Agnico Eagle Mines Limited (AEM) Q1 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle First Quarter 2011 Results Webcast Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Friday, April 29, 2011, at 8:30 a.m. Eastern Time. I'll now turn the conference over to Sean Boyd, Vice Chairman and Chief Executive Officer; Ebe Scherkus, President and Chief Operating Officer; Ammar Al-Joundi, Senior Vice President of Finance and CFO; and the rest of the senior management team. Please go ahead.

Thank you, operator, and good morning, everyone, and thanks for joining us on our first quarter 2011 conference call. It's a big day for us today. We have our annual meeting later this morning. What I'd like to do today is move through the front end of the slides fairly quickly so that we can get to a discussion of the operations, but also talk a bit about the exploration results that we announced yesterday on a separate press release. And this is an important next phase for us now that the mines are built and up and running to accelerate infrastructure, increase our drill programs at our newly built mines so we can convert more resource into reserve and hopefully, translate that into future growth and production. In general, when we look at the quarter, we saw some continued improvement at Pinos Altos in Mexico, some good improvements at Kittila on the recovery side, some steady results coming out of our Abitibi mine. There's still some work to do on the cost side at Kittila, and there's still some work to do at Meadowbank. As you know, we had a fire in the kitchen facility at Meadowbank. I think from our perspective, what was important was the quick reaction and response of the team in the middle of the night, who reacted quite quickly to isolate the fire at the kitchen facilities, and the team worked extremely hard to get the mine up and running in short order with portable kitchen facilities. I think the important -- another important aspect of their response was the fact that we're not going to see a delay in the installation of the secondary crushing unit that we expect to be ready for the second half of this year. And I think that's important to note, although production was lower because of harsh winter conditions and the fire at Meadowbank. As we move through to the second half of this year, we should see about a 20% increase in output in the second half versus first half, which is going to drive production, cash flow and also lower unit cost because of increased production. So that's the backdrop for the quarter. I'll move through the slides relatively quickly here so that we can get into the exploration and an update from Ebe on the production side. There's no change in our strategy. It remains focused on growing the current asset base, looking for selected acquisitions, ramping up exploration at the existing operations to convert that reserve to resource. All of that should drive per share growth and production and also in reserves, because we're not going to be required to issue stock in order to maximize the assets that have been newly built. When you look at the actual financial results, on a normalized basis, earnings about $0.45. Important I think to note is the cash flow that we generated in the quarter. Even with 250,000 ounces of production, we generated $1 per share in cash flow over $170 million. So our expectation is that as we move forward with increased output, which will drive unit cost down, we should see increases in cash flow as we move through the balance of the year. In terms of the actual forecast going forward, no change from the update after the Meadowbank fire. In terms of production or cost, I think there is a potential to see lower unit cost because of the significant impact that a higher silver price has on our results. And as most of you know, we were budgeting silver prices in the low $20 an ounce range. We're seeing silver prices in the high $40 range. So that could have a significant impact on lowering our unit cost on the back of increased gold output in the second half of the year. So we're looking for a strong second half as we get the additional crushing capacity installed at Meadowbank. Our financial position remains strong. We've got credit facility of $1.2 billion that we can draw on, along with the increasing cash flow. So we're sitting here now with a much broader technical skill set, given that we've built all of these mines and a vastly increased financial capacity with the increased cash flow coming from the new mine. On the reserve side, our year-end target is the 22 million ounces of reserves. We expect that we can do that. Hopefully, we'll do more. We're spending $145 million on exploration. The exploration press release yesterday saw very strong results coming out of Goldex, Kittila, Meliadine and Lapa. So with those early results early in the year, we're in a really strong position to meet or exceed our reserve target of 22 million ounces by the end of the year. On a per share basis, this growth phase and an acquisition phase has put us in a 50% from the 2010 level. That again, puts us among the industry leaders in terms of production per share. We're up in the top end of the industry, along with Barrick and Newmont, in terms of production per share and reserves per share through this transformational phase. Just a summary, we've got a slide that summarizes our acquisitions over the last several years, with 4 acquisitions that we collectively paid about $1.4 billion for. Those deposits currently host a reserve and resource of 24 million ounces. We added almost 11 million ounces through exploration. So we almost doubled the reserve and resource position on these 4 acquisitions since they were acquired. And these deposits are wide open, and we've seen some of the recent drill results yesterday that suggest that those mines that have been recently built and acquired over the last several years have a lot of upside to go. So we're looking forward to continue to update the market on a quarterly basis, given the amount of drilling that we're doing on these projects. One great example of how the deposits have grown is Kittila. We've put up a long section there. When we actually made our first investment in Kittila back in 2004, we put in $14 million or 14%. The asset had 1.4 million ounces. It's currently sitting at almost 7 million ounces and still growing. So I think that's a testament to the team's ability to identify these things early stage and then build them through consistent and focused exploration. That's still a big part of our strategy. It's getting a lot more difficult to find these early-stage opportunities, but that's where a lot of our energy is now focused. And we've expanded our evaluations group so we can do a more thorough job on looking at more things that are coming our way, given the fact that we've now built a much larger production base. Our operations are still work to do on the cost side, several of them are below the industry average. We think that we can continue to lower our unit cost as we increase output. We'll start to see that as we move through the second quarter and into the second half of this year. Our -- way the business is structured now, if we look at Meliadine and a potential expansion at Kittila and our sustaining CapEx, we could see spending about $0.5 billion over the next several years to continue to grow output beyond 2014 and 2015. But during that period, using a gold price of $1,350, our EBITDA would average about $1.2 billion. So we've built a business that is sustainable. We can continue to grow it from existing financial resources, and we still have a lot of financial room to either increase the dividend or build another project. So there's still some upside in terms of what our financial capacity will allow us to do moving forward, without dilution. And I'll just close now with another slide, which sort of ties into our ability to grow earnings or reserves per share and production per share, really ultimately drives cash flow per share. And again, we're among the industry leaders, along with Newmont and Barrick, in terms of being able to generate cash flow per share. I'll turn that over Ebe, but just prior to going into the operating section, I just want to remind people that we have a mine tour to Finland next weekend. We have one to Pinos Altos in mid-May, and we have one to Meadowbank at the end of June. So it's a great opportunity. If you have the time to get up and see these assets, see how we've made some good progress at them, see where the upside is on exploration. Best thing to do that is get to these places if you can to see everything first-hand. And I'll turn it over to Ebe now.

