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Executives

Sean Boyd - Vice Chairman, Chief Executive Officer, President and Chief Executive Officer of Sudbury Contact

Eberhard W. Scherkus - Former President, Chief Operating Officer and Director

Ammar Al-Joundi - Chief Financial Officer and Senior Vice President of Finance

Marc Legault - Senior Vice President of Project Evaluations

Tim Haldane - Senior Vice President of Latin America

Daniel Racine - Senior Vice President of Mining

Jean Robitaille - Senior Vice President of Technical Services

Analysts

John D. Bridges - JP Morgan Chase & Co, Research Division

Don MacLean - Paradigm Capital, Inc., Research Division

Stephen D. Walker - RBC Capital Markets, LLC, Research Division

Joung Park - Morningstar Inc., Research Division

Patrick Chidley - HSBC, Research Division

Anita Soni - Crédit Suisse AG, Research Division

David Haughton - BMO Capital Markets Canada

Carey MacRury - TD Securities Equity Research

Steven Butler - Canaccord Genuity, Research Division

Agnico-Eagle Mines (AEM) Q4 2011 Earnings Call February 16, 2012 11:00 AM ET

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Agnico-Eagle Mines Ltd. Q4 2011 Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Thursday, February 16, 2012, at 11 a.m. Eastern time. I will now turn the conference over to Sean Boyd, President and Chief Executive Officer. Please go ahead, sir.

Sean Boyd

Thank you, Operator, and good morning, everyone. And we've got a lot to cover today, and I'd like to get right into it. We have a series of slides, and then we'd be happy to answer all your questions. There's a lot in the press release. I'd like to start off and talk about management changes and just to give credit to both Ebe and Paul-Henri Girard for their many years of hard and dedicated work to Agnico, and allowing us to go from a single-asset regional producer to multi-mine international coal company. With respect to the timing, it was never really a question of if Ebe was going to step back because he had worked so hard over the last several years, it was just a matter of when. And we had discussions over the last couple of months, and I think it gives Ebe an opportunity to sort of step back and catch his breath and relax a bit, and then get back into things in the mining space, and I think that's a good thing for him. What it does for us is we do have Ebe on a consulting contract as do we with Paul-Henri Girard. So we'll continue to benefit from their experience and expertise and guidance and advice over the next several years. So we wanted to start off the call and thank both of them, again for their efforts on behalf of Agnico and its shareholders over many, many years.

What these changes have allowed us to do is bring up some new talent, promote some new talent from within. Agnico is fortunate over the years to have developed a lot of bench strength, and that bench strength now, we've been able to move some of those individuals up, bringing sort of new ideas and new energy, we been able to narrow their reporting responsibilities, and we've got a flatter reporting structure. And I think that's going to benefit us going forward as we look to build on our past success. The way we look at it is we've got about 1 million ounce production base. We're generating about $1 billion on operating cash flow. That's a solid base of both assets and people to sort of build the next leg for Agnico-Eagle. We've been in business for 55 years. We've had many more up years than down years. There's no question 2011 was very difficult, but we spent the last few months looking at our assets, looking at our people skills, moving those around so that we can begin 2012 on a stronger and new footing.

When you sort of sit back and look at it, as we look at it, what we've put out in our press release is very solid, achievable guidance. We're actually seeing year-on-year improvement in production in 2012 at 4 of our 5 mines, and the biggest mine we now have the mine plan that is much lower risk. So I think that reinforces the solid nature of the guidance. We still have production growth. When you take out Goldex, we still have production growth in 2013 and '14. And those are all from the existing mines. And the biggest driver of that growth is La Ronde and we built in a slower transition in the underground on those production numbers. We still have expansion and growth opportunities in the company at Kittila, and we're working on an expansion plan there. La India, which was acquired late last year and the transaction with Grayd. Also coming in the transaction was Tarachi, which we think is going to get bigger and has the potential to be a producing asset for us. And Meliadine, we continue to grow that deposit, we continue to have an aggressive drill program on that, and we still expect given the grade of that deposit that, that will be a significant contributor to us going forward.

Although Meadowbank has been a tougher situation than we had expected, it certainly doesn't diminish our enthusiasm for doing business in Nunavut, particularly with the quality of the asset at Meliadine. We're just getting started there, and the asset's already 7 million ounces. So people try to compare the 2 but they're totally different, even though they're in roughly the same geographic area. They're totally different in terms of size. Meliadine is already more than double the size of Meadowbank. They're totally different grade. Meliadine is double the grade of Meadowbank. And Meliadine is much better located to deal with the high cost of logistics in the Arctic environment.

When we look at our ability to move these assets forward, as we said, we're still generating $1 billion in mine operating profit. So not only are we able to maintain a very strong exploration budget again in 2012, and that exploration budget is focused on Kittila, Meliadine and in Mexico, where we maintain an aggressive program. We're also able to reinvest in our assets to expand the output, and we're also able to continue our long-standing dividend. We paid a dividend as we move into 2012 for 30 consecutive years, which is not easy to do in the gold business. We're in a position to raise that dividend by 25% to $0.20 a quarter, which I think speaks to the confidence that we have in our business going forward.

