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Executives

Sean Boyd – Vice Chairman and CEO

Ebe Scherkus – President and COO

Dave Garofalo – SVP, Finance and CFO

Jean Robitaille – SVP, Technical Services

Tim Haldane – SVP, Latin America

Analysts

Anita Soni – Credit Suisse

John Tumazos – John Tumazos Very Independent Research

David Haughton – BMO Capital Markets

Barry Cooper – CIBC

Greg Barnes – TD Newcrest

Ahod Paul [ph] – Canaccord Adams

Don MacLean – Paradigm Capital

David Dean – Cormark Securities

Tanya Jakusconek – National Bank Financial

Agnico-Eagle Mines Limited (AEM) Q1 2010 Earnings Call Transcript April 30, 2010 8:30 AM ET

Operator

Good morning, ladies and gentlemen, welcome to the Agnico-Eagle first quarter 2010 results webcast conference call. At this time, all participants are in a listen-only mode. Following the presentation there will be a question-and-answer session with instructions provided. (Operator Instructions) I would like to remind everyone that this conference is being recorded today Friday, April 30th, 2010 at 8:30 Eastern Time. And I would now like to turn the conference over to Mr. Sean Boyd, Chief Executive Officer. Please go ahead, sir.

Sean Boyd

Thank you, operator, and good morning, everyone. And welcome to our 2010 first quarter conference call. We've got our entire team here with us in Toronto. Our annual meeting this morning is at 11:00. So with the full team, once we finish the formal part of the presentation, we’ll be happy to answer your questions.

In terms of highlights for the quarter, it was a big quarter for us from the perspective of bringing Meadowbank into the production. We achieved commercial production at Meadowbank. The mine continues to run well in April. We’ll talk about that in a little bit more detail.

At Kittila, we’ll also give you some updates on Kittila. Our recoveries slipped a bit. We are continuing to do test work with the concentrate looking to improve the stability of the reaction in the autoclave through additives in the concentrate. But we’ll give you some more detail on that, and particularly in the question-and-answer session. And as you saw from our release, we’re still anticipating getting up to see the feasibility level recoveries as we move towards the end 2010.

But we’re going to move through the slide presentation. And we’re going to move through it as quickly as we can so that we can get to questions. In terms of the strategy, nothing really changes for Agnico. We continue to move forward in an optimization and expansion phase on the existing asset base that we've built over the last several years. We’re still targeting production in the million to 1.1 million-ounce range for 2010. We continue to work, as we said, on optimization of the assets we've built. But we also continue to study internal expansion opportunities. And we’ll touch on a few of those as we move on through the presentation.

Our reserves are at record levels. We still see continued growth in those reserves as we continue to drill our deposits and the resource, the large resource around the existing deposits. Our strategy for growing is not only based on looking to optimize and expand the existing portfolio of assets, but also looking for smaller acquisitions.

We have an agreement in principle, as we announced a few weeks ago, with Comaplex Minerals. To acquire Comaplex Minerals, we have the date of March the 3rd to achieve and complete – or May the 3rd, sorry, to complete our due diligence and get Board approvals. So we’re working towards the May the 3rd deadline, which is Monday.

Our costs, we still expect them to be below industry averages. We optimized all these mines and as we continue to expand the output. And our financial position will strengthen in the quarter, just post the quarter, as we complete it and finalize the $600 million long term bond issue. And we use the proceeds of that to pay down the shorter term line of credit.

In terms of the actual operating results, we had record output of 188,000 ounces as we achieved commercial production at Meadowbank. The quarterly performance was really anchored by the performance of the Quebec base mine, which all exceeded budgeted production. And they all exceeded the budgeted cost per ton. So they're performing extremely well. Our guidance is still in the 1 million and 1.1 million-ounce range for 2010 at cost of around $400 an ounce.

In terms of the earnings, we had some foreign exchange translation loss, which hurt the headline numbers as the Canadian dollar strengthened. We also had, as we normally would in the first quarter, a stock option expense. We issue our stock options in January of each year. And so, our earnings were low headline number because of those two adjustments. On a normalized basis, we were essentially right on consensus. I think what’s more important is cash flow was up 50% from where we were in the quarter a year ago as we continue to increase output. Our expectation is that our cash flow will continue to move forward, not only on an overall basis, but on a per share basis.

