Agnico Eagle Mines Limited (AEM) Q4 2016 Earnings Report, Transcript and Summary

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle fourth quarter results 2016 conference call. [Operator Instructions]. Thank you. Mr. Sean Boyd, you may begin your conference.

Thank you, operator and good morning, everyone. And thank you for joining our Q4 2016 conference call. Before we begin the presentation, just like to remind everybody that this presentation will include forward-looking statements and there is material in the slide deck that covers that and you can read at your leisure. What we would like to do today is cover the operations in the quarter, but more importantly talk about the future and our plans for investments and improving the quality of our business and trading value for our shareholders. We have positioned ourselves strongly through a strategy of investing in exploration, investing in project development over the last several years that has allowed us now to continue to invest and grow output and grow reserves from the existing asset base in areas where we have had a tremendous amount of success over many, many years. Our history has demonstrated that our strategy of building mining platforms for long term value creation in areas that have excellent mineral potential and areas that have an ability to do business works very well. Our plan is to continue to follow this straightforward relatively simple but effective approach to building value per share. As we look at our quarter and our year and our positioning, our operations continue to perform extremely well. They are exceeding targets and they are generating significant cash flow. Our reserves are growing and that's largely due to a commitment to exploration. Not just at our existing mines were we're seeing those deposits grow, but also in the project pipeline where we're also seeing deposits grow that will form future important parts of our mine plan as we move forward. Our production profile will see Us producing 2 million ounces in 2020, with an ability to grow those assets beyond 2 million ounces. All of that growth comes from assets that we already own, several of them are already producing. The growth will be funded by the cash that we have on hand and our operating cash flow. And as you recall, over the last two years, we have worked hard at doing two things. Moving key projects forward and exploring those projects, as well as improving the balance sheet by reducing our net debt position. I think one of the important aspects of the growth plan is, it is from existing areas that we operate in and have success in. So low political risk, execution risk from our perspective is low. This growth is coming from increasing mining rate at existing assets and taking advantage of unused processing capacity. It's coming from accessing in regular mining sequence order, higher grades that exist at these deposits. And also building out the Nunavut platform and that is a region that we have been operating in for 10 years. As we said, this pipeline has the ability to add value beyond 2020, we will talk a little bit about this. I think most importantly, when we set out 10 years ago or so to diversify away from our sole reliance on LaRonde, not only have we developed additional sources of production and improved the quality of the business and done it in a way that's improved net asset value per share and also increased our shareholders exposure to production per share. We've developed a really broad range of technical skills and experience which allows us to continue to move forward with this growth plan. As we look at the operating results, another very strong production quarter. Exceeding our estimates and as a result we have posted the fifth consecutive year where both production and costs have come in better than guidance. If we look at Q4 earnings, slightly below consensus, largely due to lower sales volumes. Primarily because of a late gold shipment coming out of Meadowbank due to weather. The good thing is, is that the 31,000 ounces or so that did not get sold in the fourth quarter were sold in January at higher gold prices than what we were seeing in December. If we look at our full-year production at 1.66 million ounces, drove unit costs to a very competitive $573 on a byproduct basis. So below our targets and we also had very strong performance on all-in sustaining costs at $824, below our guidance of $860. As we indicated, we're moving forward on our plans to develop the Amaruq satellite deposit and our plans to complete construction on our Meliadine project. Both of those have favorable economics exceeding our internal rates of return and as we see our development at Nunavut, we just see it consistent with our strategy of going into regions where you can do business, where there is extensive mineral potential. We tie up large land packages, we become one of the dominant players in the region and we take a long term view of value creation. So this is very much not just about adding ounces in the short term, but building a long term value where we can create value on a per-share basis. Our four-year production guidance for the next two years, 2017 and 2018, is unchanged from guidance that was put out a year ago at 1.55 million and 1.5 million ounces. In 2019 we're forecasting 1.6 million ounces and in 2020 we expect to be at about 2 million ounces. We're certainly looking and continue to look at opportunities, 2018 and beyond, to do better than this guidance and we would again term this guidance as very solidly achievable. As far as the cost guidance, really no change in the cost guidance going forward. But as we look out, given the high quality nature of the ounces we're adding to the production profile, we expect to see a decline in our unit costs as we move through 2020. As we mentioned, we've been reducing net debt steadily for the last two years. And we've put our balance sheet in a position where we can fund this growth from cash on hand, from cash flow that we expect to generate over the business in the next 2 to 2.5 years. And if needed, depending on the gold price, we could draw on our credit lines which are $1.2 billion and totally unused. As we mentioned, we have seen an increase in our reserves of 5%. We see the increased commitment to exploration over the last few years yielding positive results across the board at many of our projects. We have seen an increase also in our inferred resource. So if we look at our total resources now at roughly 33 million ounces. Of particular note, as we have seen initial resources on Odyssey and Barsele and we've put out our relative proportion of that based on our ownership interest. But I think the results in the recent quarter that have got our people most intrigued is our drilling on the western side of Laurent 3 at a depth of about 3.1 kilometers. Where we're seeing extremely high-grade gold results, as well as the reemergence of a massive sulfide lens. We're still doing our interpretation and relooking back at earlier holes that were drilled above this area which encountered massive sulfide as well and that is going to be the focus of exploration drilling as we move forward. So we're currently working on studies, as you know, about mining at LaRonde below 3.1 kilometers. In terms of the actual contribution from the mines in the quarter, across the board, very strong contribution. Not just from a production standpoint or a cost standpoint which generated significant margin. If we look at the total margin generated from our mines in 2016, $1.1 billion, this is the type of margin that we see as we move forward that will provide the vast majority of the funding to complete the growth projects. Looking at our balance sheet, as we said, we have reduced net debt down in 2016 by a little over $340 million. We have a debt repayment schedules that is very manageable, even in the context of the additional investment that we're putting out to grow our pipeline and build a new