Just going to move into the slides. Just a quick recap on earnings. In the fourth quarter, when you take away all of the write-down at Meadowbank and the other nonrecurring charges, we had normalized earnings of $0.45, which is pretty close to where we expect it to be. It was a little tougher quarter from a production standpoint than we were looking for. We had an unplanned shutdown in the last week of the year at Kittila. And what we should say, coming out of the fourth quarter, here we are 6 weeks into the year, and we've gotten off to an extremely good start at all of the operations. So I think that goes to the first point we made at the start the call that what we have now out is very solid, achievable guidance.

From a financial position standpoint, our net debt is $700 million. We are net free cash flow going forward, as we look at even expanding some of our assets. We have a substantial credit line, which is undrawn, of almost $900 million. So we've got a lot of financial flexibility, when you include the cash flow that's generated from our 5 operating mines despite losing the large net free cash flow out of Goldex.

In terms of operating results, we've talked briefly about the earnings impact and the cash flow impact. We closed the year at 985,000 ounces at cash cost of $5.80 an ounce, which is pretty close to our revised guidance, which was at $5.75 per ounce. As we move forward, we see production, when we take out Goldex, going into the low 900s, then rising in 2013 to about 990 ounces, 90,000 ounces. And then in 2014, to 1,055,000 ounces. Our costs go up, but the costs go up largely because we're taking out Goldex low-cost ounces, but also because we have much lower byproduct revenue. And that impacts La Ronde. So La Ronde goes from a cost per ounce of less than $100 to a cost per ounce in the high $500s, because we're losing about $80 million in byproduct of revenue, which is not insignificant. As we go forward though, we'll make that up as we ramp up the gold output and generate more cash coming out of La Ronde. Again, the other impact on cost is Meadowbank. When you take out Goldex and there's more reliance placed on the biggest producer, Meadowbank, your cost per ounce go up.

Net free cash flow. Our expectation, based on the production guidance we've put out, is EBITDA of a little over $1 billion, with estimated CapEx going forward likely over the next 5 years at about, averaging about $500 million, which would include Meliadine and Kitilla expansion, et cetera.

Production growth, we talked about that, it's still, when you takeout Goldex or after Goldex, we're still growing the production base from the existing assets. And beyond that, we haven't incorporated anything from potential expansion at Kitilla or La India or some of the Pinos Altos satellite zones. And Meliadine would come after 2014. That drives production per share, which you can see on that slide.

Our reserve base, we did transfer some reserves into resource out of the Meadowbank mine plan with a lower risk mine plan. We also transferred the ounces from Goldex into -- from reserve into resource, so that lowered our number this year. We expect continued growth as we move forward next year with active exploration program particularly at assets like Meliadine and Kittila and the assets that we have under exploration in Mexico.

Again, that drives per share growth in reserves as we move forward. We talk about our 4 cornerstones and as we said, these mines generate about $1 billion in gross mine profit, they did in 2011. So going forward, we're looking for mine profit in about $1 billion range, generating free cash flow from these mines. La Ronde is an asset that continues to perform well. In 2012, we're looking for an increase in output as we are in 2013 and 2014. That's going be the major driver of our growth going forward. Simply based on the fact that we're accessing higher grade material. So it continues to be a solid asset for us, with almost 5 million ounces left in reserve and almost 2 million ounces in resource.

At Kittila, we're looking for growth in output next year, we're seeing better grades. We're seeing good recoveries as we start the year. Again, this is an extremely long-life mine, we continue to look at opportunities to expand it. It's definitely going to require a shaft at some point. But in the interim, we're looking at a, initial expansion of about 25% and we're currently at throughput from 3,000 tons a day to 3,750 tons a day, and we're doing the economic work on that right now. So we'll have some more news on that as we go through 2012.

Mexico, solid, steady performer, a couple of 100,000 ounces at about $400 cash cost. Again, another long-life asset. We expect that asset to continue to grow through exploration. As we indicated in our production profile, we're moving the La India project forward. We currently do not have that in any of our 3-year production guidance. We'll be able to provide people with an update on a more definitive timeline on that asset towards the end of this year as we continue our drilling program and complete the economic study work on that asset.

At Meliadine, it's a 7 million-ounce reserve and resource, it's still growing. Again, the grade is the key for this as well as the location and the size. We believe it will continue to grow. We've got an active exploration program on that, and we'll talk to that in a minute on one of the upcoming slides.

At Goldex, there's not a lot new that we'd like to report at this point. It's still too early, there's really nothing conclusive there. We continue with our monitoring. We continue with our assessment. We continue with our remediation, but we also continue with our drilling. And we, we'll also continue with our ramp development at the D Zone. So we are still active there underground, we just suspended the extraction of the ore out of the GEZ Zone. So again, as we said, we feel we'll be in a better position sometime in the second quarter of this year to be able to determine what the next steps should be at Goldex.

At Meadowbank, we have a new mine plan, but we've shortened the life on that mine plan. But it's a much lower risk mine plan over a 6-year period. It reduces the requirement of waste development by about 70 million ton and that has been one of our difficulties in a harsh environment is moving that waste. So this is much lower risk. We've also incorporated a 20% dilution factor into our reserves, which affects our production profile. So that's the basis for a lower risk plan going forward. That plan should still generate net free cash flow over the next 6 years of about $1 billion. So it's still a core part of our operation going forward. We benefit from the experience there. We'll apply that as we look at options at Meliadine.

