Agnico Eagle Mines Limited (AEM) Q2 2021 Earnings Report, Transcript and Summary

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Second Quarter Results 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ 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 our second quarter conference call. We’ll be going through a series of slides. And please take note that in the presentation, there’ll be forward-looking statements, and there’s some material outlining the notes to investors in the slide deck as well. As we look at the quarter, as it ties into our strategy, solid quarter or solid start to the year. We look at first half production was at record levels, over 1 million ounces. But, what was really gratifying is, is we’re producing more gold, but doing it more safely than we’ve ever done in our history. So, we had the best safety performance in over 64 years in terms of fewest lost-time accident. So, congratulations to all of our employees for that focus on safety. Also, had good cost performance. We’ll talk about that in a minute, which generated really strong cash flows, which strengthened our cash position. It’s still a company that’s growing. We’re still investing in the future. We have the ability to continue to grow output, and we’ll take you through that, 24% production growth from last year out through 2024. The strategy is also based on taking advantage of geological opportunities. We’ll talk about some of that. We’re spending more on exploration this year as part of that strategic push to understand the opportunities we have, particularly at the existing mines. These are Brownfield opportunities. That’s important information for capital allocation. The focus is really, as we grow, to grow in a way that improves the quality of the business. One of the key measures there is our ability to drive cash flow per share. That’s a focus as we think about our business as well. Risk is also important here. And we like where we are in terms of operating platforms. Those are areas, as you know, we’re really comfortable being in, and we see them as important for the future success of our business. Not only that we bring expertise to the table, but we have an ability to do business, in those regions. And we’ll talk about ESG as well. A lot going on in the quarter and a lot of highlights from an ESG perspective. In terms of operations and production, in the quarter, we produced a little over 500,000 ounces without -- not including Hope Bay, the cash costs were under $740 an ounce. So, good solid performance in terms of managing unit costs. That puts us on-track to achieve our production and cost guidance that we put out earlier this year in February. Our CapEx is around $800 million, excluding funds that are being spent on Hope Bay. And we declared our quarterly dividend of $0.35 per share. I’ve made reference earlier to ESG. And we see that as sort of an investment in opportunities to improve the business and to manage risk. We have a lot of good things happening. We were able to begin the reintegration of the Nunavummiut workforce, that’s underway at both Meliadine and Meadowbank. I think what was for me gratifying to see is that, as the Nunavummiut workforce returned to work, we had celebrations there to welcome them back. And I think, the reaction of the workers, we had workers that were actually in tears because they were so happy to be back at work. So, that shows you it’s more than just a paycheck here. It’s about opportunity. It’s about opportunity to provide for their family to build a career. And those are a big part of the benefits that we’re focused on being able to deliver there. So, welcome all of our Nunavummiut workers back, and thank you for your patience over the last sort of year and a half. And as we said, we’re glad to have you back. Another important initiative in Nunavut was an MOU that was signed with the consortium of Inuit owned businesses to move forward on our renewable energy plan for the Hope Bay project, which essentially a wind turbine -- wind turbines. And, I think that’s an important. We see that as an important first step, as a way to invest in resource development, but also do it in a much more environmentally friendly way. And this is going to not just be on Agnico Eagle and other companies, it’s also going to -- beyond governments, to continue to invest in this infrastructure. And we see this as an important first step in not only the Hope Bay region, but also to expand the options for renewable energy in the Rankin Inlet Kivalliq region around Meadowbank and Meliadine. Staying in Nunavut, today we have the pleasure at noon right after this conference call. What we do here at Agnico is, we have something called Good Move of the Week. So, every operation, every business unit will report over that week where they’ve made improvements, whether it’s an environmental initiative, whether it’s a safety initiative, whether it’s a safety initiative, whether it’s a community initiative, whether it’s a productivity initiative or an exploration initiative. And we review those every week, and we get an update of them all. But then, on an annual basis, we select one. And we recognize and honor the groups that win the annual award, and that’s today at noon. And the winner of the Good Move of the Year was the Nunavut shared services and Nunavut teams for their onsite COVID testing. So, you’ve heard