emerging platform in Nunavut. We've got cash on hand over $500 million at the yearend and as we said, with a fully undrawn facility at $1.2 billion. As we always like to point out, we're in our 60th year of operations and we only have 225 million shares outstanding. I would just like to note, in that context of shares outstanding. We talk about our ability to create per share valuation and we did have an outside confirmation of this that came in last year by the Harvard Business Review that essentially ranks 1,200 companies and they cover 70% of the world's market cap. It covers 32 countries. They rank companies based on 80% shareholder return and 20% on sustainability and corporate governance. They published the top 100. There was only four mining companies on that list. There were only four Canadian companies on that list. And the period in which they study that return, compare those returns, is essentially the tenure of the CEO. So a bit of a commercial, not that I want to pat ourselves on the back but it says a lot about the effectiveness of the strategy over time. We were ranked 55 out of 1,200, putting us as the top company in Canada in terms of the return metrics and one of four mining companies that made the top 100. It is interesting to look at the four mining companies, Randgold, Agnico Eagle, Grupo Mexico and Southern Copper. Four companies that stick to a region, stick to a strategy that works and that works over time. That is why think it is important when we look at this in the context of our Nunavut strategy. It's really a continuation of what we have done for decades which is get in early, drill, build, drill some more and build some more. And allocate capital and do in a way where we're not diluting our existing shareholder base. So look for more the same from Agnico because it's clearly worked over a long period of time and we look to employ the same strategy for a number of years. As far as the earnings and financial highlights. We've talked about the sales not occurring late in 2016 and the impact, but we also had an impairment reversal under IFRS of $81 million net of tax. Which is about $0.36 per share and that was a result of having to reverse a part impairment or partly reverse an impairment on the Meadowbank mine due to the success we've had in adding value at Amaruq and also in part reversing a past impairment on Meliadine due to the success of the study and the robustness of the economics on that project. We talked about the four-your guidance getting to 2 million ounces in 2020 and allowing us to manage our unit costs down over time. I think it is important to note that as we invest this year and next year, we expect the Nunavut platform to begin to start in the third quarter 2019 and ramp up quickly thereafter to the point where both Amaruq and Meliadine will be producing 400,000 ounces plus. So this is another key component of not just the strategy to add value, but also as part of the strategy to continue to keep this business manageable and continue to allow us to hit our targets. One of the things that is emerging here with our business is the chunkiness of the asset base. We have talked about LaRonde, our ability to access better grades, our ability to ramp up production. We've also made a decision at the Board level yesterday to move forward on the initial base case at the Bousquet zone which we're now calling LaRonde 5. That will bring the LaRonde complex to over 400,000 ounces. As we said, Amaruq will ramp up and get to 400,000 ounces. Meliadine will average 400,000 ounces for number of years. Our Malartic mine in partnership with Yamana, our 50% is over 300,000 ounces and we're currently working on plans in Finland which could see the mine at Kittila approach 300,000 ounces. That is a very chunky business, assets and in regions that we know well and had a tremendous amount of success. So that is a big part of our strategy. There is details on the next slide about the ramp up in production and the production over the next three years. I think what is important there is we're seeing the emergence or the reemergence of LaRonde. It set record production this year, its best days are ahead of itself. We're seeing good solid performance out of Malartic. We're seeing steady performance at Kittila and we're seeing the continued solid cash flow generating business in Mexico. As we talked about at the start, we have a number of opportunities to improve our production profile as we move forward, not just between 2018 and 2020, but also in 2020 and beyond. Just to make a couple of points, Goldex, our development underground is a bit ahead of schedule, so we're hopeful that we can do a bit better at the Goldex mine. Our guidance in 2019 at both Amaruq and Meliadine, is we would call it conservative based on the fact that we're starting new mines. From an Amaruq perspective, the timing is really driven by permitting, but we're confident based on what we have seen so far and our discussions with the regulators and authorities that we will meet that permitting timeline. Meliadine, we're confident that we can beat that timeline and possibly maybe do a bit better. We worked hard in 2016. We spent additional funds late in the year, to not just position the barge season that comes up this summer and get critical items on that barge, but also to prepare the surface for construction. In fact, we did some construction from August on as we moved into the balance of the year. So this project is certainly well in hand and as you know, for many years we have been advancing the underground ramp system at Meliadine and there's significant investment going to happen over the next two years to add with that. As we look at 2021 and beyond, I made reference to Kittila, we expect that mine to do better. As we look at Meliadine and Amaruq, both of the current studies on those deposits are only incorporating approximately 50% of the overall currently known mineralization. So we certainly look for an ability to maybe tweak those up, but also to have long-life minds in an area that has tremendous mineral potential. We touched on the mineral reserves and resources. I won't spin the growth there, I won't spend time on that slide. I will move quickly through the next several slides and briefly just touch on some of the key operations. As we said, LaRonde set a record in terms of production. They exceeded budget. It's development and performance was 5% better than plan, tonnage from underground 4% better than planned. Its safety performance was the best ever with the fewest lost time accidents and as we said the complex at LaRonde with the Bousquet material is heading to over 400,000 ounces. At Malartic, we saw the fewest lost time accidents since the start of production. We saw record tonnage through the mill and we saw a record gold output. So good, steady operations there. In terms of the permitting, we would expect to get the approval to move ahead on the Barnett shortly. So everything is moving according to plan there. At Goldex, good, solid full-year production above budget, costs better than budget. At Lapa, that mine continues to generate cash flow. The mine has taken it upon themselves as it nears the end of the life to extend it as best they can and generate positive cash flow from the operations which they continue to do. They extended production right to the end of 2016 which was not part of the original plan. They've got production set for the first quarter of this year which is in our guidance. The expectations now is they can likely take that production to the middle of the year. That is a bonus for us. But we should commend the Lapa team for continuing to put forward an effort in an environment where they are seeing a mine closure, not only that they had record safety performance and they're being recognized as one of the safest mines in the province of Quebec. A shout out and congratulations to our team at Lapa. We mentioned the drill holes that we're seeing on the western