Good morning, everyone. I'd just like to discuss briefly our operations and then really focus on the exploration highlights, which were highlighted in our exploration press release yesterday. First off, LaRonde. LaRonde is our anchor, our steady-state producer. Tonnage was down a bit because we were in the process of developing more zinc-rich, silver-rich mining blocks in the upper part of the mine. And those blocks are smaller than what we are traditionally used to at LaRonde. But having said that, the progress has been excellent and the tonnage is back to normal levels so far in the second quarter. The second quarter and the third quarter will be a transitional period for LaRonde, as LaRonde extension, the construction gets completed. So far, it's on schedule and on budget, and we expect to have our first production from LaRonde extension from the new internal shaft in the fourth quarter of this year. As far as exploration is concerned, we were off to a bit of a slow start at LaRonde. We have gone through our third drill contractor in a little over a year. However, presently we are back to our original contractor and the drilling underground has resumed at LaRonde. Our main focus will be to the west, towards Bousquet. We've got open-ended intersections to the exploration drive on level 215. So we will be testing that particular target. Also, we have 2 machines testing the extension of the IAMGOLD's Westwood zone on to Ellison, and that is ongoing. Unfortunately, we lost 1 hole, so we had to start again. These are deep holes, and they do take time and they do take a lot of work and they aren't cheap. Also, what we have been working on is the confirmation of Zone 5 on the original Bousquet property. So far, we know that, that particular zone host 1.1 million ounces contained 19 million tonnes on an average grade of 2 grams per ton. We believe about 60% of this is open pitable. On the Goldex property, Goldex is a very steady-state producer, its costs were in line at $23 per tonne. We currently have over 14.5 million tonnes of broken ore. In the scope itself, we have an additional 85,000 tonnes of crushed material on surface. And this is a case where literally the mine has buried the mill, but not for much longer. We have made some modifications to the mill. And as a result, we can see tonnage rates above the design rate in the range of about 8,500 to potentially even 9,000 tonnes per day. At Goldex, we have had some very favorable exploration results at depth. This is a zone that was first indicated back in 1996. We had few indications, but we decided, in light of the Penna Shaft development not to follow up on it. And then I guess in typical Agnico-Eagle fashion, once the mine is built, we return to our original focus, which is exploration. So we started drilling at depth again, and so far, the D zone or the deep zone, which is located immediately below the existing infrastructure, we've been able to delineate 14 million tonnes that contain about 750,000 ounces of gold. Now these most recent results have not been incorporated into this resource estimate. There's a lot more drilling to be done. We've just increased our budget at Goldex from $6 million to $8.2 million, and that includes 300 meters of ramp development and an additional 12,000 meters of diamond drilling. This is also very typical of the history of the Val-d'Or and Malartic camp, that once one gets underground and start exploring that the original mine life often get extended. And if you look back at Sigma and Lamac, they never had more than 3, 4 years of production of reserves, and yet we're in existence for over up to 60 years. So Goldex is off to a great start with these most recent exploration results. Lapa, that is our mine that is, we call it a little mine that could. This is a mine that has been challenged with ground conditions. It's got the smallest reserve position. It's got a difficult narrow vein. It's got metallurgical issues. And [indiscernible] when you look at it, Lapa had record production of 12,200 [ph] ounces in March. The costs were right on target or actually $4 below our budget at $117 per tonne. And we now have started, much as we have done elsewhere, on our other properties. We have restarted exploration. And the first focus of our exploration will be a zone immediately to the east, the C zone. And that particular zone so far, and it's still early days, the work that we have done on it has extended Lapa's mine life by an additional 7 months, now that is only a start. And we have started these exploration drives to the east and to the west. And especially to the east, there are open-ended intersections that we haven't previously drilled from surface on the Zulapa property. So we will be drilling underneath those intersections from these new exploration drives. Kittila, we've been involved -- when we first looked at Kittila back in 2002, at the BMO Conference in Florida. And at that time, Kittila