Lapa. Again, steady producer for the next several years, we believe can extend life there, 1 or 2 years. We've also built in some added dilution there. We've now moved it from 54% to 74%, but we're taking a more conservative approach in the production profile for Lapa. We'll touch on some of the exploration upside. At Meliadine, as we said, combined reserve and resources continue to grow. We increased the reserve base. We've seen additions at Wesmeg. We've seen additions and extensions of the deposit at Tiriganiaq. In 2012, we're going to drill 90,000 kilometers of drilling on the known areas. We're going to drill about 25,000 meters on areas that are new potential discoveries on the property package. So we've got an 80-kilometer trend there, but we still have some results coming in from 2011 program, about a third of the assays are still to receive. And we still have the bulk sample results of finalize. Initial bulk sample results have tended to confirm the continuity of the mineralization, so we're happy with what we see so far. But we’ll put out a full report when we receive all of the bulk sample results and all of the assays likely in the second quarter of this year.

Just to focus on the Tiriganiaq zone, we've now traced it down to about 350 meters. It was the focus of drilling was really down to about 350 meters in 2011. It actually extends below that, but that's where the focus of drilling was on. The bulk sample was also focused on Tiriganiaq. And again, the initial results on that give us improved confidence around the continuity and the grade.

At Kittila, we continue to be active drilling. The Kittila is now our biggest single reserve at 5.2 million ounces. We've got another 2 plus million ounces in resource. It's still open for expansion. In 2012, we're going to do 32,000 meters of drilling, so still an aggressive exploration budget focused on Rimpi, the Rimpi area and continuing up to the north. The mineralization in Rimpi in 2011 was extended about 450 meters below the previous resource outline. So we've seen better grades. We've seen good thicknesses in that area. That could potentially change the economics, and that's why we've put off a decision on location and size of the shaft, but we continue to look at options and opportunities for that as well.

Creston Mascota, we were able to extend the life, minimum of 2 years. So we've had some exploration success at Creston Mascota. The potential exists to continue making discoveries to the southwest. So we continue an active drilling program at the Creston Mascota deposit.

So moving forward, we've made some changes to our approach to putting numbers together. We've been able to introduce some newer members of our team, give them more responsibility, bringing in some new ideas going forward. Again, the way we've generated the budget numbers is a different process, a lot of input at the mine management level and also a lot of input from the mine managers in terms of public guidance and how we should approach that. So that was helpful in generating our numbers this year. We look at our valuation, and we've certainly been hit hard in 2011. But our feeling is, is that we've put together, as we said, a really solid plan, achievable plan in terms of meeting targets. We're still generating significant cash flow coming out of these mines. We've got good exploration upside on several world-class deposits. We're still able to focus on an aggressive exploration program, moving assets forward, and still able to increase our dividend. So we know it's been a difficult year. We've been able to adapt and adjust, and we feel we have a solid plan to sort of rebase and build from there and go back to building the per share value again.

So I'll open it up, operator, now for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question today comes from John Bridges with JPMorgan.

John D. Bridges - JP Morgan Chase & Co, Research Division

You made mention in your remarks about the differences between Meadowbank and Meliadine. But I wondered if you could sort of just explain how you've had the write-down at Meadowbank, but even though you don't have a feasibility study yet at Meliadine, that there's no write-down apparent there.

Sean Boyd

Right. We do have a feasibility study at Meliadine. It's been filed. It's based on a smaller subset of reserves. It doesn't include the resources. That's why we've been able to get a subset in reserve. But I think the key differences on the economics are strictly from the fact that we're dealing with much higher grade, we're dealing with better logistics, we dealing with a larger deposit. And we did go through that carrying value analysis on all the assets very closely including Meliadine. And the one that needed to be adjusted was Meadowbank, largely because when we looked at the original valuation a year ago, we were dealing with higher grades, we were dealing with a different cost structure. 2011, we've been able to understand better the cost structure, and one of the key drivers in terms of the valuation was the cost side. So we're using a higher cost. We didn't incorporate a much higher gold price in the valuation analysis, so we probably had a $250 increase in the cost side of our equation on the valuation, but we only had about a $50 increase in the gold price. So when you add those up, the one that didn't make the cut and had to have a write-down was Meadowbank.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay. And then Goldex, in part of your report, you're talking about additions to the D Zone there, but I just wondered if there was any update as to the sort of prognosis for getting into that D Zone at some later stage?

Sean Boyd

No update at this time. We'll be in a better position. We've been targeting sort of end of March to gather all of the information on our assessment and monitoring. And using that timeline, we'll feel we'll be able to update the market in the second quarter of this year on the results of the assessment work, the monitoring work, the results of the remediation, the results in fact of the exploration that we continue to do on the D Zone and the level department the we're doing at the D Zone. There's a lot of misinformation out there that on Goldex, that we can't even go underground, that it's flooded, that there's a lot of caving. In fact, we're underground right now, doing assessment work on the D Zone, doing drilling. What we can't do is we can't pull tonnage from the GEZ zone, and that's where we suspended mining operations. But we haven't given up on looking at ways that we can salvage some value there. But we -- it's too early to make any definitive conclusion one way or the other, and we won't be in a position to do that until the second quarter, is our estimate of the timeline.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay, great. And could you give our regards to Ebe and I just wondered...

