Agnico Eagle Mines Limited (AEM) Q3 2020 Earnings Report, Transcript and Summary

Good morning. My name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Third Quarter Results 2020 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Sean Boyd, you may begin your conference.

Thank you, operator and good morning, everyone and thank you for joining us this morning for 2020 third quarter operating results. Before we begin, I just want to refer you to our cautionary statement of forward-looking statements because this presentation will have forward-looking statements in it. Before we get into the numbers, I just wanted to put it in context and connect to what we've been working on into strategic focus and how we see things moving forward certainly when you look at the press release. You can see the impact of rising production in these gold price environment what that has on impact on earnings and cash flow and free cash flow. So that certainly a major highlight for us as we get out production back into the 480,000 to 500,000 ounce per quarter range and it's from this base that we'll be able to steadily grow the production over the next several years. So that's clearly important and that's what we're here to do is generate those returns for our shareholders. But also in this release, which is just as important from a value creation standpoint is the unfolding exploration story which we've been talking about for several quarters as we're seeing a lot of life left in some of our mature mining camps. So many of our existing mines we're showing that these deposits will likely to continue to grow and continue to add high quality ounces at these operations and this has important implications for our longer term production profile as we start up to begin to look out over the next 10 years with a view to growing above the 2 million ounce mark and sustaining that production level above 2 million ounces for an extended period of time. So in this presentation, we'll talk about some of the key projects and I think it's important to note that because of these results we'll also be increasing our - we have increased our drill program and we're going to have a more significant increase in our exploration budgets and drill programs as we move into next year because we're still in the process as we get into slide presentation, you'll see we're still in the process of ranking our projects on a relative basis, so that we can effectively allocate the capital to those projects. The important thing for us is to continue to steadily grow and do in a way where we're generating net free cash flow. So that's why it's critical for us to rank them and stage them and invest in them overtime and not increase the risk level by piling projects on top of projects and eating up all the net free cash flow. So that's important part of our story and we'll connect some of those dots in the presentation. The other aspect here is the dividend and so we've seen a 75% increase in the dividend. It's now $0.35 a quarter, $1.40 on an annual basis that's approximately in total dollars about $340 million per year. The dividend increase is not solely based on entire gold prices, but also, we factored in our ability to continue to grow the output from current levels. If you look at sort of assume an average of production over the next several years between 2.1 million ounces and 2.2 million ounces that works out to $160 an ounce, in terms of dividend payment on an annual production basis. So that's very manageable for us as we've invested heavily in the business and now, we're in that harvesting stage. One more thing on sort of the dividend and the philosophy there and I think the industry is positioning itself well. It's certainly been good to see companies that eliminated dividend six or seven years ago reinstating them now and certainly good to see from an industry perspective company is growing dividend. I think we've as an industry heard our owners saying we want to return of capital. We've certainly been there for many years as you know we started to pay dividend back in 1983 and we paid one every year since then, but it wasn't just the fact that we were able to pay that dividend over that 37-year period. By paying that dividend, we didn't pay a dividend and as a result of paying that dividend and maintaining that track record. It didn't take money away from our ability to invest in our business overtime. And so if we reflect on why we've been successful, we've been successful because we've identified high quality projects early, we put money to work early. We drilled those projects and we realized on that geological potential. So effectively what we've done is we have taken geological risk and we've kept the other risk in our business low and what we've also done has kept share count vote. So the idea was to ensure that overtime when we have the ability to pay a dividend and return cash to our shareholders, we did and we made it a priority. But while we're doing that, that wasn't just good enough. What we were also more focused on as ensuring that business is strong, in a way what we were adding ounces cheaply, using our in-house mine building skills to turn those grow in deposits into meaningful parts of our business and while we kept our share count low. We were able to put up above average share price returns to our shareholders. So really what we're trying to say is, that's been a very effective strategy for us because it's been well matched to our skills as we said it's in proven, that it worked and it worked over several decades. So the message here is, we'll continue to follow that plan as we move forward because of how it works and how effective it's been and the one other point before I get into the details, is just to note that we've had some really prestigious acknowledgements on the safety side here. So our teams have done an excellent job and have been recognized for that work. So let's move into the presentation and we'll get into some of the details. We talked a little bit about the summary. We always expected that the second half would be much strong, we can see that in Q3, so we expect a solid second half in terms of our ability to produce gold where we expect it to produce it but also to generate the free cash flow at these gold price levels. So we've maintained our production and cost guidance. We've maintained our longer-term guidance that's unchanged. As we said, we're producing roughly at a run rate of close to 2 million ounces and we expect given our pipeline and what we're seeing our assets to be able to go above that. We still have to decide how we're going to build those projects in terms of scheduling and relative ranking. As we said, we're working on that but a big piece to how we're going to make those assessments is really on the exploration side. As we start, there's still more work to do. We've seen some really good results which are suggesting that we can extend mine life, add ounces