side of LaRonde, so in the slide deck you see a long section. I think this has got it Alain Blackburn, Guy Gosselin, Marc Legault, who were all chief geologists at LaRonde in the early years when these zones were developing, excited to see the core. We will have the core with us at the next big conference which is in Fort Lauderdale at the end of the month and people can get a sense for the geology, the rock. What we're seeing across the core is mineralization in all the intervals. These high grades are not carried by one section, but it's a splattering of visible gold. We're seeing heavily mineralized across the sections and when we're into massive sulfide we're seeing high-grade gold, we're seeing grades of copper over 1%, we're seeing grades of zinc 2% to 3%. So this is reminiscent of material that we used to see earlier on as we were starting at LaRonde. This could be a very positive sign as we look to the deep development of the LaRonde mine. At Canadian Malartic, we've put an initial resource on Odyssey, I would call it conservative. We put mining parameters around it. There's a lot more work to do and drilling to do, but we've got some very wide intercepts, some grading over 3 grams. The model for Odyssey in our mind was always something similar to Goldex. So some of these drill holes are demonstrating Goldex type thicknesses, but also better grades than what we're seeing at Goldex. So we continue to drill, we continue to work on it with our Partner Yamana to see if we can put this at some point into a mine plan. We talked a bit about the LaRonde zone 5 project. As we said, we're moving forward with base case which we'll as producing about 45,000 ounces through to 2026. But the base case is really designed to not just produce those additional ounces and generate cash, but also to get a feel on whether the 700,000 ounces in indicated resources can also be put into a mine plan. This is the type of approach we took when we restarted Goldex, go with base case, get back in, get underground, have a look, do some more drilling. Get a sense of the cost structure and determine whether we can continue to add value. That is something that essentially has cost us nothing and is basically a kilometer from the LaRonde processing facility. In Finland, a very solid quarter of production, good solid year there, 200,000 ounces. It was not long ago that that mine was producing under 150,000. And as we said, we continue to drill, this is our zone. We continue to look at opportunities to increase the mining rate. We have unused processing capacity in the plant. And as we look at the potential to open up a third source of ore underground in the scissor zone, that is all being worked on with the possibility of moving Kittila closer to 300,000 ounces than 200,000. So this has the potential to become another key cornerstone asset for the Company. At Barsele, we put out an additional resource. That resource would have mining parameters on it. So it is not a resource where we're promoting the exploration potential, so it is one of our conservative resources. It will continue to grow and we continue to work on that. As an eventual operation, that would have some similarities to Goldex based on mining thicknesses. In Nunavut Meadowbank, very strong quarter, continued excellent safety performance better than their targets. Production over 300,000 which we expect to grow in 2017. We expect that production in 2017 at Meadowbank will be 320,000 ounces. In 2019, there may be a possibility that we continue with production from the vault pit. So we pushed Meadowbank already from the third quarter of 2018 to the end of 2018 and we're currently studying the ability to maybe push that into 2019. When we look at Nunavut, at the start, we talked about a strategy that takes a long term view and we have been in Nunavut already for 10 years. Time has gone very quickly, but we first got involved with the Meadowbank project back in 2007. Since that time, we have increased our land package by 10 times. So again that demonstrates the long term view of value creation for us, so a very large land packages covering three major greenstone belts. As a result of those 10 years in that region, we have earned our stripes, as they say. We have got extensive Arctic experience. We have built up our very important relationships in the communities and with local businesses. That is an important part of this next phase of growth. We also have a key logistical support and planning base in Val-d'Or that has been a key factor of our success in Nunavut. It helps to keep our cost down and is really an important part of the logistics in the planning and has been for the last several years on this eventual step to build Amaruq and build Meliadine. So very much in keeping with a steady progression of how we do things at Agnico Eagle. Specifically at the Amaruq project, road construction is advancing well. We expect to be completed by the end of the road by the end of 2017. We have the permit for ramp construction, that has been received. We expect to start that ramp later this year once we get set up with the deliveries on the barge, system on the barge season or from the barge season. We have the permits and licenses for Whale Tail are in progress. We expect to receive them by the third quarter of 2018 and we have seen no negative surprises throughout that process. In fact, that is moving very steadily forward and that is really driving our timetable for Q3 2019 start of production. In that permitting process, there are several blocks of time that are allocated to different regulatory bodies and authorities. And our experience up until now is, when we've entered these time blocks, the specific authority of regulator has taken less time and they are generally allocated. We would see that hopefully continuing to occur as we move forward, so maybe there's some additional slack in that system. As we have said, we plan on the initial phase to extract 2 million ounces of production through to 2024 and that represents less than half of the current known mineral resource which is now over 4 million ounces. Good recoveries we expect 93%. Our cash costs, we're looking over that roughly six-year period of being about $770 an ounce. As we move into the latter stages of that six-year period, we will have much better knowledge and feel of the D zone and how could impact the grade profile and the production profile there. And the D zone is a big part of our exploration because it is higher grade and it is still wide open. Initial capital costs, in line with our expectations about $330 million. We'll be using existing Meadowbank infrastructure, mining equipment, will be using the processing facilities, tailings, the camp, the airstrip. What we will require is new haulage trucks to haul along the road to deliver the ore to Meadowbank and also some straightforward modifications to the mill, gravity and regrind circuits. So there's still potential to do better here to extend the life as we bring in the known resource that is not in the current plan into the plan. And we believe we're going to be able to extend Whale Tail if we go to the long section on the next slide, it's is still wide open. It is still open at depth. The open pit resource grew in 2016 from roughly 1.9 million ounces to 2.2 million ounces to 2.3 million ounces. The total resource, as we said, now exceeds 4 million ounces. As we said, it is still open, the deposit, so we're spending about $22 million in exploration in 2017. We're focused on infill and expanding the mineral resource at the high grade D zone. We're focused on the value and the underground potential of Whale Tail. We're looking for possible westward extensions of the Whale Tail deposit and we're also looking for additional air surface deposits on the large land package that exists there. At Meliadine, as we've said, it's fully permitted and our study expects to extract 5.3 million ounces of the 10 million plus ounces currently