Our financial position, as we said, was improved. Our long term debt is $600 million bonds with an average ten-year – about ten years. And we still have a little bit drawn under the credit facility. Our available liquidity, with what we have left available to borrow if we need it, our cash position is over $850 million. So we're in a strong position as we move forward to continue to not only grow our output through focusing on internal expansion, but we can also do it in a way where we can increase the return to our shareholders through improvements in our dividend payout because of the increase in net free cash flow as our capital expenditure requirements decline significantly from what they were over the last here years.

In terms of the growth, from a reserve point of view, our 18.4 million-ounce position of reserves. In addition to that, we also have over 10 million, 11 million ounces in resource. We’re spending $75 million in exploration in 2010, which is our biggest budget, ever. And more than half of that is focused around the existing deposits looking to convert some of that large resource into the reserve position.

On production, this is an extremely good growth profile for the industry. Again, we see a doubling of output in 2010. We see consistent, steady growth in production out through to 2014. We are working on three expansion opportunities at three of our properties.

At Kittila, we’re looking for an increase in throughput. The base case increase in throughput would be about a 50% increase. We think that's achievable at the existing mine without the need for a shaft. But ultimately, we would still like to put a shaft down and hopefully increase that tonnage rate at some point. But that's a study that will still take us several months to complete. And we won’t be in a position to talk about that until first part of 2011.

We’re also looking at a 15,000 ton a day potential increase in throughput at Meadowbank. And we’re looking at increase in throughput at Pinos Altos at the mill, and also looking at several satellite deposits. And hopefully, these expansions will augment the production profile that we have currently out in the market.

Our production growth profile, such as among the leadership – one of the leaders in the industry in terms of the greater growth in production per share. That’s going to allow us to drive cash flow per share, which is one of the key valuation metrics we think when looking at the gold stocks. When we look at our capital expenditures, we made reference to this earlier, we see a dramatic decline as we complete our construction in 2010 at the newly built mines. We go to a more of a sustainable CapEx environment.

But we are looking, as we said, at several expansions about the order of magnitude. Both capital expenditure requirements are nowhere near what we were spending or the rate of spending over the last three years. So that’s why we feel we’ve now set up our business up where we can not only reinvest on properties and continue to grow output and reserves, but also to increase our returns to shareholders through an improvement in our dividend payout.

Again, when you look at our cash flow per share and our free cash flow per share, we are, again, among one of the industry leaders largely because we've been able to keep our share count down over an extended period of time, and because we bought assets early and we built them during a lower gold price environment. We're in a position now to take advantage of those assets and our decision to construct them when we did.

Just looking at the asset base, we can – we feel continue to grow through internal expansion and through selected smaller acquisitions, and maintain a steady growth and output and reserves over the next several years without making any dramatic change to where we operate in the world. And we’re proud of our political risk profile. It's probably the best in the industry. And we hope to maintain that advantage as we move forward.

LaRonde continues to be a very strong performer, not only from a production point of view, but also from the cost point of view. Our cost per ton – it was Canadian $71 in the quarter versus a budget of Canadian $75, Canadian $76, and so again, a great performance at LaRonde. The mine has operated at steady state since the expansion – last expansion in 2003.

As far as our preparation to access the higher grade gold or adapt, everything's on target to start to pull initial tonnage by the end of 2011. We completed the change over from shaft sinking. We've commissioned the service hoist [ph]. And we've started level development on two levels. So the mine continues to perform well. It should meet its guidance of 180,000 ounces at very low cash costs. We can still – continue to explore the property. It's still open. We continue to drill the boundary along (inaudible) and Ellison. And we're looking to follow-up on some results that IM Gold had on the boundaries that actually crossed into LaRonde. So there's still exploration potential at the LaRonde site.