in the mine plan, which is important and we'll get into some of those ideas in this presentation on the back of a higher exploration budget as we move into next year. As we said, the gold production side we produced over 490,000 ounces at a cash cost of $764 per ounce. There's still more work to do on the cost side. We believe we can do better next year. So we're expecting to see some improvements on that side. As we said there's no change to our 2020 guidance or our longer-term production guidance that remains the same. We did decide to spend a bit more in the closing months here in 2020 to position the business going forward, adding about $40 million if you take the midpoint of that range and that's being spent at Kittila to accelerate that expansion program. At Amaruq, we had stopped the underground program. We're restarting the underground program. We've stopped it in the first half largely around COVID and the fact that we had to go to minimum activities there and we're actually purchasing pipe for the waterline that we expect to have permitted next year at Meliadine. So we thought that was smart to do in terms of being able to position the business forward and we've talked about the dividend. COVID. Clearly important, our teams responded as you know we've talked about this before. Responded well in Q2 principally and getting testing up and running early, an effective testing system. In addition to the other protocol. So that certainly helped us position the business and make the case to the authorities, that we could operate safely and as a result, as you know we were able to get our mines up and running in Quebec and Mexico earlier that had been suggested by the government's shutdown. And I think the real question is, how is the business and how is the industry positioned now while we're seeing rise is case counts in some of the areas where we're operating. What we're doing, is we're expanding testing. We have two labs going now and we're adding another lab. Another lab in Quebec in the Val-d'Or area so testing has been effective. We're looking at changing when we test to test for a period before people workers show up for their transportation to site. We think that's important because sometimes they're asymptomatic may not test positive, may test positive a day later when they're at the site, which has happened. But we've been successfully able to isolate employees in those instances and avoid spread within the workforce which is important. I think the other thing that's important for a second wave is a way the business is positioned, not just Agnico, but the industry. And I think the industry has made a strong case to the authorities that not only can be operate safely. But we're clearly economic engines in those regions where we operate and you can just see based on the profitability on the third quarter results from our peers and ourselves that these companies bring a lot of benefits to the region and given the profitability in most instances, we'll be paying lots of taxes which the governments are looking for. So there's a strong case to be made and one other point here is that, everybody knows that in Nunavut, the communities are particularly susceptible to the virus and back in March. We were one of the approaches we took was to ensure that we separated our business from the community, so that there'll be no transmission as we were bringing people up from the south to the north, even though we were testing. We wanted to be extra careful. Unfortunately the Nunavut workforce is still at home. They're very important to us. We're focused on getting everybody back but only when we can ensure the safety of the communities. And right now that we can't do that. We're in continuing dialog with the Government of Nunavut, with the public health authorities in Nunavut to understand best way to bring them all back to work, that will happen. We're just not sure when. We're bearing the cost of that for the quarter of $3.7 million. We'll be patient because it's the right thing to do. Also on COVID which in our cost per ounce is about $6 an ounce largely do additional testing and the additional protocols. So I just want to mention one more point on the Nunavut workforce. What we've done to keep them engaged and to the assist the communities who are in need of help. Is that we've actually brought many employees back to work not at the mine? They're actually working in the communities for community agencies. They're doing things like cleaning waste filled sites. They're working in day cares. They're working in community centers and when they do that. We pay them 100%. Right now with one of our Nunavut workers is at home, they get 75% of their pay. If we can find a way that we can get them engaged in the community. We'll play them 100% to keep them active and engaged. But also to give back to the communities that we partner with and operate in. as far as gold production, looking forward we're forecasting about 24% increase out through 2022. Our focus is not only on executing that but understanding what comes in beyond that and as we said, we're still doing a relative ranking on which project we're focused on. We'll talk a little bit about them. We know about the Kittila expansion. We've made major progress there. It's going to cost us a little bit more because we got delayed there with COVID. We had to send all the shafts sinkers back home to Canada. So it cost us four months or so there which is increasing some of the cost. Meliadine Phase 2 is underway. Amaruq underground. We talked about the restart of that. And Odyssey, East Malartic I'll talk about that in a minute. But there's an opportunity there in the early stages as we begun the ramp to bring up some developing ore up in the ramp. We're also focusing this context as we look at the production profile, out in the out years 2027, 2032 and part of that is increased drill program to help us convert resources at existing mines and to reserve, so we can put those ounces in the mine plan, which is really focused around how we can not only go above 2 million ounces. But sustain it for a longer period of time. So that's where our team is focused on. Just talking a little bit more in detail about exploration. I talked about Kittila from an expansion point of view. We've got the permits to be at 2 million tons a year or moving to 2 million tons a year. We've commissioned the plant. Things are going well there. But what we've also seen recently is an extension of the Sisar Zone. So the Sisar Zone is a zone that's parallel to our main zone. We continue to intersect that zone outside of the [indiscernible] outline. And that could be important as we move forward because it's an additional source of ore for us and it's growing in size. So we're focused on what is the next level above 2 million tons per year, is it 2.4, is it 2.5. A lot of this drilling on the Sisar Zone will tell us whether we have additional sources of ore to increase