect to start commissioning the plant in early January.

And then as Sean mentioned, we have had issues with commissioning the Kittila plant. We’ve had issues commissioning the Pinos Altos plant. So starting the plant after even though it’s a relatively simple plant metallurgically, we thought it would be prudent to give us some contingency especially since we are starting it up probably the worst weather in the Canadian Arctic during the months of January.

Kittila, well, we’ve had excellent, we’ve had great turnaround there and the open pit operations are currently averaging 3000 tonnes per day and have done so over the last two months. The underground development is on target and we expect to start test mining on the Rouravaara zone early in the New Year. Our main issues have mostly been on the maintenance side and that includes the SAG mill. And that has been lastly due to stop, start, not lending up the capacity. And therefore, we have had a lot more wear due to the grinding media hitting the liners. We have since repaired that, changed the liners and we expect our next shutdown to be sometime early on in February.

Similarly, what the autoplay stop, start, increasing pressure, decreasing pressure, increasing heat, decreasing heat that has been very hard on the gas kits. So we have had a lot of blown gas kits, but having said that since the 14 of October. The mill has been running consistently averaging 3000 tonnes per day. Recoveries have been upto 83% and have been averaging around 80%, so we think we appear in this operation around.

And as Sean mentioned the recoveries have been good. We have already hit 90% of our designed capacity of 12,000 tonnes. And as Sean mentioned our main issues have been dry tailing. What has happened, this is a one-off model in the world, when we first acquired this unit it was supposed to be the second unit at a straight and all of the bugs were supposed to have been worked out. As it happened in the first project, it was canceled. And as a result we now have the first unit of its type in the world. But we have made steady progress.

The daily throughput has been increasing on a weekly basis. We are currently averaging around 2100 tonnes per day. The recoveries have been improving steadily. We are over 90% and the open pit has been above and beyond capacity underground development has been great. So when just summing it up, when we look at it in 2009 from a risk point of view we have the startup of the Lapa plant and the Lapa ore is refractory or partially refractory.

So it’s a difficult ore to process. We have the Kittila plant to resolve these issues and then we also have the start up of the Pinos Altos plant. When we look at 2010, we expect to have the Lapa, Kittila, Pinos Altos plants, all running smoothly and we only have one plant to commission and that’s the Meadowbank plant at the beginning of the year. And when we look at our track record whether it be LaRonde, Goldex underground mine development, we have this core group resolve all of these technical issues, we haven’t always not resolved them as timely as we hoped. And all of these issues that we encountered in the third quarter, none of these issues are stable and they won't be resolved. So as Sean mentioned when we look at our internal plans and forecast for next year, we have not reduced our internal budgets or forecast and they are still in the neighborhood of $1.2 million ounces. However, with our experience over the past year we thought it would also be prudent to just be a bit more careful with the start up of our largest producer at Meadowbank.

With that then I would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) one moment please. Our first question comes from John Finnegan with Fundamental Equities please go ahead.

John Finnegan - Fundamental Equities

Hi you just said that Meadowbank had simple metallurgy could you explain the lane in what that involves and also economics and data?

Ebe Scherkus

Well in comparison to a poly-metallic deposit like LaRonde where we have four accountable metals and even at Pinos Altos where we have silver by product at Meadowbank it is strictly gold there are no other metals also as far as the process used that is straight ionization carbon and pulp which is probably the most elementary gold processing process available compared to Lapa and also Kittila those ores are refractory which means that the gold is encapsulated or enrolled by other sulfide and that material has to be burnt or removed or cracked to be able to expose the gold. So that extra step plus removing the organic material Kittila all involve extra steps and extra processing and therefore extra cost and the process is more fragile and complex whereas I would say Goldex and Meadowbank are probably the simplest process which by that I mean there are less steps required to extract the gold.

John Finnegan - Fundamental Equities

So this is a plus for the cash cost so that you know.

Ebe Scherkus

From a processing point yes.

John Finnegan - Fundamental Equities

Thank you.

Operator

Our next question comes from Steven Butler with Canaccord Adams. Please go ahead.