known reserve and resource. So similar to Amaruq, about 50%, we certainly would expect given the way we have calculated resource in the past to extract the full mineral reserve and resource outline. It is a phased approach starting with underground transforming into a combination of underground and open pit. As we have said, there is extensive underground development already in place. We have been actually advancing underground ramp system for several years now, where we spent $130 million to prepare the project for this year's barge season and to prepare the surface for continuing surface construction. We look at this project is very low risk, given a couple factors. Our extensive experience in Nunavut, the fact that we've had this project for seven years. We have been working on it extensively in terms of studying it for seven years, but we have also been working on it extensively in terms of bulk sampling, drilling, underground access and in 2016 getting surface facilities prepared for the next two years of construction. Initial capital costs of $900 million, we would estimate sustaining of about $50 million a year. It's a big solid producer, producing about 400,000 ounces. It's extremely good cash costs of around $600 an ounce. It's a project that is still wide open when you look at the long section, so we will continue to drill in 2017. In fact, we've got an extensive drilling program of 26,500 years planned for 2017. We have got 5,600 meters of underground ramping planned, including the start of a second ramp. We'll be putting in underground ventilation and heating. We'll be building a fuel farm in Rankett. But I think importantly, our camp complex will be finished in Q2 and we expect to have our process facility and power plant enclosed before the end of this year which would set us up nicely for 2018. Next slide just shows the extensive land package, as we said. Our overall reserve and resource outline exceeds 10 billion ounces. We've got an 80 kilometer coverage of a major greenstone belt, so there's a lot of regional targets that we've not focused on over the last few years as we've focused on the study and moving the project forward. We will get out to those targets and test them over the next few years and we would certainly expect to be able to add additional ounces to our platform at Meliadine. In our southern business, as we said at the top, a business that continues to run extremely well and generate significant free cash flow for us. So good, solid operations at Pinos Altos, at Creston Mascota. Our plan is, is to expand that deposit, extend it with the Bravo and Madrono properties, will talk a little bit about that in a minute. India grew its resources and reserves and that was really a function of starting drilling in the vicinity of the mine. We expect to continue that strategy and our expectation of that should continue to grow that deposit. At Creston Mascota, we see a site map and we can see the proximity of Madrono and Bravo just to the south. Madrono was recently acquired, we had been aware that for several years. It was owned by the family that sold us Pinos Altos. We were recently able to make a deal there. We continue to drill it. It's got mineralization on surface. Fortunately for us with our exploration teams focused on the vicinity between Creston Mascota an Pinos Altos, we have uncovered areas that will be able to augment our mini plan and extend the mine life at Creston Mascota. At Landia, we've got an extensive land package in the Mulatos district and we've been adding to it over the last couple of years. As we've said, we've just started to move away from the mining area and drill in the vicinity of the mine and we have had success in adding to reserves and improving our resources. We expect Landia to be strong producer for many years. Barqueno, we've continued to drill that project. We still expect to be producing from at least a couple of pits there at some point. I think a recent important note is our drilling at El Mecom we've talking about that for the last couple of quarters. We've had been drilling that, but there was some surface rights that we had to acquire which we have done. And of particular note is we finance a style great and so there's almost 1 kilogram per ton of silver over 16 meters. That is an area focus for the seasons of drill program and we have got about 14 drill holes or drilling machines going there right now. Just to wrap up, we have made an important step today to continue moving the Nunavut platform forward. We have done that on the back of extremely strong operations that have generated significant cash flow and have allowed us to improve our balance sheet over the last couple of years. That will drive production growth to 2 million ounces in 2020, but also set us up as we expand those platforms for additional growth beyond that. And we have discussed many times about the importance in our view of how important the Nunavut platform is. As we've said many times, we see it as a place where you can get business done and you can also build and develop mines but you also can take advantage of what is an area which has tremendous mineral potential. And we're seeing that as Meliadine grows and we're also seeing that in Amaruq and the ability to grow that in a short period of time to over 4 million ounces. Our exploration continues to deliver on many fronts, that's been a key part of our strategy, will remain a key driver going forward. Our balance sheets per disposition to fund this growth, so again that ties into our strategy of not diluting our shareholders and to focus on per-share metrics. And 2017 will be our 35th year of paying a dividend. I just want to reinforce that the core of our strategy is really getting into emerging regions or getting into deposits early, gaining knowledge, acquiring more ground, investing in exploration, using our extensive mine building skills to turn these early stage opportunities into meaningful cash flow generators just for us. Over time, we look to become significant players in these region and we look to take a multi-year approach to creating value over the long term, basically through more drilling and building and taking advantage of new opportunities that our people in our teams are able to surface in these regions. We've done this very successfully in Quebec for almost 50 years and we're focused now on duplicating this success in Nunavut. We see the next 2 to 2.5 years really as a continuation of a plan that was put in motion back in 2006 when we began to diversify our production base away from LaRonde. I think our approach was really unique because there's been a lot of examples in this industry where people have taken world-class deposits and over time have added lower-quality assets and done it in a way which has an added per-share value. We took an asset that wasn't known to be world class and our team made it world class. We have mined 5 million ounces of what will be ultimately over 10 million ounces. Our best years are still ahead of us. What we added were quality assets to it. We did it in a way which actually added per-share net asset value and it resulted in our stock price outperforming and being one of the leaders in the industry. It is a strategy that's worked and it's a strategy that we will continue to employ. And I would like to take the time now to - I know we have a number of employees certainly in this room. We have a number of employees on the line that tune in and listen to these calls and I just want to thank them for their efforts over the years in building a great business and making it a great place to work. But also delivering for our shareholders. And also, most importantly, for putting us in a position where we have got a bright future and we've got a platform which is well matched to our skills, well matched to our experience and its ability for us then to create more value for our shareholders. Operator, I would like to now turn it over for questions.