the mining rate. So that's how we are focused on adding value at the Kittila mine in Finland. I'll skip over Canadian Malartic on the slide for a minute to talk about LaRonde. LaRonde focused there we can see a depth as we mine the west zone. We're getting an upgrading in that west zone. So the LaRonde mine has been in production for over 30 years. We're seeing some of the best grades in terms of volume. We've seen in that 30-year history. And we also have a lot of exploration success. We see the reappearance of a zinc zone. The recent drilling has been deeper on that zinc zone. The gold grades have got better. The NSR values are very high here. What we're trying to do, is figure out how big it is. But it's closed infrastructure that will be part of the increase and exploration budget to understand the size. It would certainly open up a lot of flexibility in the lower mine and extend the mine life and also at LaRonde, we're focused on the old Bousquet property now known as LZ5 and there's a whole package of felsic rocks that the previous owners Barrick and Lack [ph] never drilled. The mine was shut down due to gold prices ahead of that and that opens up entirely new exploration front for us and for LaRonde. So we need to understand what that opportunity is. At Kirkland Lake, I think we know and have concluded it's a buildable project. The question is when? When does it fit in? There is still more work to do. We continue to get good drill results. It's got low cash cost because it's got a copper credit there, so unique deposit for that part of Ontario. But it's well situated and we like it because it's a 45-minute drive from Bruan [ph] where we have a good part of our workforce live. So there's a natural fit there and we're working on the study and hope to have it completed by the end of 2021. Canadian Malartic is getting a lot of attention as it should. It's really moved up the depth chart in terms of potential over the last two years largely on the back of East Gouldie because what East Gouldie does is, it gives us another fairly large source of ore which is thicker and much better grade than what we see in other parts of the underground in the Odyssey and East Malartic areas. So it's changed the complexion of that opportunity. Largely because we can now look at it as a much large underground mining scenario and what is has the potential to do is significantly extend the mine life. And so there's work to do, it's still early. It's not a slam dunk by any means. But I think our confidence level is high there because of our experience of almost 50 years in that region. 50 years of successfully building and operating underground mine. So we know what these things look like, we know what they feel like. We know what to do with them. But when we see back in 2014, when we sort of step into the hostile takeover part of our thesis was, that there was a pretty good chance that there was underground opportunity here and it looks like there is. And so we've put our best people to help and work with the Canadian Malartic team and with our partners in Nunavut [ph] to sort it all it. The news flow will be an updated resource in February as well as a preliminary economic assessment which will outline our thinking on a shaft. It means a shaft. I think you can take from our decision to advance the ramp. We are confident that we have an underground scenario here. We just need to continue to drill it. We need to prove the confidence level around the resource. We need to understand how big it is. But we also now given where East Gouldie is located in a package of rocks which previously didn't really - it wasn't really known to have a lot of potential. We've got over 20 kilometers of coverage now of that favorable rock package. So fairly it's a regional play now as well as a play around the immediate vicinity to mine. So when you add all those things up. These are telling us that these traditional camps [ph] have a lot more life left in them. And I think what it means to us is, as we look at external opportunities. We continue to look because we're always focused on the pipeline as we look on out beyond five years, that's how we built this business, that's where Kittila came from, that's where Pinos Altos came from, that's where Meadowbank and Meliadine came from, that's where La India came from, with that type of theory. We talked about the strategy at the top. That's what we're going to continue to do, work for those. But we also need to be able to understand what we already own at existing mines to make those relative comparisons. So that's an important part. I'm not going to go through each individual mine slides. They're in the deck. I won't get that far because we want to open it up for questions. I know [indiscernible] coming up at the top of the hour. But I'll just use the slide on the operating results to touch on some of the mines and then I'll talk about some of the financial results and then we'll open it up for questions. I'll start with LaRonde and LaRonde, although it's been in production for 30 years. It just keeps going. It's one of these things and it's not an easy mine. So I think we have to give our team credit for - I listened to a presentation in a couple of weeks ago from the LaRonde team and when you add in everything you're dealing there. That's a really complex business onto itself and it's more complex because they're dealing at depth. But they're also dealing with exploration opportunities and how that fits in, the site located in community. So there's lots of things to worry about but here there are continuing to open up the lower part of the mine for getting an upgrade in the west mine. We're getting tonnage from the other parts of the deposit. We have opportunities at LZ5. We're using more automation which is going to be extremely important as we go forward. And the end result of all that is a quarter where they produced about 100,000 ounces at cash cost of $476 an ounce. So it's still after all those years is an important contributor to our operation. Part of that success is the vision the team had several years ago to take the old Bousquet property which we paid Barrick C$7 million in cash for almost 15 years ago and use it as a test case for automation. But also use it as a way that we can extract some of the resources that were left there and part of the strategy going forward. There's a lot more ounces there. There's several hundreds of thousands of ounces more. But they're not in our mine play and there's exploration opportunities in that felsic package of rocks that need to understand. So that will continue to be in a focus going forward. So exploration is key although the mine continues to generate extremely strong cash flows and not only, we have opportunities to the west as we look at the old neighboring ground that we now own. But also to the east of our deposit when we see the potential in the base metal zone. Goldex. We talked about safety awards. Goldex