Sean Boyd

Ebe is actually here. Ebe is here. He said, I asked him if he wanted to address a lot of his friends that'd be out there on the call. He was sort of reluctant, but he's now sort of moved closer to the microphone, and he's laughing. So he is free to talk.

Eberhard W. Scherkus

Well, thanks for your comments, John. As Sean mentioned, 2011 was a horrible year, and it's certainly not the way that I would've wanted to leave Agnico. But I think I'm getting close to 27 years in the saddle here, 37 years in the mining business, and the first number is turning to a 6. So it's time to contemplate other things and with the bench strength that we do have and the strategy that we do have going forward, it's never an appropriate time, but to be able to carry these things through, it was best that I retire earlier rather than later, say maybe in 1.5 year or 2 years, or whatever. So the timing, looking back, maybe in a year's time, this was, will have been the best time. So I'd like to thank everyone out there for their support over the years. As Sean mentioned, we've had more ups than downs, and we've always come back. And the strategy we currently have is, we're going to make another comeback. I have no doubt about that. And the fact that I will be consulting and behind the scenes and still be looking over everyone's shoulder a bit, that isn't that bad, either. So once again, thank you very much.

John D. Bridges - JP Morgan Chase & Co, Research Division

Thanks, Ebe. It's a tough year for the analysts. And we just talk about the stocks, though I can just imagine what it was like for you guys. Anyway, you can work on your guitar riffs .

Sean Boyd

Ebe and his team are playing at the PDAC at, Steam Whistle, what night is it?

Eberhard W. Scherkus

March 6.

Sean Boyd

March 6. So everybody is welcome to go and Ebe, he's got a, the next couple of weeks to get those guitar riffs perfected. So he's looking forward to that.

Operator

Your next question comes from Don MacLean with Paradigm Capital.

Don MacLean - Paradigm Capital, Inc., Research Division

Again, for Ebe, it's not a question, it's just a comment, Ebe. If -- like Sean said, it's really been a pleasure dealing with you over the years as an analyst. Sean talked about the growth side of it, but I think the greatest legacy that most of us see is one of those unquantifiable legacies, the collegiality and the family spirit that you've left Agnico with and you created there. I mean -- and when we look at how hard it is to attract quality people and the skill shortage out there that nonquantifiable ability of Agnico to keep and to attract people is impressive. Anyways, you've got the mining bug, we expect to see you around before too long. Take care.

Operator

Your next question comes from Stephen Walker with RBC Capital Markets.

Stephen D. Walker - RBC Capital Markets, LLC, Research Division

Sean, just a follow-up on John's question or questions on Goldex, 2 things, first of all, the GEZ Zone, has the caving stopped? And I just as a sort of a follow-up to that, is there any seismic activity or has that sort of any ground movement associated with rock movement in the zone subsided?

Sean Boyd

We've really see no negative. Since the middle of October, we've seen real -- no showstoppers. We've seen no significant subsidence, but Ebe's sort of chomping at the bit to jump in here. And Goldex was his baby, and he has since -- even despite the fact that we had to suspend it based on consultant's reports, he's had a different view, and was always optimistic about being able to do something at the time, but there was never any guarantees. But Ebe's got some comments to add.

Eberhard W. Scherkus

We did observe some cracking up to surface. However, we also drilled into the surface bedrock. We did seismic studies, and we did not find any caving or lowering of the surface bedrock contour from originally. We did not find anything where the underground workings had broken through to surface. What we did note is upon stopping, all of the water injection, because we were trying to keep the public houses up and keep the water table up, upon stopping that surface injection, water injection, the surface soil subsidence stopped almost immediately. And we have seen very little movement in soil subsidence since the end of October. We have seen very little movement of our surface infrastructure, and our grouting program, so far, has, the jury is still out. But we have seen some success in grouting where we have seen the water table come back up in certain locations. So we're in the process of installing instrumentation both in the rock and in the soil. And we will continue to monitor that very closely before making any of these feature development decisions on the M Zone or looking at going back in the GEZ. But as Sean mentioned, there have been no showstoppers to date.

Sean Boyd

But we, we'll be able to provide a much fuller update in Q2 based on the results of those programs and those monitoring and assessment programs.

Stephen D. Walker - RBC Capital Markets, LLC, Research Division

Okay. Just out of curiosity, the $63 million that's planned with capital spending and the bulk of that's spent in the first quarter, what is the actual breakdown of that? That seems like an inordinate amount of money sort of coming out of the blocks in the first quarter?

Ammar Al-Joundi

Sorry, Stephen, it's Ammar here, there is a little bit more concentration in the first quarter because we have, we are putting a lot of emphasis on remediation obligations that we have, and those are not going to take all year. What I would say is a lot of those cuts have already been taken into account in last year's write down.

Sean Boyd

What we've done, Stephen, is in terms of planning purposes is we were using an end of March date in terms of whether we will continue to do drilling and ramp development on the D Zone. So that's sort of a point in time that we put out there in 2012 with our board. We feel by then, we'll have enough information from the monitoring and the assessment to make a call on whether we should keep doing the development and keep putting ourselves in a position to possibly recover at the D Zone.