[Operator Instructions]. And your first question today comes from David Haughton from CIBC. Please go ahead.

My questions are really focused in on Meliadine. We have not seen numbers for a while. You provided quite a bit last night. Just wondering if you could give us a bit of an explanation of the CapEx profile of the initial $900 million? I saw that you've expectation in 2017 of $360 million. Wonder what to expect beyond that?

A breakdown in CapEx, this is Yvon here. The breakdown on CapEx is surfaces for structure typically around $550 million. It's not an exact number. Underground portion about a little more over $200 million and the rest is basically owner's cost.

I didn't ask the question all that clearly. I was looking for a split between 2017, 2018, 2019 et cetera and each of these successive years.

The CapEx for 2017 is $358 million and the CapEx for 2016 is slightly over that, close to $400 million and the rest will be spent in 2019.

Okay. You have got the open pit starting up in year four, what CapEx should we be thinking about for that?

Mostly stripping and mostly with the phase through expansion of the mill. I do not have the exact number, but probably in the neighborhood of about $200 million.

Okay. In the expected production of those 5.3 million ounces, what would you expect the split to be between open pit and underground?

It will probably most likely be somewhere, 35%, 80% from underground and then the rest from the pits.

Okay. Final one on this topic, just looking for a little bit more detail. Are you able to provide expectations of your mining costs for open pit underground and what your milling costs might be on a unit basis per ton?

These costs were provided in the press release.

I must have missed it with the several hundred pages I was reading last night.

The total costs were provided, but the detailed cost were not. And if you want more details, talk to Brian.

Your next question comes from Mike Parkin from Desjardins. Please go ahead.

Just a follow-up on the Meliadine. The CapEx to develop it at $900 million, it seems a little higher than what we were maybe expecting given the last budget, mind you I guess the internal scopes obviously made it a bit bigger. Could you give an explanation of what has changed from the last stale numbers I will admit, but where you came from that number to the number that you've got out there last night plus what you've spent your to date?