was awarded the F.J. O' Connell Trophy by the Quebec Mining Association for excellence in health and safety. So congratulations to the Goldex team. Also in September, they had the highest throughput since restarted back in 2013. So they continue to get good drills off the depth in the south zone. So it's still an important contributor to the company. Canadian Malartic, also awarded an F.J. O' Connell award in the open pit category by the Quebec Mining Association for excellence in health and safety, that's a big mine. That's a big mine that requires regular overhauls of the plant. Where you have 800 to 1,000 contractors running around in a week and so a lot of people in a confined space and they're clearly doing it safely. So I think that's a good example of how effective that team there is. They had record monthly tonnage milled in August. So coming back from the shutdown in Q2 with COVID. They've done an extremely good job. Barnat reached commercial production at the end of September. So slightly ahead of schedule with our mining activities there. The project we mentioned, the underground we started the ramp. So I think that's a really good sign and we talked about the expanded drilling and the potential for East Gouldie. At Kittila, as we said we're commissioning the expanded mill, that's ongoing now. We completed the tie-in from late September to the third week in October, so that's a good thing. As we said the shaft project was delayed, as we had to send the contract workers back home to Canada. So we had delay in the construction, not a delay on the other side of the expansion in the plant because we kept working on that because we use our employees in Finland and our local contractors that could actually operate and move in the country. So still producing over 50,000 ounces but with the ability to expand and go higher with exploration potential as we continue to look at depth. At Meadowbank, Meadowbank was important from the perspective that we achieved our planned target of over 100,000 tonnes a day or ore and waste. So that was critical. We struggled to get there as you know and we struggled to get there because of backlog in maintenance which impacted equipment availability. So we were able to achieve that tonnage in Q3. We're also focused on the long-haul trucking. We've added more vehicles. We received on the barge three in quarter, so that will give us some flexibility in that aspect of the business, which is important for us. The IVR pit development has been accelerated. We mentioned we've restarted the underground ramp for the underground program. I think which is also important for the future of that deposit. And as we go forward over the next several quarters, we should see an improvement in the strip ratio there at the deposit because the early part of the production there was near surface lower grade higher strip ratio. So the mining conditions should improve as we go forward there. At Meliadine we had record production there of 96,000 ounces. Good cost performance, so they've had also a successful ramp up from Q2 and being reduced down to minimum activities. So the focus there going forward is to continue to steadily ramp up, our throughput and production rate over the next several quarters as we move into 2021 and take advantage of the better grade that we're seeing as we open up the new mining horizon, that started in Q3 of 2020 and we began overburden stripping at Tiriganiaq, so a lot of that expansion work and adding additional reserves into the mine plant is ongoing. We continue to do conversion drilling at Discovery Satellite Deposit which should add to the reserve of position there at the end of the year. In Mexico, we continue to move and develop the center deposit to help out at Pinos Altos. We also see some good drill results at the Cubiro Deposit which we think is going to be a port for Pinos Altos in terms of accessing good grade material into vicinity of the existing infrastructure. So it's important stuff for them there. The next slide is Creston Mascota, really a thank you to Creston Mascota. An open pit that added some really good quality production for our business in Mexico, very close to the Pinos Altos mine. It's now winding down. It's just in the leech position now. Where we're just getting the residues off of the heat leeches going into next year. So just a thank you to the team there for doing an exceptional job over a number of years and adding value to our business in Mexico. At La India, another safety award. La India for the third year in a row was recognized by the Mexican Chamber of Commerce for their health and safety award. So they won the Silver Helmet award. And what we're looking at La India, we're drilling infill drilling and extending the Chipriona deposit that will allow us to be [indiscernible] extend the mine life at La India. So the focus really in Mexico continues to be on taking advantage near vicinity deposits to the infrastructure and also working on Santa Gertrudis and some other opportunities that we see in Mexico. So moving off of sites quickly to the financial highlights. We can see that our earnings were strong, but we're focused really on the operating cash flow for share which was $1.90. so we can see the impact that increasing production, being able to maintain cost and delivering it to this high gold price environment it has an ability to generate not only cash from operations but also free cash flow as we look forward to keep a lid on our capital spend, by staging out projects and building them at over time and not being in a hurry. There's a real focus. Moving to financial position, as we entered the quarter. We had about $250 million drawn under our credit line and that's been now paid, as we expect it would be. So nothing drawn on the credit line and we ended the quarter with $322 million in cash. So strong cash position coming out of quarter. I'll just end with the dividend slide. I think what we see there is progression since 2014. We're confident in our business even when gold was $1,200 we didn't eliminate the dividend some others were having to base on their positioning. We were in a better position, so we didn't. But we were confident that we could increase it every year, after that reduction and that was largely in a period where gold wasn't doing much. It started between 10.50 and 12.50 and we were spending a lot in 2017 and 2018 and none of it and we were still increasing the dividend and as we said, it's been a big part of our history and we're comfortable increasing it again to the level of $0.35 a quarter. And so one of the things for us it's really about balance and so we've highlighted the dividend. But I think more importantly we've highlighted the fact that, we can pay that dividend and still invest and continue to invest in our quality projects to improve the value in the business while we keep the share count down. On that operator, I'd like to open the line up for questions.