Steven Butler - Canaccord Adams

Ebe a question for you on first the comment on the Euro cost per tonne at Kittila was EUR78 per tonne in Q3 and I think you guys reported EUR43 per tonne in Q2 so may be you can get some context around the costs increase or may be its all denominator related but I am not sure what’s happening there to that trend, are you drilling everything you can at it is the question and how quickly would you expect costs to come down back towards your EUR35 to EUR45 per tonne sort of range as we go forward. Thanks.

Ebe Scherkus

I can only answer 50% of that Steve because I only heard 50% of the question. You broke up, may be you could try and repeat that.

Steven Butler - Canaccord Adams

I am sorry, can you hear me better now?

Ebe Scherkus

Yes.

Steven Butler - Canaccord Adams

Ebe the cost per tonne was EUR78 per tonne in Q3 versus EUR43 per tonne in Q2 so can you explain some of that major hike in cost per tonne on a unit basis and what confidence do you have in the guidance of near EUR40 per tonne going forward. Thank you.

Ebe Scherkus

Okay, the function is strictly a matter of tonnes processed through the mill. We had low availability in it to the quarter and we averaged about 65%. Also what happened was we had quite a bit of contract labor in the open pit which was expensed as well. We were concerned at the middle of the year based on the performance that we were getting in the open pit at that time that we would start developing a satellite open pit the Rouravaara zone and that is what we did so we had additional contract labor we also had additional contract to production drillers in the main open pit because we were having troubles with water in flow in the pit and the blasting and we also have maintenance problems with our production drills.

What we have done since we have changed our production drills we have got two new productions drills on site and they have been performing exceptionally well so as a result we have been able to get rid of the contract labor and then also what we have been able to find is that with the improvements in drilling, in blasting, in engineering we have also made some supervisory engineering changes and that the main pit has been able to hit its targets without necessarily going into the satellite open pit so contract labor has been leading the site and that will continue to lower the unit cost and then of course with steady state operations through the mill they denominator will improve and the unit cost per tonne will decrease into the fourth quarter and going forward.

Steven Butler - Canaccord Adams

Okay thanks for that thank you.

Operator

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

Anita Soni - Credit Suisse

Hi actually seems I would like to withdraw my question. Thank you.

Operator

Our next question is from David Haughtonne with BMO Capital Market. Please go ahead.

David Haughtonne - BMO Capital Market

Hi good morning Sean and Ebe. I have got a question for you with regards to the guidance particularly with Meadowbank is that for production or is that commercial production.

Ebe Scherkus

I mean in terms of the ounces produced

David Haughtonne - BMO Capital Market

Are you including any free commercial production in those numbers or is it all once you have declared commission?

Ebe Scherkus

That I would don’t imagine there would be some pre production or commissioning ounces in there but if we start somewhere between 5 and 15, January we would like to think that within a months time or so we would be able to declare commercial production but in the new guidance we are practically, we are saying start up will take about three months and we thus sort of we both think that that will happen.

David Haughtonne - BMO Capital Market

By that you mean to full production levels.

Ebe Scherkus

We think that’s part of our contingency. We think that will take about a month to may be five weeks to get up to a commercial production assuming we start between 5 and 15, January. So those ounces in that period the first month will be pre production and then after that middle of February into the end of the quarter will be commercial.

David Haughtonne - BMO Capital Market

Alright and earlier on Sean provided a break of expected production in 2010, is it possible to give us a view as to where your CapEx might be in 2010?

Sean Boyd

Well our stated number is $250 million and we are saying that that was based on budgeted exchange rates that have moved about 15% against us. So increase that number and the only other additions we are looking for is potentially to move forward some of the underground development on a couple of projects and potentially expansion opportunities at Meadowbank and possibly in Mexico.

David Haughtonne - BMO Capital Market

If you were to provide us with a general feeling as to where most of that CapEx will be going, what projects should it be allocating against?

Ebe Scherkus

I would say pretty well uniform across the board because if you look at LaRonde we are accelerating tailings on the construction and the reason we are doing that is because we’ve had two very wet summers in the Abitibi and so we’ve ended up stock piling and a larger amount of water than we feel comfortable with. So we have moved that construction forward a couple of years in the life of mines. We are doing the same thing as the Kittila.