hosted 1.6 million ounces of gold. We saw a lot of parallels, a lot of similarities to the Abitibi camp, to the Cadillac-Bousquet camp. And as a result, it was very early on in the overall program and the life of the Suurikuusikko deposits, so we decided to acquire it and put it into production. Kittila hasn't been an easy deposit. It has had its challenges and probably the most difficult challenge has been metallurgy. And as a result, it's been a stop-start operation over the past 2 years. But what we have done, we have a new crew on site, a young crew, a dynamic group, and we focused all of our efforts at making this mine work. And as Sean mentioned, after making it work, then we can now put all of our attention and focus on cost control. When you look at all of the metrics, recovery, we remember when we had this conference call and we had to talk about 28% recoveries. Now we're at all-time records, over our 83% at over 86% recovery. We've been able to resolve that issue. We had difficulties processing the tonnes. Well we averaged 2,911 tonnes per day, very close to the design rate of 3,000 tonnes per day, there have even been days where we've been over 3,300 to 3,400 tonnes per day. When we look at the tonnage coming out of the open pit, the development underground, everything is on target and on schedule. So the mine as it presently stands, the middle works, the process works, the underground works, the open pit works, now we have to focus on cost recovery -- on cost reduction. Today, also we've traced the deposit over a trend of 5 kilometers down to a depth of 1.3 kilometers. And the overall reserve resource has grown from the original 1.6 million to between 7 million to 8 million ounces of gold. The most recent deep intersections at 1.3 kilometers below Rouravaara and Suuri, have not been incorporated into any of these resource calculations. All these drilling, what it has done, has provided us with a much better understanding of the structural control, so our drilling is much more focused at depth and to the north. But what it has also done is we are now driving an exploration ramp to the north. That exploration ramp will also -- could also potentially serve as a production ramp and could eventually be used to facilitate development of a shaft. Our feasibility is still on schedule. We expect to have it completed towards the end of the third quarter, beginning of the fourth quarter of this year. Pinos Altos has been a very steady producer. A little over 9 months ago, we were concerned about the resource, we were concerned about the cost per ounce. But Pinos Altos had record production of over 48,000 ounces, cost were down to just over $315 per ounce this quarter. Pinos Altos also has the benefit of silver production, so we've used a very conservative silver price in our projections. So with increasing silver prices of cost per ounce could even be significantly lower. Our exploration focus currently, we're looking at the Cubiro, south of Creston Mascota. We've done some additional work on Creston Mascota. We believe we can extend the life of that particular project. We're also focusing on Cubiro. Some of the results we have are very favorable, and we are looking at an underground program at Cubiro. Meadowbank. Well, that one has also been a tough one, especially so this quarter. We have been faced with probably one of the harshest winters on record. When you look at some of the press releases coming out from other operations across the north, it's very similar. It's been a very unique winter with temperatures down to minus 60, and minus 60 is not very equipment-friendly. So we have had our issues there. What are -- in our strategic plan, we've had numerous equipment modifications that we've incorporated, and we are starting to see the fruits of our labor currently with respect to the mine plan. We've got new equipment on stream, new shovels, new trucks, but we have also made sure to winterize them because we are never certain that we won't have these conditions again. So our strategy has been to modify, to fix and ensure that we can at least not have a repeat of this next winter. Things are going significantly better. The mine itself, the open pit, is now mining close to 90,000 tonnes of rock and ore per day. So that is very close to plan. The mill itself is running -- the availability is up significantly. We are currently, without the crusher, averaging in excess of 8,000 tonnes per day. The crusher itself is on time and on budget. We thought we could come in ahead of schedule. But the fire -- all the fire did was delay us about 3 weeks. And as a result, during your visit at the end of June, you'll see a crushing plant that will be in the final stages of commissioning and come on stream. We believe the commissioning will go very quickly. It is a clone, identical to the crushing plant that we have at Goldex, and Goldex was up and running within 6 days after startup. So