Goldex continues to perform extremely well, tonnage and ounces above budget. In addition, recoveries improved. They can continue to improve. They were in excess of 92%, so we continue to optimize at this mine. We're on track to achieve our expanded tonnage rate of 8,000 tons a day by 2011. The mine is actually ahead of schedule in terms of its development, in terms of how much ore it's got drilled off and blasted. This should allow us to maintain our excellent cost per ton performance as we go forward. So no issues there with the guidance. And we're expecting strong output and strong cost performance from Goldex as we move forward. And we continue to explore it. The deposit is open. And we've ramped up our exploration efforts at Goldex.

At Lapa, we had record production of 31,000 ounces, about 5,000 ounces ahead of budget. Q1 tonnage was also above budget. Q1 cost per ton was below our budget due to the higher throughput rate. Our recoveries are still a little bit below plan, but we expect to see improvements going forward as we optimize the circuit. What we've got is we move into – through the second quarter is improved operating flexibility underground as we connect the ramps, which will be connected shortly. So that will hopefully allow us to continue with the very strong cost performance there. And the mine had a good quarter and looking to achieve its guidance as we move through the balance of 2010.

At Kittila in Finland, we had a longer than expected maintenance shutdown expected to be about 10 days. The actual shutdown was 24 days. We've had to do additional brick work required in the autoclave. As we looked at that, that was really due to normal wear-and-tear, so nothing really out of the ordinary. No recoveries were below plan. We achieved an average of 71% versus 76% in Q4. Those are the results. We're anticipating a slower ramp up to the feasible and recovery levels. We continue to work with treating the concentrate so that we can improve the stability of the reaction in the autoclave. So we're continuing to do test work there. So that's going to result in the slower ramp up.

We're seeing some higher rate. We've seen the ability to put more tons through than the design capacity of 3,000 tons a day. So we still expect to achieve our guided production level of 147,000 ounces. That's certainly what we have. We were there a couple of weeks ago. And we modified the mining plans. So that's what we're working towards as we move through 2010.

We continue to drill it. It's wide-open, as you know. We'll move to the longitudinal section on the next page. We've got an extensive drill program here ramped up from last year. We look to convert more of that resource to reserve as we move through 2010 as a result of the increasing reserve, which grew by 25% last year. We're looking at various expansion scenarios here. And one of the scenarios we're studying is to get to an increased throughput without the need for – initially for a shaft, where we can hopefully do it through accelerated underground development of the ramp system. So we're looking at those different scenarios. And we should have the results of that work in the first half of 2011.

At Pinos Altos, we made significant improvements from Q4 due to several modifications to the filtered tailing system. In March, we averaged almost 3,200 tons a day versus 2,000 tons a day in December. In April, we've continued to do better. And we've improved on our performance in March. We've ordered and expect to have delivered to the site additional filtration capacity. Once that capacity is installed in the third quarter, we should have the ability to run at a higher than initially planned throughput rate, which was 4,000 tons a day. So we've got additional capacity on the way, which will resolve the issue that we've had with the filtered tailings system.

Our mill recoveries have exceeded 90%. The underground and open pits are performing according to plan. We've started development of Creston Mascota, which is the first of the satellite deposits. Our capital costs and our schedule on Creston Mascota are both on budget. We continue to drill it. We've seen some encouraging in-fill drill results there, so that one's looking first at the satellite deposit. It's certainly looking quite good. As far as our guidance, we're still looking for 150,000 ounces in 2010 at Pinos Altos. We continue to drill the satellite deposits. There's an extensive exploration program. We hope to be providing an update with our – in and around our second quarter results, which will be in July.

In Meadowbank, we achieved commercial production in March. We started the mills in February. So it was a relatively quick ramp up. In March, we were at 6,400 tons a day. Our recoveries in March were about 85%. They will improve to average 93% in 2010 as we increase our tonnage and as we increase our grade as we put reserve grade through the plant. We're currently running around 7,000 tons a day. So we're ramping up to 8,500 tons a day. We're working on a few problems we're having in the crushing system, nothing fatal. That's normal part of startup, so relatively uneventful startup. At Meadowbank, our April production is on track. So that's going to be our biggest producer. And that startup is – that uneventful startup is why we feel very comfortable with our guidance for 2010.

I'll stop there. And operator, we'd love to open the lines up for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) Your first question comes from Anita Soni of Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Just a question with respect to the grade at Kittila and the grade at Lapa as well. Let's start with Lapa, it's – the grade was a little bit higher than the guidance that you provided in December. Is that expected to continue? Or is it expected to come down to the gram per ton level.