Stephen D. Walker - RBC Capital Markets, LLC, Research Division

Okay, great. Thank you for that. And just on Meliadine, again, what have you learned from Meadowbank that gives you the confidence that Meliadine will be an easier project? And then second part of that, is that development of Meliadine contingent on the government putting infrastructure into the coast, whether it's Rankin Inlet or some other community?

Sean Boyd

Yes, our experience is we have a much tighter fact set in terms of the cost of doing business up there. One of the things that Meliadine has that could certainly help on the cost side is its proximity to Rankin Inlet versus Meadowbank's distance from Baker Lake, and Baker Lake being an inland port. So Rankin benefits from the fact that it's on the western shore of Hudson's Bay, longer shipping season, easier to manage, big deliveries like fuel. In terms of infrastructure, government infrastructure, we don't need anything. In fact, we're just going through the process right now to secure the permit to build a road. That will give us a year-round link from Rankin Inlet into Meliadine. It's about 25, 30 kilometers versus the link from Baker Lake to Meadowbank, which is 110 kilometers. That may provide opportunities in terms of logistics and camp size, which would reduce the cost. And we found and one of the big experience we found is that 2-week in, 2-week out schedule even for the Inuits, is something that culturally, they have to get used to being away from home for even a two-week period. We think we may have an opportunity being this close to Rankin Inlet with Meliadine to get them home on a more frequent basis, which would lower our costs and improve productivity. I think that's one of the biggest things that we spent some time on in our last visit when we all went up there, is to talk about those types of things that we can create better conditions and work conditions, and we would benefit from the efficiencies around that.

Operator

Your next question comes from Joung Park with MorningStar.

Joung Park - Morningstar Inc., Research Division

Just wanted to touch on Meadowbank for a sec. It seems like the reserve grade on Meadowbank is actually lower despite the higher cutoff grade assumptions that you guys have been using? I've been getting 2.8 grams per ton versus 3.2 grams per ton at the end of last year. So could you reconcile that for me?

Sean Boyd

Yes, I'll let Marc do that. I think with the new mine plan, we will be mining above the reserve grade for the next 6 years. We'll be mining an average of probably 3.2 grams, but I'll let Marc Lagault just talk about the reconciliation and the cut off factors.

Marc Legault

The, obviously, there is a higher gold price, but there's a higher operating cost. And that should be offset, but we increased the dilution factor at -- on an equivalent basis, essentially, doubling the dilution. That had the effect of bringing the gold grade down. Don't forget, we also mined there last year. So that, it is in effect as well. This is the, using the measures that we have, that's a grade that we have, 2.2 grams per ton.

Joung Park - Morningstar Inc., Research Division

Okay. And then I also ran the numbers, it looks like the cash cost will be around $1,000 per ounce. Is that fair?

Sean Boyd

Yes. That's fair.

Joung Park - Morningstar Inc., Research Division

Okay. And lastly on Meadowbank, which kit is most of the lost reserve ounces coming from?

Marc Legault

Vault. The big chunk. To a lesser extent, the main Portage but it's, essentially, it's Vault that where we had a big drop in reserves there.

Sean Boyd

Just one other point on Meadowbank is that, although we've laid out a new mine plan, which is effectively a 6 year mine life, which is going to generate about $1 billion, we do have some flexibility as we move forward in a higher gold price environment particularly around Vault, as Marc indicated, to bring in some of those resource ounces into a mine plan. So despite the fact that we've shortened the mine life, there is some flexibility going forward to move some resource ounces into reserve and the mine plan.

Joung Park - Morningstar Inc., Research Division

Okay, perfect. And with the La Ronde extension, you guys also mentioned that you'll have a lower cutoff grade for that as well. So what kind of average grades are we looking at once we -- or established that, that's meaning once you get past the lower grade stopes that's forecast for 2012 to 2014?

Marc Legault

The reserve grade at La Ronde actually went up this year from 4 point -- an average proven and probable reserves last year was about 4.3, this year, it's 4.4. They went up slightly higher. So going forward, yes, the grade will be -- we'll see eventually a -- and that's according to the sequence. And I think it has to do with the sequence, but we should see an increase in gold production, which we're anticipating.

Sean Boyd

Yes. We're looking for a doubling of the reserve of the mine grade at La Ronde as we transition fully into the lower part of the mine, the reserve grade is 4.4 grams. We've been mining recently lower than 2 gram material, 1.8 gram material. So that's really a, the basis for growth going forward is getting in a position to fully transition to the lower mine and get access to that 4-plus gram material.

Joung Park - Morningstar Inc., Research Division

Okay, perfect. And then on La India, could you give us rough parameters about what we can expect in terms of annual production cost, CapEx, et cetera?

Sean Boyd

Yes. Tim?

Tim Haldane

All right, I think the best reference is the preliminary economic analysis that was put together by grade. That was something we looked at pretty closely before we acquired the project, but rough numbers, average, 80,000 ounce per year producer, open pit, heap-leach mine was a very low stripping ratio so the cash costs should be on the low-end of the average in the industry. So I'd refer you back to the PEA from grade for now, or...