we will have some of the Goldex team up there to help us start that crusher. With respect to exploration, well, once again, with the weather conditions, we'll see the issues as well at the Meliadine drilling was delayed because of contractor issues but also because of weather. And as a result, we've had some delays. But the focus of our exploration will continue to be the bulk deposit to the northeast of the main zones and also, the extensions of Portage and Goose to the south. We are currently evaluating an underground ramp program to further test or to look at testing the Portage and Goose mineralization at depth. Meliadine. This has been quite a story. We were intrigued by it when we visited it 2 years ago, and we were finally able to consummate the deal this year. And as a result, not taking anything away from Comaplex, but we have accelerated the drill program. We currently have -- it's our largest program, $65 million, almost 45% of our total budget of $145 million over 90,000 meters of drilling has been planned. We know there are 6 deposits that have been located already, but we also know we have numerous other showing. So when we look as this 90,000-meter program, it is divided into 70,000 meters on the known zones and 20,000 meters on exploration wildcat-type drilling. Since we acquired the property in July of this year, the deposit has grown from an initial 5 million ounces to 8 million ounces, not incorporating the latest drilling. Wesmeg has been the focus of our drilling to date. It was actually found by condemnation drilling. We have a program, as part of our feasibility study, to drill the property, to drill the surface area, where we are looking at installing our surface infrastructure. And as a result, we delineated the 2 zones. Those zones are up to 1 kilometer long. They're not very deep. So far, we've delineated 140,000 ounces. This could be a second open pit. We've also had some interesting results on the F zone. So what this does is sort of changes the mix a bit going forward in our feasibility. The majority of the resource and reserves currently are on Tiriganiaq at depth. And the more we find on surface, well then, potentially the more we'll be able to mine by open pit methods going forward. So this is an interesting twist for us that we will seriously have to look going forward. We are planning a bulk sample on 2 levels to be able to test the grades, lower grades on Tiriganiaq. However, we think that the future, the long-term future, of Tiriganiaq is at depth and down rake as you can see on the longitudinal section. So we are -- we have it already costed out. We are proposing or will be proposing to the board to accelerate this program, to keep it going for an additional 4 years. And you can see the ramp development right down the rake of the Tiriganiaq zone. So we will be coming to the board with our proposal before the end of the second quarter. Currently, we have 2 drill contractors on site. Similarly to Meadowbank, we did have some delays, weather-related delays. Anytime there's a whiteout or fog, we do not drill for obvious safety reasons. We have completed a new camp, expanded the camp. So we will be able to host a larger drill crew and also, of course, the development crew for the underground development program. We are currently working intensively on getting the road permitted. This is something that we would like to do very early on in the life of the project. This is one of the issues that we faced or a lesson that we learned at Meadowbank. That road went in late and then everything else started to pile up and behind it and caused delays and caused overruns. So our strategy here at the Meliadine is to be able to get that road in as fast as possible. We're hoping to be able to get a permit later at this fall, third, fourth quarter, and then start the road construction. It's a 25-kilometer road. It's not a big road. And we feel that we can -- it will take about 6 months to complete that road, and it's about -- total cost is about $12 million, which has been incorporated into our budget. So we're pretty excited about this project. The real sort of nuts and bolts of it is, the high-frequency of course visible gold. And for anyone, any geologist that has worked anytime they see a lot of visible gold. Well, that gets their blood pressure up and puts smiles on their face. And Meliadine happens to be one of those projects where we seem to find a lot of course visible gold. So that sort of - we will be talking about Meliadine at the end of June at the Meadowbank visit. We'll have all of the Meliadine people there, the exploration people. We will have a booth. We will have core [ph]. And we'd certainly like -- we're certainly excited to share the results of that program with you at the end of June at the Meadowbank tour. So that pretty much sums up operations and explorations. And then, I'd like to turn it back to Sean for concluding remarks.