Sean Boyd

The question, we just have a little bit of trouble hearing that, Anita. The question is on Lapa. And the grade was higher than our guidance, and you just want to know why that was.

Anita Soni – Credit Suisse

Not really why, but whether or not it's expected to continue.

Ebe Scherkus

We were in a bit of high grade cycle. So it basically is according to plan. And we are having slightly lower grades this – in this particular month. But once again, that's according to plan. And the other reason was we had slightly lower dilution during this quarter because we had the thicker stokes. So it was a function of that as well.

Anita Soni – Credit Suisse

So overall, for the average for the year, you're still expecting to come in at around 8 grams per ton then?

Sean Boyd

8.9 grams.

Anita Soni – Credit Suisse

8.9 grams.

Sean Boyd

Yes.

Anita Soni – Credit Suisse

And then, a similar question with Kittila, although it wasn't as pronounced. It was just slightly lower right there.

Ebe Scherkus

At Kittila, actually, the grades that we are expecting out of the pit are slightly higher. That's why we expect to make our forecast or our guidance the average grade out of the pit reconciled with the mill is currently running anywhere between 2% to 3% higher. So we expect our grade to be – average out about 5.2 grams to the 5.4 grams per ton range.

Anita Soni – Credit Suisse

Okay. And then lastly, just the grade – the base metal – the by-product grades at LaRonde, they were a little bit lower than we were – than even you were forecasting previously. Is that expected to come up or to – will you still be in the lower grade area?

Ebe Scherkus

I would think we'd be very close to guidance. That's also a function of metal prices compared to when we did the budget. So we'd be able to mine slightly lower grade material. And that offsets some of the original plans. So we're basically maximizing the LaRonde ore body. And it'll be judged almost on a month-by-month basis, what becomes economic.

Anita Soni – Credit Suisse

Okay. Thank you very much.

Operator

Your next question comes from Ahod Paul of Canaccord Adams. Please go ahead. Mr. Paul, if you're on speakerphone, would you mind picking up the handset? I’m sorry. We cannot hear you. Perhaps your line's on mute. You’re next question comes from John Tumazos of John Tumazos Very Independent Research. Please go ahead.

John Tumazos – John Tumazos Very Independent Research

Congratulations on the improvements. Could you explain how you chose $600 million as the amount for the bond offering? Clearly, with the size mines built, a lot of cash is going to come in, though you’re looking at more expansions, possibly more acquisition after Comaplex et cetera. Second, will the acquisitions be limited to the same three countries and the various districts where you're currently operating or would you entertain new areas, Nevada, other places in Latin America, other parts of Canada?

Sean Boyd

John, on the debt issuance, what we were looking to do is essentially term out some of our shorter terms bank lines and take advantage of historically low interest rates in very tight credits spread. We didn't want to do an overly large financing. We targeted about 5% of the market cap, but the demand was very, very strong. So we sized up the deal marginally to $600 million. And our objective is always the drive down our cost of capital. And we think ten-year money at 6.6% is very prudent financing. We think over that ten-year tenure, it'll prove to be a very low cost of capital for our business.

You’re right. We will be generating significant net free cash flow. Our objective is to maintain, on an ongoing basis, a net debt of essentially nil. So we will carry cash on our balance sheet that we think ultimately will probably generate a higher interest rate than will be (inaudible) with a tenure of ten years.

Dave Garofalo

And then the second part of that, John, as far as political risk profile and where were looking in terms of geographies, currently the focus is on the three countries that we currently operate in. And as you can see, with the agreement in principle in Comaplex, we looked at that one not only because we like the potential deposit, but it’s in an area where we feel comfortable operating in.

So what we see going forward is, with the internal expansions, we have steady growth out through 2014. We can manage that very handedly with the cash that we're going to be generating from the mines, something like a Comaplex, assuming that goes forward. We've come in beyond that 2014 period, which would drive reserves and production growth beyond that. So we feel comfortable with that position, so we're not in a rush to look elsewhere. But we’re in the mining business, so we will look. But the way we’re trying to grow is without really having a major increase in our political risk profile.