us talk about it many times. And I think what that demonstrates is leadership and clear thinking in the face of a lot of uncertainty that we were all dealing with last March. And as we’ve said before, we had testing up and running to protect our sites last April. So, that is being recognized today internally as a good move. And we also have received outside external acknowledgment in Mexico for the second year in a row by the Mining Association of Canada. They won Total Sustainable Mining award for their work in the local community around Creston Mascota. So, Creston Mascota heap leach winding down. So, we asked the workers, as we were winding down that operation, look, is there anything we can be doing? Like, is there anything you need? And the workers said, well, our community needs something. They need safe drinking water, they need sustainable drinking water. And it’s not just for homes, it was for clinics, it was for businesses. And so, our team has put together a community development project to supply 300 families with clean and sustainable drinking water, using solar panels to power the system. So, another good example of how we’re able to share some of the benefits and our good fortune for the strength of our business in our communities where we have employees, but also people that partner with us. We also made reference at the start, moving on to exploration. We did put out an exploration release in early this month, which highlighted a number of initiatives that are moving forward. I’ll just touch on a couple of them. Odyssey, the underground component of Canadian Malartic, this East Gouldie, it was certainly the driver of the underground mine in terms of being able to pull together multiple sources of ore to actually have a business that’s long life, productive with an attractive rate of return. But in that rock package, the host East Gouldie, we’ve continued to drill. And certainly, our team has been focused on understanding what else is in that sedimentary package or rocks. And I know talking to Guy, as he’s been up at the site and working with the drillers, the collective thinking was, well, let’s see if we can extend these holes to the limits of the drill. Let’s go beyond the horizon where the East Gouldie deposit exists and test for extensions of that deposit fees, but also, as we said look beyond. And we’ve had a significant step-out hole, which we’ve talked to over 1,000 meters to the east. In following up, they push the drill to the limits, and we’ve picked up another structure 400 meters to the south of the projection of the East Gouldie deposit. So, lots of potential there. And if you recall on the study, we’re talking about a study that incorporates about 7 million ounces of what is already a 14 million ounces total envelope. And here we are identifying additional mineralization well with that -- well outside of the known mineralized outline. So, we’re starting to see this as an extremely long life opportunity, and what we like about it, it’s in our backyard essentially where we’ve demonstrated decades of experience and knowing how to build these underground mines. And so, we’re looking forward to continued exploration results. We’re going to do more drilling. We’re adding additional resources there. So, we’re excited about that. Upper Beaver project, we continue to drill. We continue to get high grade gold intersections with very attractive copper grades. So, that drilling will continue. That will drive clarity to the study. And so, we’ll be moving that study into 2022, based on the drill results and our desire to increase the drill program there, as we move forward. At Hope Bay, we’re seeing extensions that suggest that we can mine the Doris project longer, which would be good. We’ve got more -- we’re getting more drills this summer on the barge, so that’ll allow us to do more drilling on the regional targets, such as, Madrid. So, this was the plan. Get more drills in, drill these large geological belts, focus on Doris. We know we can do better there. And while we’ve done that, we’ve also been improving the mill performance, improving recoveries. They’ve had a solid quarter at Kittila. That’s one when we first got involved, that Eve and Elaine and even Mark was involved at the time and suggested it looks like the Abetiti. [Ph] It’s a structure that wasn’t drilled that deep at the time when we first got involved down to 250 meters. We’ve drilled it down to almost 2,000 meters now. Shaft is going down. I think what we’re seeing as we move to the north, we’re seeing really good thicknesses, really good grades. We’re already thinking about another expansion now that we’ve achieved 2 million tons a year, just based on the size of that deposit. So, that’s an exciting drilling and exploration opportunity. Ultimately, all of these results at these deposits plus in Mexico at Santa Gertrudis, we’ve had some good results there. We’ve had some good results at Meliadine. This is important information as we look at our long-term capital allocation decisions. And that’s why we decided strategically to push more investment towards our exploration. What I’ll do now is I’ll just use slide 8, which lists all the mines and just work my way down and talk a little bit about some of the highlights in the quarter at the operations. LaRonde, they just continue to deliver quarter-after-quarter-after-quarter. Operating