Thanks, Ebe. I think what we'd like to do is just open the lines up for questions now. We're happy to answer them.

[Operator Instructions] First question today comes from David Haughton with BMO Capital Markets.

I've got a few questions. Having a look at Kittila, very good results there on the recoveries, obviously. What should we be thinking about on a go-forward basis? Would it be the 86% level or should we stick to the 83%? What do you feel comfortable with?

I will feel that you keep 83% and beat the 83% to 86% constantly.

All right. And with regards to unit costs, €75 to the tonne, should we be thinking about that as a steady state kind of number?

No you should not. What we were faced in this particular quarter is a lot of stockpile manipulation to provide a constant feed of sulfur to the mill. We feel we can beat that. Also, what we were faced is significantly higher fuel costs. And because of the winter conditions, where all the equipment ran around the clock for a good part of the quarter, we feel that, that is another area that we can work on. The third area that we have to work on is we're transitioning to self-mining. We've used a lot of contract labor to help us catch up over the past couple of years. We've had issues. So we expect to have lower unit cost on a per tonne basis and also, with respect to development on a per meter basis. So we feel our cost will be slightly higher than our budget. We did get a 13% tax on electricity due to a new tax imposed by the Finnish government. So I would feel comfortable with a number in the low 60s, David.

Okay. So that's 10% to 15% better than what you've got now?

Yes.

For the quarter, you had a blend. I'd expect of the open pit and the underground ore. How much ore came from underground, and were the grades consistent with the open pit?

The underground ore produced approximately 30% in that area. And so far, from a reconciliation point of view, we are getting better dilution results than we expected. And as a result, the grade is about 5%, 6% higher.

And the other thing was, quite a step down in the D&A rate, which is in contrast to the other assets. Perhaps we could talk about the depreciation and the reason for the overall lift, but in Kittila's case a little bit lower.

David, it's Ammar here. Overall, the depreciation was still within our $200 to $250 guidance. It was at the high end of it. We do depreciation on a per tonne basis. And as a function of a lot of process of low-grade stockpile at Meadowbank on average our depreciation was higher. Similarly, to some extent, at Kittila, with a slightly higher grade, you would have had a proportionately lower depreciation.

All right. Moving now, Ebe, to Canada. Having a look at LaRonde. Unit cost there CAD $68 (sic) [CAD $86] per tonne, quite a lift from what we've seen in the past. What should we be thinking about going forward?

Go back to the original budget, which would be about CAD $81 per tonne, that is our budget. Right now, when you look at the denominator because LaRonde was slightly under budget with respect to tonnage, that inflated the unit cost by about 12% thereabout. So right now, it's back to normal levels. So it's more a function of tonnage process through the mill.

Okay, so a function of fixed versus variable components?

Yes.

Okay. And you mentioned in the discussion at Lapa your considering a lower cut-off grade. What should we be thinking about ahead for those cut-off grade, should it be something like we saw in the first quarter or more likely what we've seen last year?

I think we're looking at a lower cut-off grade at Lapa. It'll depend on the gold price assumption going forward. That's where we are.

Okay. So you had about 6.8 grams in that first quarter. Is that the sort of target rate that we should be thinking about? Is that the new norm?

Yes. Well, as the gold price has increased, we've incorporated more lower-grade material. We don't only face that at Lapa. We face that at all of our operations. And from a planning point of view and even from a guidance point of view, with increasing gold prices, we'll see typical lower grades. And then to be able to maintain guidance, then we have to increase throughput to be able to process lower-grade material and meet guidance. And so that's part of the issuance, so you look at things like Goldex or even Meadowbank, Pinos Altos. Pinos Altos is running over -- at 5,000 or over 5,000 tonnes per day. The solution there is we increase the throughput. But the benefit of that is we also increase the life of mine.

Okay. All right. Well, that's a natural outcome, given where the gold prices at the moment. Okay, I'll let someone else have a go.

Your next question comes from John Tumazos with John Tumazos Very Independent Research.