John Tumazos – John Tumazos Very Independent Research

If I can ask one more, what was the current interest rate on the bank loans that you just repaid?

Dave Garofalo

LIBOR plus 3.5%, but we haven’t permanently reduced those bank lines. They still remain fully available to us. And in fact, we're looking at actually expanding them and expanding them out further just to have that much more available liquidity to us.

John Tumazos – John Tumazos Very Independent Research

The LIBOR plus 3.5% would be between 4% and 4.5% today.

Dave Garofalo

Yes.

John Tumazos – John Tumazos Very Independent Research

So you termed it out by paying 2.5% more interest.

Sean Boyd

That’s right, so with that ten-year money. And we think it’s very cost effective for this. By next year, we're paying cash taxes in Canada, so that will help shelter some of the income we generate in Canada as well. So on an after tax basis, it's a very cost effective capital.

John Tumazos – John Tumazos Very Independent Research

Thank you.

Operator

Your next question comes from David Haughton of BMO Capital Markets, please go ahead.

David Haughton – BMO Capital Markets

Good morning, and thank you for the presentation. Just having a look on your CapEx slide, on the presentation it was number 12. I was just wondering where some of these development projects might fit on this. And I guess, one of the things that I'm looking at is you've already started on the Creston Mascota. Previous guidance had said that it would be about $60 million in CapEx. I'm just wondering if – based on your early experience if that’s still a valid number to use.

Ebe Scherkus

That is still a valid number, David. And as far as the other projects are concerned, we’re looking at spreading them out across into 2014, a Meadowbank expansion to 10,000 tons. We would see that perhaps coming in around 2012, 2013, similarly, with the Pinos Altos. But these expansions are – I wouldn't consider them major. They're all in the – about maybe $65 million to $100 plus million range gold excess essentially complete. We can go to 85,000 tons per day depending on the mining plan.

And as Sean mentioned, we're about a year-and-a half ahead of schedule on that to be able to supply additional ore from underground. And then, we also have things like El Sinter, another roughly about $60 million project similar to Mascota. The biggest one we would have would Kittila. But once again, that’s an underground development project along with expansion in the mill. So we would be able to see that starting in the later years and spread out over a couple of years. In our strategic plan, we do not want to go through – like the last three years and have a massive spending spree and construction spree as well. We wanted this to be more orderly.

David Haughton – BMO Capital Markets

Thanks, Ebe, for that very thorough answer because I had anticipated with (inaudible) was leading. So thank you very much.

Operator

You next question comes from Barry Cooper of CIBC. Please go ahead.

Barry Cooper – CIBC

Yes, good day. Ebe, while you're on line there, I'm just wondering – and I realize this is going to be a tough question to answer, but maybe you have some scope that you can direct us to. The reversal of the recovery rate for Kittila, how much do you think would that have been related, let's say, a hiccup that you discovered during the quarter versus the stop-start from the shutdown, and everything like that because I'm assuming there’s a bit of both of those components in that reversal.

Ebe Scherkus

Well, I think, I'll start with the question, and then I will refer it to Jean in more detail. Obviously, the issues that we went through during the first year, all the stop and start are not exactly conducive to autoclave wear-and-tear. So we experienced more wear-and-tear. And I think that's the key point. It is wear-and-tear and it's not in a design deficiency. So when we went in, we were able to just re-brick it. And as far as all our experts and consultants have said to us, this is part for the course, that it's not unusual wear-and-tear, and it’s part of the research and development of finding the optimal brick type and mortar type for our ore and reaction conditions.

Also, we went on and did more test work using the advice from some other consultants. And some of those results were not favorable. In other words, they did not work as planned. And with that, I can turn you over to Jean Robitaille. He can give you more flavor exactly what we did and what the ultimate result was, and where we are today.

Jean Robitaille

Good morning, Barry. Just a bit of history last year the same quarter, were at 28% recovery. So we're able to raise gradually to achieve in the fourth quarter 76%, and in December it was 78.6%. We're still targeting the 83%, and eventually being above it. And we have decided to change the pattern in the autoclave. And essentially, it was the first quarter, we have some good results, but also we have more downside. And it’s part of the experimentation.