We are accelerating and we are presently building a tailings pond which has been included in the life of mine. Kittila also and Pinos Altos we are accelerating underground development trying to get in to some of the higher grade material earlier faster than planned and so these are and the that Meadowbank we are looking at accessing the bulk zone low construction of that and also the various likes in there to try and get them done earlier than we had originally planned so we could, Lapa is about the lowest one but you could probably decide the capital equally among all of the other projects LaRonde expansion is pretty much as planned anywhere between them 10 million or so a month and now have accelerated development of that starting so they will be still our biggest CapEx using capital in the 2010.

David Haughtonne - BMO Capital Market

Thank you very much for those answers.

Operator

Our next question comes from is from (Inaudible). He is a stockholder. Thank you. Go ahead.

Unidentified Analyst

I am looking at your results here, they are significantly different than what the picture was painted Sean Boyd and he was on the Kramer show more than 2 or 3 different times, CapEx was supposed to be down production was supposed to be up, dividends were supposed to be starting and these are significantly poor results than what was expected or the pictures that we've painted. Stock was down $14 in the last week. I am looking for some answers.

Sean Boyd

I will deal with that. I think we’ve been dealing with some startup issues that have taken a bit longer than we have anticipated as we've started up three mines in a period of six months. But I think what we’ve done today as we’ve gone through each of the projects in detail is clearly identified these are not individually fatal issues for any of these projects. The issues are temporary in nature and that happen with mine building. We’ve addressed the vast majority of them so that puts us in a stronger position as we move forward into the fourth quarter and what we’ve decided to do as we move into 2010 is simply build a contingency in on the production guidance to allow for a start up on our biggest producer which is Meadowbank.

But as was explained on that project, mining has done well. It's not a complex ore. It's simply going to be starting up of plants in the Artic in January. So we felt that it was necessary to building a cushion with respect to that. As we look at our internal numbers, we said we haven’t changed them. There is potential to still do better at some of these projects next year. And Goldex, in terms of tonnage, Lapa in terms of dilution so hopefully, the way we’ve positioned it is to be in a strong position to beat and exceed the guidance. As far as dividends go, we’ve paid them for 27 years. There was no expectation that we were going to increase the dividend this year. Based on our forecast for next year, we will still be in a position given the cash flow that’s going to be generated on the production base that we’ve laid out to increase that dividend but we will make that decision when the time comes.

Unidentified Analyst

But didn’t you guys' guidance sound like 500,000 ounces.

Ebe Scherkus

No we didn’t, the guidance as we said the number we have been using internally remains the same. It is 1.18 million ounces or 1.2 million ounces. We are still using that as an internal number and the guidance that we put out yesterday in the press release was from 1 to 1.1 million ounces.

Unidentified Analyst

All right thank you.

Operator

Our next question is from Barry Cooper with CIBC. Please go ahead.

Barry Cooper - CIBC

Couple of questions for Ebe. Ebe on Goldex, the way I understand that the rate there should be extremely predictable because basically you are pulling materials that would have been blasted earlier and what not. Can you give us an idea of what the grades will be over the next couple of quarters that presumably that's already have been blasted?

Ebe Scherkus

Well over this present quarter we expect our grades to be about 2.2 to 2.3 grams. We will be mucking mostly out of the central area and with also for more coming from the eastern area.

The eastern area the average grade is about 1.6 to 1.7 and then when we reconciled that through the mail we get anywhere about 5% more growth. So we have got positive reconciliation. So next year we are going to be playing that catch up because we have a blast of about 1.5 million tonnes planned in January for the western side across the eastern side. So our budget then is in neighborhood to be able to operate between 2.1 to 2.2. So, slightly above reserve grade for the rest of the year. So we will be just in the normal mining sequence. We will be accelerating those because we have now extracted more ore than originally planned in the eastern side and it’s been behaving very well, very little dilution. So we just want to balance things out a bit to start mining up the western side and then finally in the central part. And as we said we are about 1.5 years ahead of schedule. So we figure that by the end of 2011 the all original 23 to 24 million tonne ore body will have been blasted and in its entirety and ready for simple extraction.

Barry Cooper - CIBC

We reckon it on the 5% reconciliation cause that wasn’t perfectly clear. Is that 5% on the Eastern or total component or are you actually able to kind of differentiate Eastern versus the central in terms of reconciliation. I realize that there is a whole lot of coal mine doing up the ore and what not so there may not, you may be talking about the whole ore body there.