Congratulations on the 86% at Kittila. And I'd appreciate it if you'd take a victory lap and explain to us what changes brought about the full utilization, full recovery rate, whether the nature of the ore will change as you move into deeper or lateral zones to make it easier or more difficult? The second question, if fortuitously each of the operations performed to plan in the same quarter, what do you think is your production capacity at the moment?

I'll answer your last question first, John. We're looking at about 300,000 ounces rather than the 252,000. And the main stumble that we had this quarter was Meadowbank. All of the rest were pretty close on target. So we feel that Meadowbank gets resolved, and we believe it will, then we should be very close to the -- closer above the 300,000 ounce per quarter mark. With respect to your first question, before I turn it over to Jean, the metallurgical part, we don't see any change with respect to ore characteristics at depth. We have tested it and appears to be more of the same. So this is something that we're going to have to live with at Kittila. And with what we did metallurgically, I'll turn it over to Jean.

John, first of all thank you for the congratulations. This is a teamwork, and I can tell that all of the support and the team at Kittila did a very good job. We were able to sustain constantly during the last 3 months and it's still going on presently. So essentially, it's optimization process, a good control in the organic and the same good control on the removal of terrain. And we think with the other parameter is that it's normal in any optimization, so temperature and pressure.

Congratulations. I know we all raked you over the coals when things were going badly a year or two ago.

If I may add to that, it's also a better understanding of the chloride and the organic material itself. And as a result of that, we've been -- as Jean and his team have been able to do a much better job at removing it and controlling the oxidation process in the autoclave.

Your next question comes from Joung Park with Morningstar.

This is Joung Park at Morningstar. So my first question was on Meadowbank. So it seems like to be able to reach the $700 per ounce projections at Meadowbank, you would have to generate cash cost to something like under $600 per ounce back in the back half of 2011 once the permanent crusher is installed. So is that what you look at as a sustainable long-term cost figure for that mine?

I would say at this point in time, yes, but quantify that a bit. What we are planning, we think we may have some extra capacity and what we would like to do is adopt a fill the mill strategy and by that one of the issues that we currently have at Meadowbank, we sort the ore into low grade, medium grade, high grade, et cetera. And as a result, that has cost a lot of money with respect to rehandling and contractor costs. So with that fill the mill strategy, anything that is above our cut-off grade will then go directly to the mill, so we foresee significant savings on a cost per tonne basis, and that should be reflected on a cost per ounce basis.

How much of a benefit would that potentially be?

I didn't get that.

How much of a benefit will it be?

How much of a benefit on a per tonne?

Yes, on a per tonne basis?

Well, I think what it would do is probably help us -- rather than maintain our budgeted cost per tonne, rather than face additional increases.

Okay. And in Slide 17 of the presentation, for the CapEx forecast for 2012 and beyond, does that incorporate growth projects such as Meliadine or is that just truly sustaining?

On the gray bars, it's just sustaining. But what we did on that slide, we drew sort of an illustrative line making the assumption that we're going to proceed with a Kittila expansion. We'll make that determination later this year, and we also built in an assumption for Meliadine based on what it cost us to build Meadowbank. But ultimately, Meliadine CapEx will be determined by the size of the deposit and it's growing quite quickly, and as Ebe mentioned, it's growing quickly with near surface mineralization. So we'll have to make a determination at some point based on our drilling, what proportion will we open pit versus underground and we may see a bigger footprint than originally thought of when we bought it last year.

Okay, that's fair enough. And just a follow-up. So when I added up the sustaining CapEx figures for the quarter and kind of annualized that, it turned out to be somewhere close to $200 million. But I look at the CapEx estimates for 2013, 2014, and that looks more like $100 million. So just wondering how we should look at sustainable maintenance CapEx levels going forward?

We've incorporated some significant CapEx, especially at Meadowbank. This coming year, we still have some great construction. We have airstrip construction, so as a result CapEx, especially at Meadowbank is higher. We also have the completion of LaRonde extension, which once completed we will not have going forward next year. So a lot of these big ticket items will not be -- will be completed. And as a result, we expect sustaining them to drop.

So some are close to the $100 million level that the slide seems to indicate?

That is correct. But then we -- and we also have other projects that may be attractive with respect to the processing plant at LaRonde CIL conversion to back to CIP from Merrill-Crowe. So there's a whole bunch of projects we may follow up on, if they have the proper rate of return and also the side benefit, additional benefit of reducing or putting a lid on our operating cost.

Okay, that's fair enough.

Your next question comes from Barry Cooper with CIBC World Markets.