[Operator Instructions] your first question comes from the line of Fahad Tariq from Credit Suisse. Your line is open.

Just first as you think about the upcoming reserve update. Is it fair to say that this will be your depletion, reserve replacement, reserve growth? It sounds like next year is really when you're going to - the higher exploration spend and maybe more reserve growth? So I'm just trying to get a sense of what the share is shaping up to be.

Yes, we haven't finalized that number. We do sort of internal mid-year run. There's still some projects we're updating studies on. There's still some drilling that we're doing. I think we're hopeful we can maintain, where we were. Maybe a little bit of growth. But we still haven't done the numbers. We're still working on that.

Okay, no problem. And the only other question I had was, I was looking at the COVID case data and it looks like looking at the vast majority of the cases. I think 75% are in Mexico. Are there any specific health and safety protocols that you have in place there to try to mitigate that and from a financial perspective is there a higher cost that we should expect there? Thanks.

I'll just give you sort of general response and then Mark Legault is here and he can provide some color. Unfortunately the situation in North Mexico where we operate are there, there are lot of cases in the big population centers and we're drawing on our workforce in some of those big population centers and so we've had to adjust the protocols because although we do testing. Sometimes the testing isn't 100% accurate because sometimes we're finding that, we do have someone that appears on site that doesn't have it and a day or two later, may report symptoms and then show a positive test. So what we've been able to do is, is isolate very effectively when that does happen. So we limit the spread and we haven't seen extensive spread. But we've had to change some things in the big population centers. What we were finding is that, some of the employees to get to the pickup point were taking public transit. And so now we pick them up. And so it seems simple we probably should have been doing that before. There's lots to manage here. So that's one of things we're doing. We're looking at getting a better testing system there as well. We don't have the testing to the level we have it in Canada unfortunately. We certainly like to bring what we have in Canada down there. But it's a different country. So it's not as easy as you'd hope it would be. But we're trying to mobilize testing resources in Mexico that can improve the accuracy at the testing. So those are the additional protocols. It doesn't add a lot to the cost structure. I think what's important is to ensure that; the mine isn't contributing to spread. And the other side of that equation is, the mine is actually in those regions and that's position to provide logistics and support to the communities because of our own medical facilities and medical personnel that are there, that aren't there from the community. So our team has done a lot of work there providing that and the government's really appreciative of those efforts. So that's what we've been doing there. Mark is signaling that I've covered it pretty well. So with that, that's why I listen to those calls. I actually pick some of that stuff up.

That's clear, thank you.

Your next question comes from the line of Josh Wolfson from RBC Capital Markets. Your line is open.

With regards to the Odyssey PEA [ph] I guess the phrasing and release does make it focused on that asset and the comment about synergies and the other deposits. I'm just trying to understand what is going to be the focus of the study, will it include? What the - I guess full expectations East Gouldie will it include some of the open pit extension, just kind of what are the high levels ideas for this?

Yes, I'll just Dominique's got some detail on that. but I think we know that we're going to have to make a call on this project, on resource and we're not going to have it all buttoned down on a reserve and that's why we're tightening up the drill spacing to improve the confidence level of the resource. So we know that's a given. So as we move forward, I think the focus now is to understand the next stage outside of the ramp, which is the shaft. So that will be the big part of that and then how does that tie into the existing processing facility. But Dominique is going to provide a bit more color in detail on the expectations for what's in that study.

The study is going to include an integrate different core body including East Malartic, Odyssey and the new one East Gouldie. We're sending those one into wild but now with the addition of East Gouldie, it's a game changer with the project and that's going to be all included as well as what else is remaining into the pit. The team is looking for example at Barnat how do we extend the pit there, so that might add reserve at the end of the year. But this is also part of the equation. We have the mill, we have the pits and now we have a new project. How could we close or fill more the gaps between both of them?

Yes, I think it's important Josh because it's still not clear to us how that potential production gap gets filled in. but we've experienced that before in Nunavut and we didn't sort of panic and rushed Meliadine. We actually slowed it down a year. So we got to really put all of our collective experience together with the Malartic team both [indiscernible] what can be done at the Malartic pit side and also what we can do in terms of a project side. What we don't want to do, is we don't want to sort of cut corners and rush it because this is probably 15 to 20 years of high-quality production that's sitting there. We're just trying to sort it out now. So the worst thing we could do is try to jam it just to fill in six to 12 months whatever it could be. The focus would be on the quality of the project.

Just so I understand, it doesn't sound like the production would go to zero. I think because the ramp production would come earlier, is that correct?

Yes that's correct, that depends on - the question will be, what is the quantities of what we can access from the ramp and the challenge with the ramp is, it's only going to give us access to the lower grade parts of that whole underground scenario. But the really good stuff, the thick stuff. The much better grade stuff is deeper in East Gouldie.

Got it. And then second question in terms of the dividend level going forward, we saw major increase this quarter. Where do you see that dividend being going forward given obviously uncertainty with the gold prices and what capital needs are for the business?

We'll just consider that as we move forward as we gather more information on the project pipeline and that will give us a direction on how do we split the pie and the pie is really project, dividend and financial flexibility on the balance sheet. We don't want to sit with a lot of cash, so then it principally comes down to return to shareholders and project pipeline and on the project pipeline, we don't want to pile up capital to drive CapEx up to a $1 billion again. The focus is to keep it at $700 million to $800 million while we still build the project up. So there's still - gold price will depend on that, how we move our production to 2.2 million ounces and maybe better, we'll also dictate some of those decisions around the dividend as well.

Great, thank you very much.

Your next question comes from the line of Puneet Singh from Industrial Alliance. Your line is open.

You spoke some of your Nunavut asset. So at Meliadine you've got some higher grades this quarter. I just want to know, I've throughput step up and Tiriganiaq growth, what should we expect in terms of average grade going forward as a mine and my other question would be, at Meadowbank. You're saying strip ratio is going to drop in the next year. So what sort of impact would that have on your cost per ton there? Thanks.

Its Dominique speaking, a Meliadine we don't increase the throughput at 4,600 tons per day as you mentioned. With more ore coming from the pit. Let's say the site is going to produce in between 90 and 100,000 ounces per quarter. So grade is going to be I think, if you do the math, you're going to arrive between in around 6.5 gram per ton overall. And for the Meadowbank asset, really the driver is one of them is the stripping ratio. So since the beginning of the year we're mining at around 11. The fourth quarter is going be at 10 and next year, we're going to be between seven and eight. So that's going to be very helpful for the cost as well as the ounces. We're going to see the next quarter is going to be in a same area 70,000; 75,000 ounces per quarter. But we're going to go first half in 85,000 ounces per quarter and up to 100,000 ounces per quarter. Same area the Meliadine and change in Malartic and LaRonde and that's going to be also a very helpful for cost per ounces by increasing those units and this going to come from with higher grade, more we go deep into the Whale Tail and IVR dep, the grade is going to improve. So next year it's going to be starting the year 3.4 and going to finish the year around four into Meadowbank.