Joung Park - Morningstar Inc., Research Division

Okay, yes, I'll take a look. And then a final question is a little bigger picture. With the just the recent setbacks at Goldex and Meadowbank, I was wondering how that changes your capital allocation strategy. Are you guys trying to replace some of those lost ounces through acquisitions or more aggressive Greenfield exploration or are you guys trying to play it more safe and focus on optimizing mines and doing more brownfield expansions and things of that nature?

Sean Boyd

Well, we maintain our exploration budget, and that's been a fairly aggressive budget over the last couple of years. We do have a, several large deposits that are still wide open. So we expect those to continue to grow and give us opportunities for production growth going forward. As far as our acquisition strategy, we completed 4 acquisitions in about a 5-year period. From a size perspective, they were relatively small when compared to our market capitalization at the time. That's still the intent and plan going forward and focus going forward for the corporate development group. With the changes and restructuring of the management team, we have allocated more resources to project evaluation. We will be doing -- looking at more things and looking at them in more -- in-depth, we think there will be opportunities out there for us. But we're not feeling pressure to do something. And even internally, we could actually rush ahead at Kittila and put an expansion plan in place to try to quickly replace the ounces lost in Goldex. We're actually doing the opposite. We're actually being patient around our drilling because we're seeing results that may change the economics, so why rush it, and when you have a mine life of that length. So it's more of the same for us, and that's the way we've set the business up going forward for the base. We have, and we're just trying to focus on building that per share value, and we're not feeling pressured just because we've a lost a quality asset like Goldex.

Operator

Your next question comes from Patrick Chidley with HSBC.

Patrick Chidley - HSBC, Research Division

Just a question on Meadowbank, just what does this mean for the strip ratio of the mine in terms of the new mine plan? And is 6 years all that's there? I notice that you talk about the reserve grade being higher, the mine grade over 6 years being higher than the reserve grade, does that mean that the reserves are not in the mine plan?

Sean Boyd

Well, just we're just getting Dan Racine to give us some information on the strip ratio. It's obviously going to come down, because we've eliminated about 12 million tons of waste development a year, over a 6-year period in the plan.

Daniel Racine

Yes, it's true. The strip ratio will go quite down, we're mining 3 areas left the Meadowbank zone. So it's quite different, it's around 9:1, the stripping ratio. It was higher than that before.

Ammar Al-Joundi

Yes, it's Ammar here, the -- just looking at the models, the strip ratio is down from about, as Dan said, down from about 9:1. And it's down to closer to under 7:1, it's about 6.5:1.

Patrick Chidley - HSBC, Research Division

Now, right now, going forward, okay. And just on coming back to Goldex, the comments, are you trying to say that maybe the structural integrity there of the,-- I guess at the hanging wall is not as bad as the consultants are saying, and this was water inflow from surface, or is this, is that not the right conclusion?

Sean Boyd

No, we don't know yet. And what the consultants were saying is we are having major movements in the rock mass, and we needed to do the monitoring and do the assessment work to conclude whether in fact that was true. And we still have work to do there. That, I think, the fact that we wrote it down to almost 0, I think left people with an impression that the mine was totally flooded. It was going -- undergoing massive caving. That certainly was not the case. And we have other resources outside of the GEZ zone. So it's incumbent on us to look at ways that we can maybe possibly recover those, and that's really the process we've been going through now. And we want to be careful though. We don't want to leave people with the impression that they should be buying Agnico stock because they're going to -- they feel that we're going to announce a restart there in the next few months. We're not saying that. All we're saying is that we're doing the monitoring work, we're doing the assessment work. We're continuing to think as engineers and miners on how we could maybe salvage some value there. But up till now, we don't have an answer one way or the other.

Patrick Chidley - HSBC, Research Division

Okay, thanks, Sean. And just finally, just any comments on the Meliadine, is it I mean at the bulk sampling, has that come up with any conclusions on that?

Jean Robitaille

Hi, Jean speaking, the bulk's -- the purpose of the bulk sample was to validate the grade, and all of the results are not -- we don't have all the information. In terms of the metallurgy, all of the tests were done. It's confirmed what was in the original study. So we do not anticipate any issue with that part.

Operator

Your next question comes from Anita Soni with Crédit Suisse.

Anita Soni - Crédit Suisse AG, Research Division

Just a couple of questions. With respect to the Kittila feasibility, that's right, the 25% expansion. What -- you're going to deliver feasibility study there, what's the appropriate way to think about that in terms of expansion, is that a 25% throughput expansion? Could you also benefit from grades there? I presume that's because you're going underground, right, so?

Sean Boyd

Yes. It's a 25% throughput extension that we're looking at from 3,000 tons a day to 3,750 tons a day. So that requires some accelerated underground development, but also some additions in the plant to handle some additional tonnage.

Anita Soni - Crédit Suisse AG, Research Division

And then with respect to the permit, sorry, Meliadine, when do you have to start constructing there for a potential production in 2017?

Sean Boyd

2014, 2015.

Anita Soni - Crédit Suisse AG, Research Division

And then a last question with respect to the GE -- sorry, the D Zone, and I know this is probably premature, but have the consultants taken a look at whether or not there would be some impact of blasting in the D zone and whether or not that would have any kind of influence on the GEZ zone?