We were always forecasting in that $1 billion area, so the really isn't much difference from what our expectations were. And we would point out, that is the same for Amaruq which we said somewhere above $300 million. So there really isn't too much different than what we have been talking about for the last year or so.

Your next question comes from Stephen Walker from RBC Capital Markets. Please go ahead.

I've got a number of questions. First of all, LaRonde, you talked a little bit about it earlier Sean. With the new explorations discovering a high-grade material that has been identified, could you give me a sense of when you could incorporate that in a mine plan? What is the infrastructure like, the decline down into that region and, as I said, a potential timing to see that material go through the plant?

It's still early. And as we have said, we're interesting enough working on those studies below 3.1 kilometers. So the timing is actually pretty good to get some sense of what is materializing on the western side of that deposit. So I think Yvon going to provide some update on the infrastructure and then Alain will provide a sense of the exploration and what we're seeing in the rock.

We have done scoping studies basically up till 2016. 2017 will be focused on completing the exploration program. Towards the end of 2017 and early 2018, we will come back with more clarity on study precision. And basically we will provide updates at that time with the typical development timing for all of this or production timing for all of this is we've been thinking about 7 or 8 years roughly to put into production.

This is Alain speaking. Maybe I can give you more color about the deposit answer. When you're looking at the long section, you can see two legs. And the first leg to the Eastern part, on the right side, the original deposit is over 3 kilometers long. And is [indiscernible] sulfide [indiscernible] high-grade gold that's a unique situation. You can see the high grade in the Bousquet camp and Aronde camp, but what we discovered when we drilled below the 3 kilometers that is a new matching sulfide that was recognized in the past but the people thought it was the same deposit. Now what we're seeing is the second center that opened the area that [indiscernible] is open to the west and down deep. And when looking at the gold rate and the base metallic rate is a unique situation that we did not see half on the type of deposit. And see 28 gram, 14 gram, 1.3% copper, about 1% copper, 3% to 4% in zinc. I cannot see a lot of deposit like that in the world, but when looking that type of grade you have to follow hard on the next drill hole that we drill to the west and see what happens about the size.

Great, thank you for that, Alain and Yvon. Maybe change in track a little bit, Tim Haldane, if you're available. First of all, I'd like to congratulate you on your contribution to the southern business and the hard work and that you put into that region and the success you have had. Could you talk a little bit about Al Barqueno? I think it looks you've got the land tied up that you need. You've got some more complications with respect to different mineralogy types and types of mineralization. Can you talk a little bit conceptually what you think the timing could be on development and what you are looking at there with the plant are combination of plant and heap leach?

We're just having Guy will answer that.

Basically, as we speak as you saw in the presentation you know we have been stepping outside of the main deposit area, getting access to more land by securing some more surface right. And we're seeing some pretty good higher grade number in the Olmeca area, as you can see with the grade we got out of the Socorro vein was above 2 gram which is way higher. We have advancing at the same time the study on what type of eventual processing could be put in place by running more metallurgical tests. So we have been this year and we're taking a more conservative approach on the recovery for [indiscernible] weight assumption. But as you saw the outcome is that the grade that we came out with is significantly higher than last year. Slight increase in the overall amount of ounces, but significant increase in the average grade. And we're now going to be conserving the iron grade nature and some copper and some portion of deposit and silver we're going to be looking at other options, maybe heap leach is not the only option that we should look at. So we continue to get access to more ground, we're testing additional targets and we're advancing in our understanding of the eventual conceptual development of the project.

John Tumazos from John Tumazos Very Independent Research. Please go ahead.

When and roughly how much of Amasruq do you think you'll put into proven and probable reserves? Is that 2017, 2018 or 2019 thing? When will more of Meliadine come into proven and probable reserves?

John, it's Alain. Talk about Amaruq, as you know, we have to transfer the rest of the resin we need to get the study in hand. And we're working on the study and now what we have in hand is the indicated vessels at 2.1 million ounces on the open pit. Based on what we're doing with the result, in fact, we're designing in pit as well. And for underground, we'll designing-- scoping as well. We're more closer to the design one we show our reserve on the excavation and probably the 2.1 million answers open pit that you saw in the press release will be probably 90%, 95% will be moved to the reserve. If you take that number. But we continue to drill as well and we saw an opportunity on a well to drill to the west. We have a chance probably to add another 200,000 ounces based on the result. That shows you around probably, say around 2 million ounces reserve one day.

Meliadine?

Meliadine, as you know we have altered the ridge 10.3 million ounces, 3.3 is the reserve. And continue to drill and fill and we bring the 5 million ounces or more probably in the next couple or three years.

If I could ask one more. What is the difference in the rate of return at Meliadine between the $0.75 C dollar and C dollar you use in your economic studies? The Canadian dollar has been consistently a little bit weak.

There's not much difference in if we actually look at the Canadian dollar gold price we're using, so we're using a CAD1.25 exchange rate which gives us a CAD1,500 Canadian gold price. The exchange rate right now is about CAD1.30 or so, so there's a little bit of cushion in there. It makes a couple percentage points difference on the small move, so maybe 2 percentage points difference. So it is not that significant between what we've used and what the current number is in the market.