All right, great. That's really helpful. Thank you.

Your next question comes from the line of Jackie Przybylowski from BMO Capital Markets. Your line is open.

I just wanted to circle back quick on Josh's question about the Malartic underground project. You mentioned in the MD&A that you're doing some geotechnical drilling out of potential shaft location. Can you give us some color, is that sort of like the final step how do you more or less settled on the shaft location or is there still multiple sites that you're investigating? How much more work do you think there is to be done in terms of determining the overall layout?

Well the shaft is very well advanced. In fact I think we're like that over 90% advanced and that includes the 12-month information with geotechnical to understand where we're going to put it. We're going to arrive with the TA - which is going to TA level on the resources. But we're going to be more advanced into infrastructure. The team is looking how could we do this as fast as we can, as we mentioned to minimize the gap to bring ounces faster. But we don't have the full picture yet. We're going to have the first vision on the economic, end of December.

Okay, it sounds good. If I could just, I mean maybe make a jump over to the LaRonde Zone 5 mine. You've noted that you've had some real automation success and that might open up some new opportunities whether it's deepening the mine or otherwise it's finding new efficiencies. Can you give us a little bit more color on how you're able to roll out those successes that you've achieved and is there opportunity to kind of move that into other mines as well or is it something that is more isolated, I guess to the LZ5 area?

No that's really - what we're looking for - when let's say start more of the aggressive on automation, the team said let's do it at the LZ5 which going to be kind of our mining school to do more automation and are able to do their part of the tonnage around 15% to 20% of the tonnage are fully automating. So from the loading, the hauling, up to the surface without any driver at distance. We're not there yet at LaRonde because of the infrastructure and also the equipment that we have. But what we're focusing right now is to really where we have the highest risk environment, we use remote mucking. This is done within over 50% of the mucking done in the west mine in last quarter has been done automatically. But in six months from now we're going to have now a new design, where we're going to be able also to load the truck automatically because we need to design the area properly to do it safe and right now it was not necessarily the case mining plan was not according to that. but more and more we go, we go into that direction and the vision is maybe due in 2023 to be able then to do more as LaRonde being because you need to have a dedicated ramp to do hauling. But this is what we're looking and right now. On the automation part, where the teams who did let's say the commissioning at LZ5 are now all at Meliadine. People working with the suppliers, so the same people who are there where we're going to start. We're starting the implementation. So yes, the idea is to replicate that everywhere.

That's great. That would be exciting to see. If I could just ask one final question. Can you provide us maybe with some thoughts on the equity investments you've made recently specifically against Maple Gold Mines in Rupert like how are you thinking about those assets? Do you see those moving into the so full Agnico ownership at some point? Maybe worthy stack up in your pipeline? If that's possible to talk about and I guess just finally on that point. Are you looking to add other equity investments or where else would be looking at other equity investments to fill at your portfolio? Thanks.

Yes, in terms of the general question on equity investments we've - as you know we've used that successfully since the 70s that's where Goldex and LaRonde came from, so it's important part of the strategy and it doesn't necessarily mean, if we buy something that it ends up wholly owned by Agnico, some do, some don't. We trade that portfolio. I don't see the overall size of that portfolio going up much because the way we're managing that now. if the team comes with something they really like, we tend to take the lowest rent situation within the portfolio and try to move it out in a graceful way where we're not putting pressure on the stock of that junior. So we're sort of managing it that way. As for specifics, we tend not to sort of get into specifics. So more recent ones though, we can just talk about the rationale for getting involved with them. The one, the most recent was Maple, that kind of made sense for us because of the large land package, the favorable geology. The fact that we were able to rent in our old [indiscernible] property which wasn't explored that deep and given what we know about some of our mines which have shown, that they've got tremendous life as we drill deeper, kind of makes sense to have a revisit of that one. And it kind of made sense to tie up a lot of ground in that region because we've seen some of the success that other companies have had in those regions. The Fenelon project etc. so there's lot of old projects that tend to - are showing well these days as they get more focused exploration done on them. The Douay project we've known about it for years, we knew about it when we were operating in [indiscernible]. So the way we've approached it is that, we look at it by stepping back and say we're really acquiring or getting involved with a large land package that is very prospective and has a lot of potential and how do we use our skills and the skills of the company that owned a Douay project to put forward a sort of high quality exploration program. And we'll see how things unfold. There's no plans to start building anything there. In the case of Rupert it's 50 kilometers from Kittila. So one of the things that we always told ourselves or thought back in 2005 when we made a bid for [indiscernible] which is Kittila, as we thought that as we built Kittila any sort of junior exploration success in Scandinavia would have to come and talk to us because we would be a pretty important player given the size of the Kittila deposit and the infrastructure we were going to have to build and the team that we were going to have to put in place. Not much materialized for a number of years except for the most recent two or three years and there's a number of things there that are going on and our team came to us several months back and said, the one we like the best out of all the things that are going is, Finland and Sweden, is Rupert and so given the proximity to our operations, given our successful experience in building a high quality business in Finland and what goes with that, which is relationships and a track record of doing things properly and an exploration budget, a team there as well. We thought it will be a good sense to engage the Rupert team, if we buy some capital and work with them on thoughts on how the project can grow. So we never can say where these things ultimately end up. We've done well on that one. We've done well on Orla [ph] which we had for quite a while as it was part of Fercinco [ph] way back when it was just the Panama. So the portfolio is doing well. But we're not here to sort of turn a quick buck. We're here to see if there's anything that could fit in our pipeline looking out five to 10 years. So that's how we deal these things.