What we forecast, we’ll extend that. But by year-end, we're still targeting the 83%. As Ebe mentioned, the grade is a bit higher. So in terms of the gold production, we don’t see issue out there and in the future. If you look at the life of the mine of Kittila, a couple of months more will not be a disaster. We want to make sure that we'll have a stable process and have stable operation.

For the autoclave itself, it's normal maintenance. The fact is that we did the inspection, and we find that wearing. We just repair, and we'll come to that on preventive maintenance according to what we have to do.

Barry Cooper – CIBC

Okay. Good enough, then. So is there something specific that you think you've mastered in terms of making the improvements that you've done? And how has it reacted since the restart on (inaudible)?

Jean Robitaille

It's hard to answer, Barry. You can see what we did last year. We surprised people that we're able to raise from the lower recovery to that 78%. Presently, we are working under confidential agreement with another company. And this is the reason that I cannot give more detail.

Barry Cooper – CIBC

Right. Okay. And then, I'm just wondering, Dave, if you could tell us quite a bit of packs stayed or at least booked on the income statement. What numbers are we looking for the year? And why was it so high in Q1?

Dave Garofalo

Well, the reason it was so high is we had a foreign currency translation loss. If you took that out, effectively, we were around above 35%, which is where we expected to be in the foreign currency translation losses. In the accounting section, it's not a deductible expense at all. So 35% long term is where I would stick. And that takes into consideration the increase in mining duties with the – that was recently announced in the first quarter.

Barry Cooper – CIBC

Right. Okay. Good enough, and thanks a lot.

Operator

Your next question comes from Greg Barnes of TD Newcrest. Please go ahead.

Greg Barnes – TD Newcrest

Yes. I'm just wondering, the changes that you made to the autoclave or the concentrator, whatever you did that – that didn't work. What were they?

Jean Robitaille

Sorry, can you repeat the question?

Greg Barnes – TD Newcrest

Sure. The changes that you made for the concentrator or the autoclave parameters at Kittila that did not work, what were they?

Jean Robitaille

Essentially, as I mentioned to Barry previously, we work under a confidentiality agreement. But in a sense, we had a new additive to try to stabilize the reaction. And during that process, presently, we did not achieve at this time the expected (inaudible). And during the experimentation, we have some data to – it was in fact the entire amount when we dropped the recovery during the test work. And this is the result that you are seeing presently.

Greg Barnes – TD Newcrest

Okay. So you have – (inaudible) figure putting in there?

Jean Robitaille

We'll extend the experimentation. This quarter, we expect being in the mid-75%, mid-70%, and going up to the 83% by year-end.

Greg Barnes – TD Newcrest

Okay. Are you going to put out a new recovery curve like you did last year or–?

Jean Robitaille

I did not really have the intention.

Greg Barnes – TD Newcrest

Okay. It will be nice to see.

Operator

Your next question comes from Ahod Paul [ph] of Canaccord Adams. Please go ahead.

Ahod Paul – Canaccord Adams

Guys, can you hear me or we'll try this again?

Sean Boyd

Yes.

Ahod Paul – Canaccord Adams

(inaudible) Sorry. Technology, the wonders of technology. Pinos Altos, guys, despite the bottleneck of the tailings filtration circuit, you were able to get to 4,000 tons per day in the first three weeks of April. What explains that?

Unidentified Participant

Okay. I'll pass that over to Tim Haldane, our Senior VP in Latin America. Tim?

Tim Haldane

Yes. We've been working pretty hard on the filters, obviously, and lots of mechanical upgrades to the filters, hydraulics, structure. And at the same time, on the process side, we've been adjusting the detox chemistry and the core smiths [ph] of the grind, and those kinds of things. So it's just a combination of a lot of changes. And typically, with tailings filtration that takes a long time to get the benefits to start showing. And that's where we are.

Ahod Paul – Canaccord Adams

Okay. Sounds good, Tim. Guys, on Lapa, recovery's grades were excellent, which was great. Recovery's still not quite where you want it to be, I think, for the full year plan, 86%. You're at 77% or so. What explains that? And how do you plan to get recoveries higher at Lapa? Thank you.