Congratulations on getting Creston Mascota up and running. Just had a question on the commercialization there. Was the 4,600 ounces that were produced, was that all produced in March or was that produced over the course of the quarter such that part of that was commercial and part of it was not?

I'll let Tim Haldane answer that.

No, that was the full quarter production, Barry.

Okay, so how much would have been commercial then?

I can get that number, but the March production was around, I think, 1,500 ounces, 1,700 ounces.

Okay, so looking at the number then, if -- it kind of looks what you've done, at least from the footnotes and whatnot there, that you've taken the cost and whatnot for March and then amortized it over the entire quarter production to give your $3.19 an ounce. So I'm guessing that it had you kind of just done it over the commercial production then with the commercial cost, the cost at Mascota would have been much, much higher. Am I wrong in that?

This is Picklu, the Controller. All the costs were inventoried prior to March 1, so all the costs attributable to the production before March 1 was within the production cost post-March 1.

Okay. So you didn't capitalize like normal procedure is to capitalize that noncommercial production and absorb those costs into capital cost; that's not what you did is what you're telling me?

Correct.

Okay, good enough. Then further on Mascota, obviously that entire region of Mexico has difficulties with respect to silver recoveries and indeed you face that problem at the rest of Pinos Altos with material going through the mill and whatnot, but your recovery at Mascota is basically 0 for 12 gram that was mined. Is there anything that can be done on that, Tim, to improve those silver recoveries?

Well, we never plan to get much silver out of Creston Mascota. I think the head grade is very low. The heap leach recovery on silver for us anyway in this district is going to be 10% or 15% and I don't think there's much realistic opportunities to increase that. We are doing some research now obviously to see where we can get more silver production out of Pinos Altos and Creston Mascota, but we're sort of subject to the mineralization there, and we don't see any instant answers on being able to increase the recovery of silver.

Yes, I can appreciate the complexities and the difficulties there, although at almost $50 an ounce it may start paying people to pay attention to some of these problems because even small incremental changes can probably make a huge difference in your bottom line effect.

We are definitely paying a lot of attention to that. We just don't have the breakthrough yet.

Right. And then on Kittila drilling, maybe Ebe you can answer this. You gave a table in here of uncut grades. Would there have been any difference if you would have cut those grades? And what is kind of a top cutting factor you use on your drilling to bring things down?

There wouldn't have made any significant difference, Barry. Kittila does not have a very coarse nugget effect and so cutting, I believe, we cut the equivalent of 1 ounce of about 32 grams per tonne. But the population is so small, so it's got to -- next to no effect whatsoever.

Right. Okay, good enough. That's all my questions.

[Operator Instructions] Your next question comes from Tony Lesiak with Macquarie Securities.

First question I guess is for Ebe. Ebe, what should we be looking for, for Meadowbank in terms of production over the next few quarters?

We see a similar production the coming quarter, maybe slight improvement as we get the secondary crushing plant. Our mining plan is actually back ended. So for the next couple of quarters, I just have the number here. We're looking at close to 100,000 ounces per quarter going forward in the next 2 quarters. I mean in the third quarter and fourth quarter, slightly better than the first quarter and the second quarter. We'll have more consistent mill feed and more consistent availability. So we'll see a ramp-up, but it is back ended over last 2 quarters.

Okay. If I remember correctly the crusher wasn't supposed to be up until I think sometime in September. So with it hopefully being in by midyear, does it appear now that your guidance, the revised guidance for the year looks potentially a bit conservative here?

I think with everything that's happened at Meadowbank, we're going to be ultraconservative.

It's probably a good idea. A question for Sean on silver. Sean, do you think the silver price looks extended here, and would you look at potentially hedging some of your by-product production?

I think silver has probably run a bit too far at the moment. We're not looking at hedging silver. We actually think the gold price is going to continue to move up and silver is going to move up with it. We actually ran some numbers for next year using an $1,800 gold price and a $60 silver price, and the numbers are extremely strong, particularly on the cost per ounce side, because at 6 million ounces a silver production using a $60 silver price, we get an extensive credit. So we're actually optimistic about gold and as a result, silver. So we're not contemplating doing anything on the silver side.

Okay. Maybe on that, could you give us a sense of where your views are right now on maybe implementing a gold-linked strategy like Newmont and what your view is on where dividends for gold companies should be heading in order to compete with that ETFs?