Sean Boyd

Well, all we can say is that for most of the quarter, we were running strictly 100% from the Eastern. So that’s an easy exercise and when we compare with what our mucks indicated and what was predicted, we compare that with the ore reserve model and then what we extracted in the ore we got roughly 5%. We also predicted that as we look at the central zone that some of those range we are going to be in the 2.4, 2.5 range. Therefore, the blend in grade should be in the neighborhood of 2.2 and that is exactly what we are getting. There are days even where we’ve had mill heads in excess of 3 to 3.5 grams per ton. So I think I agree with you that that is becoming quite predictable and so Goldex over its life of mine will be a situation that will be contingent on where on a quarter-to-quarter basis, where the ore gets extracted. And sometimes thereon will be issues that drawpoint being clubbed or a large ore or blast not going off on time. So there will be a variation possible on a quarter-to-quarter but yes it's becoming quite predicable

Barry Cooper - CIBC

Then on that same topic of great conciliation you know Lapa part was off with what looked to be a kind of a really good surprise there and obviously dilution and kind of muddy the water is with respect to what is great reconciliation and what is dilution causing the rates to go down. Are you finding anything at point in time that would suggest that you are having positive great reconciliation there exclusive of after dilution issue.

Ebe Scherkus

Barry I am sorry you broke up at the last part, I didn't get the gist of your question now could you repeat just the last part?

Barry Cooper - CIBC

Yeah are you experienced on that Lapa how is the great reconciliation exclusive of the dilution affect that you are seeing there are highly disowned or can you differentiate that because of that at the start of combining your same 30% positive reconciliation which I don’t feel bad in the numbers at this point of time. But it could be muddy, the dilution effect of that.

Ebe Scherkus

I agree with you that it is muddied and what our numbers indicate that there is a slight improvement in grade but right now its pretty hard to predict when some folks come in at 50% dilutions and we have had some situation where we have had close to 85% to 100% dilutions so perhaps you are trying to predict that but on a share mathematical model when we extract the dilution from it and we look at the calculated rates we do get exactly what our reserve model has predicted and then somewhat no major upgrades over and above.

Barry Cooper - CIBC

Right. Okay. Well, thanks so much for the answers there and good luck.

Operator

Our next question is from David Christie with Scotia Capital. Please go ahead.

David Christie - Scotia Capital

Just quickly, on the customer you were talking to Steve earlier about the cost per tonne, can you break it down. I mean what it was on a per tonne mine in an open G&A? And the other question may be is for David, on the warrants that are coming due at some point do you guys still expect you got some cash notes in Q4 or what’s your expectation there?

Unidentified Company Representative

We’ve been working that’s not going to mature until for another four years.

David Christie - Scotia Capital

Yeah, they are quite a bit in the money right now do you think they are going to.

Unidentified Company Representative

Yeah, they are pretty tightly held and [CPP] is stock based holding and then end of the (Inaudible) certain exercises. And then quite a bit of time value up in this time.

David Christie - Scotia Capital

Okay

Ebe Scherkus

David I'll e-mail you the exact breakdown of the quarter and then also what is planned going forward.

David Christie - Scotia Capital

Thanks so much. That’s the way I wanted. Thanks a lot Ebe.

Operator

Our next question comes from Steven Butler with Canaccord Adams. Please go ahead.

Steven Butler - Canaccord Adams

Ebe just on the elaboration of Lapa. I hope you can still hear me. The Lapa you talked about the cycle time increasing, may be you can give us any perspective on what was the result on dilution at LaRonde when you decrease the cycle time and hoping what was the result at LaRonde? And so what would you expect for your dilution and control with that method

Ebe Scherkus

Well I would say historically at LaRonde was depending on what part of the ore body but I will take level 215 as sort of a base case and when we originally started around level 215 everyone can remember the rock fall of some of the ground control issues that we experienced when we were getting a dilution, like in our model, we had I believe at the time around 10% to 15% and we were getting dilutions of 30% to 50% and then some and we can say now as we went deeper into the mine below to level 215. And we are typically getting our dilution, which is in the neighborhood of 12% to 15%. And that was when we looked back at what we did. We improved our ground support, we went to the one pass one shot blasting, we went from six yards scoops to 8 yard scoops. So these are all the same things, that we are currently doing at Lapa and the key is those only stand up for a certain amount of time and we have to get the ore out as quickly, blast as quickly as possible and also what we found with the one shot blasting well. We don’t hammer the weak hanging wall several times we just gave it a one shot and then extract the ore and that has been very successful for us at LaRonde and that is exactly what we are applying now at Lapa.