Jean Robitaille

Okay. For Lapa, presently, we have a gravity circuit at the front of the circuit. And after a complete analysis, we – it was – it showed that we have to move at the side mill circuit instead of the volume circuit. It's ongoing. And we expect to reach the 80% when it will be completed by the end of Q2. Beginning of Q3, it will be in position. We're still doing the investigation. And we expect to be – by year-end, to be above the 80% and near the 85% currently based on the information that we have.

Ahod Paul – Canaccord Adams

Okay. Thanks, all. Thank you.

Operator

(Operator Instructions) Your next question is a follow-up from Anita Soni of Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Thanks. It's already been asked and answered. Thank you.

Operator

And your next question comes from Don MacLean of Paradigm Capital. Please go ahead.

Don MacLean – Paradigm Capital

Well, good morning, guys. Some good progress on a number of the mines, and good to see Meadowbank startup. Just a question, Ebe, on where you might expect some further cost savings on Meadowbank. If you take the $840 for the month, dollars per ounce, and you adjust for the fact that the production was about 25% less than design, and the recovery was about 8% or 9% less than design, that bring you down to – assuming all your costs were fixed, which probably are at this point, down to about $580. So I think the guidance for the year is about $460. So can you give us a sense of where you might see other than just the economies of scale in the recovery where you expect to see some further cost savings?

Ebe Scherkus

Well, one thing, Don, is that this is a one month out of the (inaudible). And it is also a month of startup. And what we did have is that our production drills had issues in the open pit due to Arctic winter conditions. So our availability was very low. So we add additional contract costs in there. And similarly, with our truck fleet, however, what we did do is put the priority on getting the process plant built, like the support facilities such as the shop facilities are currently in the process of being completed and will be ready during the month of May.

So as a result, those numbers that you presently see include operating inefficiencies due to some of the maintenance issues and startup issues. And we expect to have those resolved very shortly. So therefore, we expect to have our numbered crop. With respect to recoveries, in April, already we have shipped – the design recoveries are significantly higher. And so, as it – as you know, for the first month, they had 85% already on a brand new plant. We feel that's a figure that we are satisfied with. And as I mentioned, we've already hit the design recoveries in April.

Don MacLean – Paradigm Capital

I guess that's a – it was long-winded question and they answered you're comfortable with the $460 guidance.

Ebe Scherkus

Yes, we are.

Don MacLean – Paradigm Capital

That's great. And good luck as you carry through. At least you're moving into an easier part of the year, couldn't have picked a harder time to startup. Well done.

Operator

Your next question comes from David Dean of Cormark Securities. Please go ahead.

David Dean – Cormark Securities

Thanks for taking the question. Do you have everything that you need from your diligence process to make a decision on moving forward or not with (inaudible) flecks on Monday?

Sean Boyd

Well as we said at the start, the – there was an extension announced to Monday, May the 3rd. And both parties are working towards Monday, May the 3rd.

David Dean – Cormark Securities

Okay. Does that mean though that – where they'll receive the assay results from the twinning and drilling, and you have everything that you need to make this decision?

Sean Boyd

No, all that means is that both parties are working towards May the 3rd.

David Dean – Cormark Securities

Okay. Thanks.

Operator

And your next question comes from Tanya Jakusconek of National Bank Financial. Please go ahead.

Tanya Jakusconek – National Bank Financial

Great. Thanks. I just have a question on Kittila, just on the recoveries again. I just wanted to talk a little bit about the tests that you're doing. And I appreciate that you're under the confidentiality. But can you just tell us at least if you're happy with the retention time and the autoclave? Has that resolved? Has the pH been resolved? Is the temperature, that 190 to 210, is that the temperature you're happy with that is right now it's just these additives that you're adding, just a little bit on exactly what you're doing?

Jean Robitaille

Good morning, Tanya. The new product we are adding or the change is to – essentially a smoother reaction and redo the impact of retention time. So we haven't found the proper window this time. And all of the different parameters are linked with that. Yes, the autoclave is still too big. It's good for the future expansion at 4,500 tons per day. Now, we are struggling a little bit. And as I mentioned earlier, then for the life of mine, we don't see any problems. But we will have a little bit more difficulty this year. Year-end, we're still targeting 83%.