Sean Boyd

Not yet, no. That will be part of their assessment work on whether we can go back there. And I guess the key determinant there in anything that may happen at the D Zone is, I think it's fair to assume that if something's doable in the D Zone that the GEZ zone gets left in place. I think that would be fair to assume, but those are things that the consultants are looking at now with our technical team.

Anita Soni - Crédit Suisse AG, Research Division

Okay. So that the -- if you opt for the D Zone, the GEZ zone would effectively be required to be -- basically the muck left in place to act as backfill?

Sean Boyd

We have -- they haven't told us definitively, but that's probably a reasonable assumption that you'd have to leave it in place while you mine the D Zone. It doesn't mean you may not be able to come back to it at some point.

Anita Soni - Crédit Suisse AG, Research Division

Okay, so you might -- you'd say you'd have to just resequence it and perhaps go back to the GEZ zone later, then.

Sean Boyd

Yes, we'll wait for the consultants, but that's probably a fair assumption.

Operator

Your next question comes from David Haughton with BMO Capital Markets.

David Haughton - BMO Capital Markets Canada

Just going over to Kittila again, should we thinking about this 25% lift in throughput as the first step of potentially a multi-phase kind of development with further expansions and possibly a shaft leading to maybe a doubling of throughput?

Sean Boyd

Yes. And I think that the way that we see it now, given the long life nature of it, and the fact that we own it 100%, it tends to remind us of the early days of the Abitibi belt with La Ronde and Bousquet and Doyon, and we can envision 20 years from now, having multiple shafts there. And so what we've really tried to do a step back, not make major commitments on capital until we actually get more exploration information, particularly as we move to the north around Rimpi because it actually could change the economics. It's early, but the early indications are that there's something developing under Rimpi that could have much better economics. So before we commit to shaft size, location and major capital, we want to do that exploration. But we feel in the interim, we should move forward on a plan to get to 30 -- the first step being 3,750 tonnes a day and let the exploration and the quality of what we find dictate how it unfolds over a number of years.

David Haughton - BMO Capital Markets Canada

And your sense of the timing of getting that initial lift in throughput, should it be -- shall we be thinking by 2014?

Sean Boyd

It's early now, but I think we did not put it in our production profile for 3 years for a reason. So I would assume 2015.

David Haughton - BMO Capital Markets Canada

All right. And you get -- do you have a feeling for the sort of capital here, are we talking $100 million, plus or minus?

Sean Boyd

Yes, lower than $100 million.

David Haughton - BMO Capital Markets Canada

All right, thank you. And just now, thinking about Meadowbank, life through 2017, Meliadine starting off at that level, is there any suggestion that Meadowbank equipment or plant could be relocated down from Meadowbank to Meliadine?

David Haughton - BMO Capital Markets Canada

That thinking has started, given that the new mine plan was just approved by the board, this week and so that's a logical thing to be doing, you've picked up on it. And we're certainly looking for synergies or being able to leverage off of some of the capital investment we made at Meadowbank to assist Meliadine, whatever we can do there to lower CapEx and improve our IRR, we'll be looking to do. And that just doesn't include equipment, it also includes people. And I think that's a major driver for us because we've been spending a lot of money on training, and we will continue to spend a lot of money on training. And we've looking to use those individuals at Meliadine and the experience that they've gained through their work at Meadowbank.

David Haughton - BMO Capital Markets Canada

Because part of the limitations of that thought is that it means that for Meadowbank, it's a hard end if you are going to relocate some of the plant in particular.

Sean Boyd

The plant's going be a tough one, and we've discussed that. That's the hardest one, mobile equipment's easier, people are easier. But the plant, we still have to do a lot more thinking on that one.

Operator

Your next question comes from Carey MacRury with TD Securities.

Carey MacRury - TD Securities Equity Research

I just had a follow-up question on Meadowbank. I think in the past, you guys have mentioned that having accelerated stripping in 2012 to catch up for the conditions you experienced last winter. I'm just wondering, is that currently the plan under the new mine plan? And if so, how many tons are you expecting to mine this year versus last year?

Sean Boyd

That's currently the plan. The contractors are on-site at Meadowbank right now. And we're averaging close to 100,000 tons a day in waste development. So we've picked that up substantially. In the first part of the year at Meadowbank last year, we were struggling in the winter environment, and we are at the 30,000 to 40,000 ton a day range. So it's picked up dramatically over the last 6 months or so and continues to be strong as we enter 2012. The first 6 weeks have been good, not only in terms of production, but also in terms of waste development at Meadowbank.

Carey MacRury - TD Securities Equity Research

So do you expect that rate to continue through this year? Or should it...

Sean Boyd

We expect the contractors to be there for the year.

Carey MacRury - TD Securities Equity Research

And what's your approximate mining cost per ton?

Sean Boyd

Well, $90. $90, all in, the mining costs, breakdown. Do you have that Ammar, what's the mining cost at [indiscernible]? $4.25 per ton for waste development, and that's one of the factors that, when we look at is really changed the cost structure for us. We were estimating about $2.25. So our waste development costs have come in a little over $4 and that's what forced us to look, revisit the mine plan and look at ways that we could shrink the pit shells and reduce the requirements to move waste. Not only is it more costly, it's difficult to do at those levels in that harsh environment. So that's why the plan going forward's lower risk.