Steven Butler - Canaccord Adams

And the ground conditions are very similar of the two mines, Ebe?

Ebe Scherkus

I would say the ores. Its rather than a fairer side shift at LaRonde we sort of have a very foliated (inaudible) ultramafic of they feel differently but they certainly react in the same way in the same way ground conditions are very very similar to what we had at LaRonde in the early days and we were able to you know upbeat the conditions at LaRonde or not beat them but able to manage them accordingly whereby we have been able to mine in excess of 7000 tonnes a day at greater depths for the last six years. At Lapa we’ve only mined 20 stokes of 750. So there’s a lot of optimization possibilities though.

Steven Butler - Canaccord Adams

Okay. Thank you. And while we are on the Dave Christie/David Malibu call, question on per tonne mine mill and G&A may be you could send it along to all the analysts or post it on the website just have a note, thanks.

Ebe Scherkus

All right.

Operator

Our next question comes from (inaudible) T.D. Newcrest.

Unidentified Analyst

Hi, just one quick question and then another follow up question. In terms of the mill availability you mentioned in the press release that was now just for 22 days last quarter I was just wondering how much downturn has that had this quarter or what the expected downturn is?

Ebe Scherkus

I am sorry I did not understand that question at all. We seem to be having some problems with the line.

Unidentified Analyst

My question was with regard to Kittila. So in the press release it refers to the mill was out or shut down for 22 days in the third quarter and it refers to some time down in October. I am just wondering what’s the expectation this quarter, how many days has it been down and what.

Ebe Scherkus

Well, as I mentioned earlier we had about 10 day’s downtime in October, still over from say days in September and into October but we were there a group of us. So just after the Thanksgiving Day, Canadian Thanksgiving Day holiday, so the plant has been operating consistently from October 14 on averaging 3000 tonnes per day. So on an overall average it will probably be over 70% over the last two and a half weeks it will probably be around 94%, 95% and the first ten days zero.

Unidentified Analyst

And going forward for those two quarters?

Ebe Scherkus

Well, we're planning about 92% for next year and that is the plan operating time and when we look at of our other plans, LaRonde is typically averaging around anywhere between 94 to 96 and similarly with Goldex, that is not an a unrealistic target.

Unidentified Analyst

Actually I meant the rest of this quarter, rest of this year.

Ebe Scherkus

Well as I mentioned right now we are planning to have the plant operate continuously our next shutdown varying any maintenance issues will be in February. So, that’s what we are banking on and so far so good.

Unidentified Analyst

Okay. Thank you.

Operator

Our next question comes from Tony Lesiak with Genuity Capital Markets. Go ahead.

Tony Lesiak - Genuity Capital Markets

Good morning. Ebe or Sean, could you provide us with a revised byproduct forecast for LaRonde for 2010 or should we still use the last guidance?

Ebe Scherkus

LaRonde guidance is fine it’s in a state where it’s expecting material changes from there.

Tony Lesiak - Genuity Capital Markets

Okay. And for that Q4 for Pinos Altos can you give us the exact expectations at your forecast to drive it?

Ebe Scherkus

I think for saying for the quarter we are expecting about 20 to 25,000 ounces of say Pinos Altos.

Tony Lesiak - Genuity Capital Markets

Okay and then silver?

Sean Boyd

We'd have to look that up, I don’t know.

Tony Lesiak - Genuity Capital Markets

Okay. And when do you expect to have steady states in terms of your 2010 forecast.

Ebe Scherkus

Tim maybe you'd like to update us on that?

Tim Haldane

Well, if you just draw trend lines through our progress so far, it looks like we'd hit commercial production and later on in the fourth and should be fairly well on steady states by the first quarter in next year as 100%.