Your next question comes from Stephen Butler from JMP Securities. Please go ahead.

Question for you on Meliadine, in terms of the updated study obviously the big change, guys, was the higher level of the minable resource. What other optimizations did you apply to the study versus the feasibility study from last year or 2015?

I think there are a few steps. I think the advancing higher grade into the mining plan was one. We've bumped up the production rate in the early years on the underground production. We have basically optimized scope of phase 1 construction, try to minimize the amount of quality in the original infrastructure because we're going to be operating going into phase 2. Some of the phase 2 spending was maybe a bit stripped down in phase 1. Then basically the rest is all around the construction strategy. Mainly optimizing the schedule, trying to bring our costs down.

Okay. Next question, guys, was just on Amaruq. Obviously it is - the project remains open as you said, Sean and look forward to more results over time, perhaps Western Whale Tail. The question about the V Zone, does the V Zone need a fair bit more drilling before it can convert itself into an open pit mine plan as well?

Hello, it's Guy here. Yes, it needs a more drilling. We have already undertook last year a little bit of tighter spacing drilling in the fifth, so that is basically what is going to be our focus in the first half of 2017 as well. So we're expecting that most of the open pit portion of the V Zone will be having the adequate drill spacing to eventually get classified into indicated. So as we speak as you know, there is 0.5 million ounces of infer in V Zone and 0.25 million ounces still infer in Whale Tail and this is what we're focusing on to add those into the opportunity to get a better picture of the entire open pit component of the project.

Right. Then, Guy, maybe for your others. The inferred grade at midyear late 2016 I guess was around 6 grams in the open pit and then it - now it's fallen to 3.88 grams, respecting that that is a fair bit of dilution and maybe cut-off grade. Can you maybe quantify the level of dilution that you have applied in the resource and the impact of the cutoff grade on the assumed head grade? Thanks.

Basically, the resources was used to be all infer, both open pit and underground, with an average of 6, but the open pit portion of it was about 5.4. So by adding through applying or let's say back-end approach and mining per meter in the pit, we've been adding some of course internal dilution plus approximately 15% of external dilution which brings the diluted grade and the open pit as well, they are at 3.9.

So the internal and external dilution was bigger than 15% combined?

Yes, basically as you know, we have been taking it back-end approach to try to incorporate what is going to be the real output of the pit, what we're going to be able to mine plus adding 0.75 meter of dilution on both sides of the ore zone which totals or average 14% dilution for [indiscernible].

Your next question comes from Tony Lesiak from Canaccord Genuity. Please go ahead.

Could you discuss the underground potential at Amaruq? The grades appear supportive.

So that is of course something we're going to be looking at. It is still open. So as I mentioned previously, we're going to focus our energy in the beginning of 2017 into enensing and increasing the amount of unsees in the pit, but we continue to chase the down [indiscernible] extension of the deposit. We saw interesting sign last year of additional fold nose or folding in the system at depth which can continue to build up, but it is - so we're currently considering to do some directional drilling and focus on those [indiscernible] area of the downtown extension. So it is still open and we're going to put some energy on it, but we also would like at the same time to continue to focus on adding some more open pitable near surface phase to add to that underground component.

Is this a concurrent option or is this more for mine life extension in your opinion?

It would to be concurrent with some adding that. Because by the time we mine the pit, we know that based on our experience at Meliadine we'll need a couple of years with some [indiscernible] which we're going to be as well taking decision to get underground get closer from the deposit, do some infield drilling. So it will come later down the road compared to the pit.

Okay. I'm trying to reconcile the 165,000 ounce production guidance for Meadowbank in 2018. It appears you've got enough reserves already for at least another full year of production in that year.

That is correct. We're still trying to deal with the gap between the production at Meadowbank and Amaruq. And presently, we're seeing some opportunities that we're going to be looking at adding on our current April layfa mine and we will keep you posted as to the information becomes available.

What is the difficulty in accessing those additional reserves in 2018?

No specific difficulty, it's more a question of sequencing at this stage.

Okay. Maybe moving back to Amaruq. Can you give a sense of the strip ratio there that you assumed and maybe mining and trucking costs?

Well strip ratio was quite high, it's over 10%. And then, what is the question on the truck side?

Trucking costs and mining costs.

Trucking costs in the studies are around $11 per ton.

And mining?

We have not published these numbers. We just put it in the total package. If you want more details talk to Brian.

Okay. I guess we could assume Meadowbank is a good proxy?

Say that again.

Would Meadowbank be a good proxy?

The costs will certainly be a little bit higher at Amaruq than they are overall at Meadowbank.

Okay. Finally on Meliadine, I did not catch it. But did you publish an IRR at 1,200?

No we did not.

One of the challenges there is we have a 43-101 that is filed and because our internal study incorporated some resource, we're not really supposed to be putting out an IRR. Once there is a study, I will refile based on the reserves. But it exceeds our 15% hurdle rate.

Your next question comes from Don MacLean from Paradigm Capital. Please go ahead.

Could we get a bit of a sense of the tax situation for Meliadine, what the existing pool is? And when it might become taxable if we're using today's type prices or the prices you were assuming?