Carey MacRury - TD Securities Equity Research

Okay, thanks. And one follow-up question. I believe the CapEx number at Meadowbank is $88 million for this year. I'm just wondering, does that contain some amounts related to completing dyke construction?

Sean Boyd

Yes, that's the major component there. It's the dyke construction.

Carey MacRury - TD Securities Equity Research

And how much would that be roughly?

Sean Boyd

About $50 million.

Carey MacRury - TD Securities Equity Research

And does that complete the dyke construction for the rest of the mine?

Sean Boyd

There's some more in 2013, and then, it will be finished. And that's why towards the tail end of the mine life, the cost per ton drops to $80 or so.

Carey MacRury - TD Securities Equity Research

Okay. And last question on that same topic, what's a reasonable sustaining capital number, then, that we could think about post the dyke construction?

Sean Boyd

We'll just get that in a minute.

Ammar Al-Joundi

The total sustaining capital is estimated at about $160 million to $170 million. So it's going to be yes, it's going to be over the life of the mine. So it's going to be substantial this year, and a little bit into next year to finish the dyke. The dykes are the main components of it.

Carey MacRury - TD Securities Equity Research

So that $160 million to $170 million includes the dyke amounts?

Sean Boyd

What was that? I missed that.

Carey MacRury - TD Securities Equity Research

That $160 million to $170 million, includes the dyke construction?

Sean Boyd

Yes, that includes the dyke construction. About $120 million of that money is dykes.

Operator

Your next question comes from Steven Butler with Canaccord Genuity.

Steven Butler - Canaccord Genuity, Research Division

Sean, the La Ronde forecast for 2014, is that up to the 4-gram plus grade level? I know there was 280,000 ounces per year, does it get any better than that? Or is that a reasonable long return work for La Ronde?

Sean Boyd

We'll just check and see on the 2014 -- what was the grade that we're using there, guys? It should be more than that. Yes, 14. Just, we'll get that to you.

Steven Butler - Canaccord Genuity, Research Division

That's fine. And another question is relating to Kittila. I guess the mill recovery of 84% and I guess I'm just confused a bit with mill availability, 84% versus the budget of 89% but in fact those are almost the same numbers we were thinking in terms of recovery. Are they 2 separate items for one thing? And is the mill recovery expected to be conservatively 84% here as we go forward for Kittila or do you still think you can do better? I saw 85% or so in Q4. And lastly, mine, say, cost per ton EUR 71, that's lower than Q4, but is that as good as you can do or do you still think there's room for improvement at Kittila costs, site costs?

Jean Robitaille

You've got many questions, Steve, Jean speaking. I will start with availability. Currently, the availability is 84%. I know it's confusing. The recovery was 84.6% last year or so. But it's 2 different items, but they are in the same range. I will be comfortable. I said last year, use 83% I will be comfortable that you can use 85%. Our target is to still do improvement, but it will be more prudent to use 85% as a recovery, I will say.

Sean Boyd

And in terms of cost, I think EUR 71 is a fair number. We're certainly looking to optimize as we move along, but I think that's a good number to use. Just to add some color, January was a record month for Kittila. So recoveries are good, availability in the mill is good. And I think as we look through 2012, we have built-in some more down days in our forecasts based on a couple of unplanned shutdowns that we had in 2011. And still with that, we're showing more ounces in 2012 at Kittila than 2011.

Operator

[Operator Instructions] Your next question is a follow-up from Anita Soni with Crédit Suisse.

Anita Soni - Crédit Suisse AG, Research Division

That's okay, it's been answered down, it was with respect to the sustaining capital number. If you could -- if you have that on a per ounce basis, that would be good, just for Meadowbank.

Sean Boyd

I'm sorry, Anita, did you say the sustaining CapEx on a per ounce?

Anita Soni - Crédit Suisse AG, Research Division

Per ounce, you can follow-up with me later, it's largely been answered already.

Ammar Al-Joundi

And Stephen, if you don't mind, I'll follow up on the grade for 2014 at La Ronde, I just don't have that with me right here.

Operator

Mr. Boyd, we have no further questions at this time. Please continue.

Sean Boyd

Thank you, operator, and thank you, everyone. And just a couple of points. Again, we want to thank Ebe and Paul-Henri Girard for their contribution over many, many years. And Ebe certainly appreciates the comments that he's received both on the call here today and people communicating directly with him. We would remind everybody, our in-house counsel here has sent me a note to remind everybody to look at the forward-looking information statement disclaimer. So I just want to pass that along. But just wanted to summarize that as we've gone through our process in 2011, we've put out what we feel are very solid and achievable numbers with -- as we said year-on-year improvements in production coming out of 4 of the 5 mines. When you take out Goldex, there's still production growth over the next couple of years, led by La Ronde. We still have several expansion opportunities within the existing portfolio of assets, so we're focused on those. We're focused on exploration. And again, we're happy to be able to increase our dividend, and I think that demonstrates the confidence we have in our business going forward. So thanks again.

Operator

Ladies and gentlemen, that does conclude the conference call for today. Thank you for your participation. You may now disconnect your lines.

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