Tanya Jakusconek – National Bank Financial

But just on the retention time. From what were we operating at retention when we were at that 76%? And I know that it is over 80%. What was that retention time?

Jean Robitaille

Presently, the retention time was near the 80 minutes instead of the 45 minutes, 60 minutes. It's a function of the flow. But at that time, it was near 75 to 80 minutes.

Tanya Jakusconek – National Bank Financial

Okay. So you still think you have to play around with that?

Jean Robitaille

We would like to go more into 45 to 60 minutes.

Tanya Jakusconek – National Bank Financial

Okay. And then, the pH and the temperature, those have to play around, too?

Jean Robitaille

We keep that in the ballpark of last year in terms acid concentration and temperature.

Tanya Jakusconek – National Bank Financial

Okay. So you're happy with that as in last year.

Jean Robitaille

Yes.

Tanya Jakusconek – National Bank Financial

So it's really just retention time, and then these additives that you're dealing with.

Jean Robitaille

At this time, yes.

Tanya Jakusconek – National Bank Financial

Yes. Okay. Thank you.

Operator

And your next question is a follow-up of Anita Soni of Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Can you just elaborate a little bit? I know you said they were not fatal flaws. But can you talk about some of the issues that you've been having with the crushing system at Meadowbank?

Ebe Scherkus

Good morning, again. All we had was installation issues at the Meadowbank. There's a backing material when we installed the liners. And that material was supposed to be kept warm, while inadvertently during the shipping from Baker Lake to Meadowbank, it froze. So we had an improper installation and we had to reinstall.

Then the second thing that we noted was that the type of liners that were – had been originally ordered. And these had been ordered a couple of years ago. We're not the best liners for the jiratory [ph] crusher. So as a result of that, they had premature failure. So then, we installed a third set of liners and made some adjustments with the backing material, and also how the ore was dumped into the crusher. And we haven't had any significant issues since. So they're largely resolved.

Anita Soni – Credit Suisse

And then, with respect to the additional operator – sorry, additional contractor costs supplementing your production drills. Is that something you expect to continue on in the future, in the winter months in order to–?

Ebe Scherkus

No, we don't part of the issues that we have are with the cooling system of the drills. And the suppliers realize that there is a design flaw, and is working on resolution. So we expect to have that resolved. And like all of our mines, our objective is to minimize the contractor presence.

Anita Soni – Credit Suisse

Okay. Thank you very much.

Operator

Your next question is a follow-up from Don MacLean of Paradigm Capital. Please go ahead.

Don MacLean – Paradigm Capital

I just forgot to ask you all about the greater wear-and-tear on the autoclave. How many days of maintenance do you think you all require now going forward on an ongoing basis for maintenance with the process plant versus your original expectations?

Jean Robitaille

The original expectation was to stop one year doing a complete (inaudible). Otherwise, the security will stop two times per year. But this will not impact the annual production that we have worked at. And we have a filtration system. And we will be able to filter a part of the production. And after that, we're introducing the autoclave.

Don MacLean – Paradigm Capital

Right. So you can make it up. Then that's the – you've got a lot of extra capacity in the autoclave. Is that part of the answer?

Jean Robitaille

It's part of the answer. For sure, we'll have to find the proper window. But we will stay on the plant. And if you looked at the big picture in the company, now we have six mines. And if we are struggling a little bit at Kittila, we have to look also at the other parts. So if you see Goldex at 92%, when we started the same quarter last year, we're at 84%. If you look already, as Ebe mentioned, the Meadowbank, we're touching the 94%, 95% the last couple of days. So in general, the big picture is we are going on a good track.

Don MacLean – Paradigm Capital

Great. Thanks you all.

Operator

Mr. Boyd, there are no further questions at this time. Please continue.

Sean Boyd

Thanks, operator. And thanks, everyone, for your attention this morning. And we welcome all of you to our annual meeting at 11 o'clock this morning if you'd like to come. Thanks again.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. And you may now disconnect your lines.

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Source: Agnico-Eagle Mines Limited Q1 2010 Earnings Call Transcript
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