Tony Lesiak - Genuity Capital Markets

Okay and just in terms of the general cost inflation you’ve seen in the industry and I guess some of the changes that you’ve had to make at Lapa and Kittila, can you give me a sense of where you think you might get to on a per tonne basis, obviously it looks like its tracking to be a little higher than what the feasibility predicted.

Ebe Scherkus

Once again Tony, the second half of your question I didn’t get but I will try and answer what I heard. I think with respect to what we are seeing with respect to labor is somewhere in the neighborhood of 3% cost escalation. Where we are seeing pressures are with respect to professional staff, mining is starting to gear up in the Northwestern Quebec and in Quebec in general. That’s what we’ve budgeted but we also feel that there will be cost pressures on labor with respect to skill hourly rates by that I mean diesel mechanics, welders, journeymen and people of that sort.

There will be, pressure so we have had bids in for various development projects especially at LaRonde extension and some of those contractor rates compared to the actual contractor rates that we are presently experiencing. They have gone up significantly so we are not the only ones that are experiencing sort of labor cost pressures from the consumable point of view you know we are fairly lost in the Meadowbank accept or we don’t accept anything so I think in terms of overall cost pressures its coming mostly from the labor side.

Tony Lesiak - Genuity Capital Markets

Okay. Just more specifically on the Lapa and Kittila, I mean do you still expect to achieve feasibility design cost per tonne or should we be budgeting something maybe 10% higher than what you originally were looking for?

Ebe Scherkus

I think it will be prudent to budget something 10% higher. It’s hard to call right now when especially an operation like Kittila have been so volatile and we really haven’t got into the optimization phase but we are looking at our budgets it’s still fairly early and we are getting closer to our life of mine cost per ton.

That’s what we are planning. At Lapa it will be higher because of the issues that we have experienced.

Sean Boyd

Joining the answer to question it’s over silver (inaudible) 1000 ounces in the fourth quarter.

Tony Lesiak - Genuity Capital Markets

Okay.

Ebe Scherkus

At Lapa we will be needing more ground support so the cost will be higher on per tonne basis.

Tony Lesiak - Genuity Capital Markets

Okay. Thanks very much, guys.

Operator

Next question is a follow up question from Anita Soni with Credit Suisse.

Anita Soni - Credit Suisse

Hi I just wanted some clarification on 2.1 in dynamite in Goldex can tell me the sequence of the mining of the ore blocks again in this quarter you did essential in (inaudible) and next quarter you are doing or that?

Ebe Scherkus

Well the ore body at Goldex is about 300 meters long and we are basically mining in three slices of about 100 meters each and so from a ground control point of view our plan is to mine the eastern and western side simultaneously and blast most of it and maintain the central 100 meters as of support or as a rib in the opening and as most of the eastern and western sides go up there is about another 300 meters vertically than the last block to be mined will be the central rib and that will be blasted towards the end of the blasting cycle. So its east first, west following close behind followed at the end by the central.

Anita Soni - Credit Suisse

Okay, so you are basically just mining the east west all the way up. And this quarter Q3 in particular is what I am talking about, you basically had the gold mine central zone but could you have commissioned it on schedule.

Ebe Scherkus

But right now three quarters of the material has come from the eastern block and in our reserve model that is the probably the lowest grade block of the mine.

Anita Soni - Credit Suisse

Okay. So west, east, central right? East, west, central right? Hello?

Sean Boyd

Sorry Anita you cut out there again.

Operator

Our next question comes from David Christie with Scotia Capital. Please go ahead.

David Christie - Scotia Capital

Hey guys just a little follow up on Lapa on the dilution that we’ve had. Will you be incorporating a higher dilution as we talked about reserve this coming year or what’s your thought there?

Ebe Scherkus

Yes, we will.

David Christie - Scotia Capital

Okay. Thank you.

Operator

(Operator instructions). There are no further questions at this time. Please proceed.

Ebe Scherkus

Thanks operator and thanks everyone for dialing into our call. If there’s anything else or any other information that you require after this call just contact us and we will be happy to provide you with more details. Thanks again.

Operator

Ladies and gentlemen this concludes the conference call for today. Thank you for participating and please disconnect your lines.

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Source: Agnico-Eagle Mines Ltd. Q3 2009 Earnings Conference Call
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