Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Agnico Eagle Mines Ltd (AEM, Financial) reported a third consecutive quarter of record free cash flow.
- The company significantly strengthened its investment-grade balance sheet with over $900 million in cash and $250 million of debt repaid in July.
- Agnico Eagle Mines Ltd (AEM) continues its long-standing commitment to shareholder returns with $50 million in share buybacks and almost $200 million paid out in quarterly dividends.
- The company achieved strong operational performance with quarterly production close to 900,000 ounces at a cash cost of $870 per ounce.
- Agnico Eagle Mines Ltd (AEM) received several industry awards for safety and sustainability, including the John T. Ryan safety awards and the Towards Sustainable Mining Environmental Excellence Award.
Negative Points
- Higher royalty costs linked to increased gold prices partially offset the benefits of lower cash costs.
- The company expects all-in sustaining costs to increase in the third quarter due to deferred sustaining capital.
- There are planned shutdowns and maintenance activities at several major operations, including Canadian Malartic and Detour, which may impact production.
- The company faces challenges in managing capital allocation with multiple projects in the pipeline, including detour underground, Upper Beaver, and Hope Bay.
- Agnico Eagle Mines Ltd (AEM) is still evaluating the economic decision to progress the Upper Beaver project on a standalone basis, which may involve leveraging existing infrastructure to reduce capital expenditure.
Q & A Highlights
Q: Can you explain the economic decision to progress Upper Beaver on a standalone basis? Are there opportunities to leverage existing infrastructure to reduce CapEx?
A: (Ammar Al-Joundi, CEO) There is an opportunity to consider leveraging existing infrastructure, such as transporting to LaRonde, which would reduce capital expenditure. However, even with an on-site mill, the returns are strong, exceeding 20% at current levels. We decided to start with the shaft development, as it is a great investment regardless of the mill location.
Q: Regarding East Gouldie, with the infill drilling and potential for a second shaft, what gives you the confidence to progress this project?
A: (Guy Gosselin, EVP Exploration) We are still drilling to get tighter data on the eastern and western extensions. By increasing the drill program, we aim to have more clarity by year-end, which will help in making decisions about the shaft location and further development.
Q: How does the company plan to manage capital with multiple projects like Detour Underground, Upper Beaver, and others in the pipeline?
A: (Ammar Al-Joundi, CEO) We focus on risk-adjusted returns on capital. Internal projects are prioritized due to better risk assessment. We have a strong pipeline of opportunities and will continue to be disciplined in our capital approach, ensuring we have the financial and human resources to move forward at a measured pace.
Q: What are the next steps and timelines for Hope Bay?
A: (Guy Gosselin, EVP Exploration) We need to continue drilling to bring the new high-grade zone to a drill spacing that allows integration into the plan. We expect to have a better understanding and potentially integrate this into our scenarios within a year.
Q: Are there any shutdowns or maintenance in the second half of the year that we should be aware of?
A: (Dominique Girard, EVP COO Nunavut, Quebec, and Europe) We had a shutdown at LaRonde, which is now complete. Another shutdown is planned at Canadian Malartic for 10 days to change the drive system at the tailings thickener. (Natasha Vaz, EVP COO Ontario, Australia & Mexico) Detour has two more shutdowns planned, one in August and one in November.
Q: Given the strong free cash flow, is there any thought to shifting capital returns back to dividends?
A: (James Porter, CFO) Our dividend payout ratio was 36% this quarter, which is a comfortable level. Including share buybacks, we are returning over 50% of free cash flow to shareholders. We believe the current dividend level is appropriate.
Q: What are you seeing in terms of labor cost and availability in various regions?
A: (Dominique Girard, EVP COO Nunavut, Quebec, and Europe) We see stabilization in workforce availability with low turnover rates. Salary increases are expected to be normal, around 3-4%. (Natasha Vaz, EVP COO Ontario, Australia & Mexico) In Ontario, the market is tight but stabilizing, with low vacancy rates and internalization of contractors helping to manage costs.
Q: Can you provide an early look at overall reserve replacement and potential updates to the gold price assumption?
A: (Guy Gosselin, EVP Exploration) It's early to commit on gold price assumptions. We are in a good position to replace what we mine this year, expecting a flat replacement overall. Major project updates are not expected to cause significant changes.
Q: How does the supplemental exploration budget relate to strategic and geology-driven decisions versus cost pressures?
A: (Dominique Girard, EVP COO Nunavut, Quebec, and Europe) The additional budget is directed towards key projects like Detour and Malartic to get more clarity sooner. We have seen better cost performance and easing in the market, allowing us to drill more efficiently.
Q: How is the company approaching debt repayment and management given the current interest rate environment?
A: (James Porter, CFO) We plan to repay the remaining $450 million on the term facility due in April 2025. The private notes have favorable terms with an average coupon in the fours, spread over the next decade, so we are comfortable keeping them in place and paying them off as they come due.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