Can we get back to you on that Don? We want to look into the actual pool for that specific asset.

Okay. That is fine. And my other question was pretty much along the lines of Tony's about Amaruq. But basically just giving us a sense of what the opportunity and what is involved with from an exploration, but also cost perspective to extend Amaruq's life beyond 2024. That looks like it is a pretty high value-add stage.

I think the focus for this year will be to go underground with the portal towards the end of the year at Amaruq and then initiate development. Once the development is initiated, it is roughly 3 to 4 years towards production. Guy will continue with his team to focus on surface pit exploration and then we will integrate those into life of mine extension as we go through the exploration program and basically through the permitting program. So as this evolves, as the expiration program evolves, we will update like any other life of mine extension at the site.

On top of that, one of the low hanging fruit is the in pit and we currently have another 0.75 million ounces of infer resources that by adding drilling will continue to enhance the amount of indicated resources. We see as well, a [indiscernible] in the air surface to maybe expand or extend the deposit that will tell us where. So those are low hanging fruit that will be working on in 2017.

[Operator Instructions]. Your next question comes from [indiscernible] from Scotiabank. Please go ahead.

I think that's me with Scotiabank. Thank you. I do have a question, Guy, for you. If I can come back to Amaruq so that I understand completely. The fact that you only used 2 million ounces out of the 4.2 million, some of it obviously was underground so you did not include that in your resource for your what you tabled last night. But is the remaining open pit that you did not use because you did not have enough tighter drill spacing and if you were to do that, because it's about 900,000 ounces or so, if you were to fill that in you could bring that into that envelope?

Tanya, I will answer, it's Alain. Not it's okay, Guy can answer, I can answer too. We have a lot of guys around the table here. As you know, we have 2.1 million ounces as indicated, but we have also in for open pits around 163,000 ounces that would drill and fill as well. And the chance to bring to indicate that one day. And what I explained in another question before, we drilled on the western part of oil pit that we can have on the surface that we have [indiscernible] to 200,000 ounces to help the Whale Tail pit. Said that, the V Zone is not finished to drill to the east. We can extend V Zone to the east, closer to the surface we have to know, we will continue to drill. After that is going underground for V Zone and a well date. It is a unique situation that we have. We brought a barge last year as a boat, in fact, on the lake to drill deeper hole and to see the extension of Whale Tail. We will [indiscernible] to drill deeper as well for this year.

The 2 million ounces was arbitrary cutoff that you felt that you had enough with your tighter trill spacing.

Yes.

Okay. Sean, maybe for you. I know you answered the internal rate of return at Meliadine, but would it be safe to assume that for Amaruq it would be a greater 15% at 1,200?

Yes it would, it be north of 20%.

That's good. And that's based on the 2 million ounces?

That is right.

Okay, that's good. Well thank you very much for the clarification and both of you for answering.

Okay, thank you.

Your next question comes from Steve Parsons from National Bank Financial. Please go ahead.

Actually I wouldn't mind shifting gears a little bit to Malartic. It looks like the guidance at that operation is up slightly over the old guidance. Do these production rates noted, do they include Barnett?

Yes they include Barnett, but I think in the early years, the guidance was going up because we've modified the mining sequence to access higher grade in the Malartic pit first. That's improved the economics in the next few years.

Okay. And when does Barnett contribute more meaningfully?

Probably 2019 onwards.

Okay. Could you remind me just how the grade there compares to the main pit and what the strip ratio of it looks like?

Strip ratios are quite similar on the life of mine basis. Grade is 3% to 4% higher I believe.

Maybe back to Barqueno for a bit. Just want to dig in a little bit on the discovery there with the Montero vein - is it the Montero vein? So the kilogram per ton silver over 60 meters, could you walk through on the geology there and what is going on and perhaps how that could be different than some of the other veins you're seeing at Barqueno?

It's Guy here. Basically, we have been starting to investigate that area as of early last year, so quickly discovering first of all the Soccorro vein which came out with the Soccorro itself came out with the resources of above 2.5 grams. And by extending our exploration work around stripe, we ended up getting some broader originally medium-grade silver but by walking our way towards the west along that same structural feature, getting that bonanza type grade silver. So it just means for that type of jurvical sitting that we're at a certain depth which is more favorable for gold rich, higher-grade, silver rich mineralization. But no, it is early days for that Mostero vein, but it is wide open to the West and it could lead us towards some gold rich portion as well either potentially lower than where we see the silver number. With the progress seeing that area, so we ended up that we do not know yet how big that Mostero vein is and we're going to be doing typical 80 meter to 100 meter spacing step out. By the end of 2017, we will going to have a much better idea of the extent of that new mineralized system. There's three other parallel structural features like that Mostero and Soccorro vein and the entire land package, there is a lot of those structural feature that will locally blossom and will evolve into that type of 100,000 to 0.25 million ounces flub of mineralization.

There are no further questions in queue at this time. I will turn the call over to Mr. Boyd for concluding comments.

Thank you, operator and thank you, everyone, for attending. If you have more questions on that, please reach out to us through IR or we will hope to see you over the next few weeks as we get out on the road. Thank you very much.

This concludes today's conference call. You may now disconnect.