That's super helpful. Thanks very much Sean.

Your next question comes from the line of Greg Barnes from TD Securities. Your line is open.

Sean, it sounds like locking your production or your project pipeline. It's pretty important in terms of deciding where you go from here. it sounded like that's 12 to 18 months away, so is that right in terms of how you rank Malartic underground up beaver [ph] and whatever else is in the pipeline?

We've got a good feel, so what we're doing I would describe this as dotting the I's and crossing the T's I would say now. And then looking at how we're going to deploy the capital. We know that we've got projects to build. The question now is, which ones will have the biggest impact relative to risk and then, hit them in. and we could build them quicker but that doesn't really make sense to us in this market because our focus is to just keep risk down and provide quality and I think we all know that in order for these shares to go up. We need new investors and those investors tend to be generally new to the space and they're looking for different things and as we've said before we spend a lot of our time when we talk to these new potential investors talking about risk. So our pipeline and how we manage it is really about risk and one of the reasons that we've always tended to want to own 100% of our projects was so we could dictate the pace of when we spend not just on what we spend and how we spend it. But when we spent it and given that we have control them all except for our partner on Canadian Malartic with Nunavut and we're both aligned there. We've got the ability to stage them properly. So that will be the focus. I think it's more it's that plus it's also in some of the recent exploration it looks like it's going to impact 2027 to 2032 certainly East Gouldie would do that. Certainly LaRonde and depth would do that as well. Kittila has the potential to maybe boost production. But we already have a long life mine here. So we need to just understand how that would fit as it give us a multiple another source of ore to go to 2.5 million tonnes. So each of them has the specific thing we're trying to figure out. But given our experience we're quite a long ways away. I wouldn't say 18 months. I would say six to 12 months. It's probably more like it.

So by this time next year. We all have a progression made out of how these things will look forward into the pipeline.

Yes and I think we'll have a better visibility on 2027 to 2032 like we could now we're pretty comfortable 2 million ounces is good for 10 years. But is that number 2.2, we don't know. That's what we're trying to also to sort out as we look to add high quality resources at existing mines because in some cases it extends the mine life. And if you look at Malartic the pit is ending in 2026 maybe 2027 we're still trying to sort that out. That's the way everybody proceeds that project. We were starting to get results that was kind of changing our view 18 months ago. But really early and luckily, we have people that have been through that phase and how things unfold there. But now it's pretty clear you could see something that goes from 2027 to 2040 there or maybe beyond. Again it's early. We don't know but those are the types of things we're trying to get more clarity on right now.

Thanks Sean.

Your next question comes from the line of John Tumazos, Very Independent Research. Your line is open.

Could you explain the 37,816 ounces of pre-production underground at Malartic year-to-date mostly in the third quarter? I think it's the biggest pre-production I can recall. Was it something like a five-meter stringer that was multi, multi-ounce?

So I think that was the Barnat. I think that would be the Barnat pre-production ounces.

Is it or more like 200 meters for 100,000 tonnes grades, 4 tonnes of an ounce or you talked about the configuration, the development muck?

Yes, I'm just checking. Dominique do you - I think that's from Barnat. So I don't think it was Malartic underground.

I might have the names wrong.

Yes so that was the development of the open pit at Barnat and so we were producing development tonnes ahead of hitting commercial production which we achieved at the end of September.

So it was waste stripping?

Yes.

If you go underground, are you hitting any surprises where there's mineral where you don't expect?

Well I think it's too early now but I think the expectation and this is really around East Gouldie. We know the development ramp has just started. We know that we'll be having development muck from the zones in the upper part of that opportunity, that's lower grade material, that's in two-gram range. Whereas Odyssey has areas in it which are four, five and six grams. So our expectation is when we get into that zone, we'll see the much higher grades. But what we're still trying to figure out and that's going to one of the previous questions is, there will be underground development muck coming out of the development ramp that's going underground at Malartic. We're just trying to quantify all that as part of the studies, so that could have an impact much before 2027, so there's a potential bump that we'll see there and as for grades, we're just not there yet. We have drill holes. But we don't have development muck from there yet.

Thank you.

Your next question comes from the line of Anita Soni from CIBC World Markets. Your line is open.

Just snuck in under the wire there. So most questions have been answered. So I just was curious can you talk about exploration budgets. I think you talked about them increasing next year. Can you give us idea broadly of just the magnitude you're looking out for budget [ph]?

Yes as we go through the budgeting process and we haven't landed anywhere. But what we said to [indiscernible] as we said as we go through the budgeting process based on the results that were coming in during Q3. Why don't you look in the neighborhood of 50% bump which will be roughly $50 million and allocate that to some of these projects where we've got wide open intersections that could have a meaningful impact on the value of the deposit and you need to tell us one other thing. You need to tell us, if we invest X of that $50 million, what is your expectation in terms of what we'll see at the end of the year in terms of additional resource announces and where will it be? So that's the way we're going to make that decision. So I'd say Max is 50%, it may come out to be less than that because we're not just going to spend it to spend it. We need to spend it to make sure, those going to add the ounces.

Okay, thank you very much. That's all I had.

Your next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is open.

Sean, you mentioned that Malartic underground isn't a slam dunk and other than making a call on resources as you mentioned. Was there anything that stands out from a risk perspective?