Yes, we had a substantial increase in the dividend as you know in December. That's consistent with our sort of 29-year track record, and we're sort of one of the leaders as far as that goes. Going back to one of the slides in the presentation that outlines sort of an illustrated reinvestment program for the existing assets relative to our EBITDA. You can see there's room to increase that dividend. We're currently paying a little over $100 million gross on an annual basis. So there's room to pay more. How we it? We haven't decided, whether we go to something tied to the gold price or whether we bump the quarterly payout and then look at a special payout at the end of the year based on how the metal prices have performed throughout that year. We haven't really decided, but it's something that we're looking at over the next couple of months. As far as where they should be from an industry perspective is that, I think, everybody acknowledges that the equity valuations are at the lower end of the historical range for a number of reasons. The next to bump those valuations we need obviously more generalist investors in the space, traditional gold investors can take a dividend or leave a dividend, but we think the next wave of investors that will be forced to look at this space because of the performance of the gold price will be focused on the dividend, as well as the strategy and management. So I think it should be in the 1.5% to 2% range versus a minus 0.4% range on the ETF. Then you'd have a spread of 2% to 2.5%. I think that would be really important. But I think overall, it's more than just the dividend. I think it's a -- and I think we're seeing this in the industry, a little bit more disciplined in terms of capital allocation. The companies have a lot of capital. It's getting difficult to grow if you're really big. That's why we like our position. We can still grow the million ounce base over the next 10 years, we think. So I think more important than the dividend is the strategy, keeping it gold focused, not diluting it, and sort of trying to keep a lid on the share count is more important than the dividend.

Your next question comes from Anita Soni from Crédit Suisse.

Just a couple of questions. At Creston Mascota, do you expect to still be booking about $5 per tonne in unit cost going forward?

No, it's going to be closer -- between $10 and $15. I think we're expecting $13 this year, $14.

Okay. All right. And then just in terms of the grades at Creston, was that a result of the recent cut-off or was that just a result of -- it was slightly lower than the forecast that you put out, or was that a result of basically not wanting to chuck high grade ounces at the startup of the mine?

Well, the early mining at Creston Mascota we've actually had some positive variance. We found a little bit more ore on the upper benches than what was in our original plan, and we just took the ores that was mined, and put it on a heap. So...

Okay, because the original guidance that was put out in December was looking at about 1.62 grams per tonne for the heap leached stock, and I think you came in at 1.4. Then just on LaRonde, in terms of the by-products again, the grades were slightly lower. When do you expect to get back into the higher grade? Or should we be rethinking our grade assumptions for the LaRonde on the by-products?

Well, it will also be impacted by higher gold grades at depth and more tonnage from LaRonde extension. So that will have an impact of lowering the effect of zinc and silver and copper grades, so that's -- it's an effect of that. But as far as the ore body itself, there's no change with respect to the zinc grades or silver grades per tonne. It's more a function of the blend.

Okay. I guess I'm just a little confused because again in December it was -- on silver, it was more like 2 ounces per tonne that you were looking at. It came in at about 1.5 ounce this quarter?

We're a lot closer to that in Q2, so that's just the mining sequence.

Okay, so you're back into the -- what price you previously guided?

Yes.

All right. And just on Meadowbank, I guess with the split that you were describing about a -- close to 100,000 ounces per quarter in Q3 and Q4. I guess that 45-55 split that you were originally talking about with the March 28 guidance is not as valid as it was before?

I don't understand.

Sorry, it looks like it's more back-end loaded than you had originally described in the guidance press release that you put in March 28.

Ebe, go ahead.

I think, Anita -- it's Ammar here. I think overall it will still be approximately that 45-55 for the company overall and as we said in the press release, about a 20% increase in the second half versus first, which is about the 45-55.

Okay. All right, all right. And then just if you could perhaps, what kind of throughput rates are you expecting for the second quarter at Meadowbank?

Currently, we're averaging close to 8,000 tonnes per day. For us, the main challenge has been availability. I mean we have had days where we have exceeded 10,000 tonnes. For us, the challenge is to make absolutely steady-state operations, and we are currently achieving availabilities close to 90%. So we are seeing significant improvement. So I think for the second quarter, max it out at an average of 8,000 tonnes and then that will be ramped up in the third and fourth quarter.

We have no further questions at this time. Please continue.

Thank you, operator, and thanks everyone for tuning in. And if there's an interest to go to our site visits at Meadowbank, Kittila or Pinos Altos, give us a call here and we'd be happy to accommodate you. Thanks, again.

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