Well I say that because it's a big project and it's early. So we've been around long enough to know that we're dealing with nature at the end of the day and although we're confident because of the skills that we have living and working in that region and we've done it before and we've seen it before, from that aspect we know the skills are all there. And we know that the Canadian Malartic team has exceptional skills and [indiscernible] bring additional skills to the table. But right now we're working off 150-meter drill spacing, all over the project and the deposit particularly at East Gouldie. It looks good in terms of continuity but we still have to do the infill drilling. So we're just cautious in that regard and our PC results coming out from us. We're using CAT grades. All the grades are higher. If you don't cap them, which I think is important but it's just the way we sort of approach it and think about things. I don't want to; maybe I used the word slam dunk wrong. It wasn't that we view the project as being a very challenging project filled with a lot of risk. We just view is as; there is a lot of work still to do. We've done a lot of that work before in other mines; we know we can do the work. But we still have to do the work and that's why we don't want to get too far ahead of ourselves. But I think we're excited.

So I'm trying general timing close to PE PA [ph] like when would the shaft even be breaking ground there going to be a PE [indiscernible].

Yes, I just Dominique is going to jump in here. But I think that really drives the timing. So if you have to talk about a production gap or how you could manage that. Part of managing that will be decisions around shaft sinking and timing of making that decision. So we'll be mindful of that when we're sort of considering that. But it all has to sort of fit and it all has to be done in a way that we're not cutting corners. So Dominique's got some thoughts on the shaft.

Yes, what we said we agreed with the team is to push as much as you can on the engineering to be ready when we're going to have the economic and to take a decision that the engineering is well in advance. We're in a good position for that, so when we're going to see and the fit, the economic and everything work [indiscernible] procurement works and stuff like that could start next Q [ph].

Great, thank you guys.

Your next question comes from the line of Tanya Jakusconek from Scotiabank. Your line is open.

Maybe just Dominique, I have you on this, you can just continue on Canadian Malartic. So would it be fair to see this opportunity starting as a mining from the decline for a few years in that lower grade or of that 2 gram to 2.5 grams per ton and then moving up to East Gouldie which is in the 3 grams per ton you know three, four years out after that.

Yes that's what will happen and this is what the team is looking for. As early as we came to start throughout some development in ore and at some point some stopping from the ramp. During that time also to extend the pits of Barnat pits, could we do a bit bigger, could be do a pushback? We have a low, low grade supply also with decker [ph] gold price those top five might make sense. So we're going to put everything together to extend a pit, start to beef up with the ramp ore material and at some point we're going to have the shafts more later and I don't know 27-ish, that could be shaft ready and then we are back to the close, maybe to the same production we're doing right now.

Okay and I know that we talked about or your joint venture partner talked about a scenario of ramping up to 20,000 tonnes per day from the underground as a complex, is that something that you see as reasonable overtime?

I don't have the detail to speak about that.

We're not there yet, Tanya. That's why we're sort of we don't want to get too far ahead of ourselves here. There's still some work to do. But I think maybe that's driven off their excitement for East Gouldie when you see thickness, then you see grade and you see multiple sources of ore. I know about 18 months ago Yvon Sylvestre his office was next to mine and he came in and he said this has the potential to be a sizable underground mine with multiple sources of ore. So you can pick a number, we're not going to put a number out. We'll wait for the study.

Okay and so just Dominique mentioned we could get in 2027 when we have the East Gouldie there something to similar rate that we are today producing.

Yes again that needs to be looked in detail with - when we're going to add all the deposit together. But that's the objective to reach back to keep that asset as it is right now.

Yes, I think Tanya those are important questions and we don't have the answers to those questions. I think the important question is, is there a gap? How long is the potential gap? What could we do to maybe minimize the gap? What does the production fall to during the potential gap? I think is important. Also what's important is this idea we could have a mine that's producing the same as it's producing today, we haven't made that call because you're going to have a mine that's significantly lower tonnage but better grade, what is that tonnage, what is that grade? It's still a few years away. So that's why we don't want to get too far ahead here. But we like it, yes.

Yes, appreciate that. Maybe just for the resource estimate that we're expecting, with year-end numbers. Would it be safe to assume Dominique that's mainly coming from the East Gouldie and we shouldn't expect so much from the rest of the deposits?

I'll pass the question to Guy on that.

Yes, you're right Tanya the growth will come from East Gouldie mostly.

Okay and if I put one more question into Sean, just Sean just on - you have a lot going in the Northern business. I just wonder about the southern business strategy. It looks like we have a few little things at the mine site. But is there something more beyond that in terms of opportunities that are public or private that you could grow that business in Mexico?

Yes, there's a few things that the team is working on order of magnitude in terms of financial dollars its small, but they like the geology. They're relatively new in terms of our engagement. But it's unfortunate in Mexico; we've got a fabulous team that have done an exceptional job. It's almost like the business currently is relegated to working satellite deposits waiting for that next opportunity. So there's few things that we're working on. As I said not significant anywhere near significant relative to our overall size that the team down there likes. So we'll see that how that unfolds. But order of magnitudes, tens of millions of dollars and not hundreds of millions of dollars.

Okay, it will be good to see some opportunities down there. Thank you.

Very good, thank you.

There are no further questions. I'll turn the call back to you for closing comments.

Thank you, operator. Thanks everyone. Sorry we went a little bit long and cut into lunch. But if there's any follow-up questions. Give us a call. Thanks again.

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