margin in the quarter, $130 million, producing almost 100,000 ounces of gold at $500 cash cost. So, what we like there is, in addition to the solid performance is the fact that they continue steady improvement in terms of the percentage of tons being mined using automated equipment. So, they’ve made good advances there. That’s clearly important, as we move deeper in that mine. As we know in the west mine area, which had another strong quarter, almost 1,500 tons a day. Automated equipment is really important as we think about how we’re going to continue to open up that mine, LZ5 over 3,100 tons a day in the quarter. So, that one started very modestly, couple of years back. We said we were going to get it over to over 3,000 tons a day. We’re there now. So, that’s positive. Exploration: It’s funny, after 30 years of this thing, producing high-quality gold, we’re still making discoveries. And as you know, we’re pushing multiple exploration drifts at the site. Three of them were moving to the west on the old Bousquet ground. That’s an area where it’s essentially the same rock packages as LaRonde, and it wasn’t really drilled by Barrick when it was there, and it’s wide open. And so, the best access for us is to drill it from underground and we have tunnels in place. So, we’re pushing additional exploration drifts in there to get access to better drill platforms to drill that horizon, because that could give us low-risk, high-quality ounces at the LaRonde site. We’re also pushing to the east, because we’ve had, as you know, some drill holes and a massive sulphide lens. And so that’s -- we’ve seen that before at LaRonde. That’s high-valued rock. We need to understand the potential extent of that. So, that will also be a focus. At Goldex, steady performance there at Goldex, another solid quarter in terms of cash costs, in production, good performance in the rail there, good performance in the underground mine. So, a good result at Goldex. At Canadian Malartic record quarterly -- quarterly record for tons mined gold production. So, that’s a big mine generating big cash flow and big production. As we said, record quarterly tonnage of over 18 million tons in the quarter, processing 62,000 tons a day. So, that’s excellent performance. Remember, in June of 2014, when Agnico and Yamana took ownership of that project, the throughput rate was 47,500 tons a day. And we said we could get it to 55,000 tons a day. Here it is at 62,000 tons a day. And now, we have the underground opportunity. And as we talked about earlier, we’re getting extremely good drill results, good performance in terms of getting things set up in the ramp, and also in getting things set up for shaft sinking as we continue to progress on the shaft color. At Kittila, we also had new mill tonnage records in April and May. So, a solid quarter in terms of production at Kittila. And again, we talked about the exploration potential there. In terms of the shaft, we’re looking at commissioning in the second half of next year. But, in terms of project costs, we’re in that sort of €190 million to €200 million year old range. At Meadowbank, good solid performance in terms of ounces, a little over 85,000 ounces. There’s still improvements that we need to make there. But we’re making steady improvements quarter-on-quarter. We had a record month in terms of tonnage hauled of over 380,000 tons per day. So, gradual ramp-up. It’s going to produce more gold as we move forward. It’ll be a stronger contributor as we move forward. And we continue to focus now on developing the underground, because we have higher grades there. And that will augment the open pit production. Meliadine had a really strong quarter. So, you can seen Meliadine starting to hit its stride. As far as production goes, it produced almost 97,000 ounces, had almost $100 million of mine operating profit in the quarter. So, strong performance. We saw monthly record set in May for mill throughput and gold production. So, that will be a long life contributor. We’re seeing good exploration results there as we start to ramp up exploration. We’ve made some progress on the permit side. And on the saline water discharge line, which people are really focused on, we made some good progress and we expect to get the permit in the third quarter of this year. So, we have been working very closely with the community. And with the regulatory authorities, we made some changes to the plan that have been accepted. So, we’ve been moving forward on that. And as we said, we would expect to get the permits very soon. In Mexico, good performance. If you look at that operation, producing over 40,000 ounces, had some good costs, a good cash flow generation there. As we said, the focus is on the satellite deposits, developing those satellite deposits. India was slow start this year due to lack of rain. We’ve had a lot of rain recently, so that sets us up for a better performance in the second half of this year. So, a good solid performance across the board, which helped us set that record output in the second half of over 1 million ounces. That drove good solid earnings in the quarter, but also really good cash flow per share, $1.67 for the first half of the year, over $3 per share in operating cash flow. That drives an increase in our cash position, over $280 million. So, a good strong result. So, I’ll just summarize now and then we’d be happy to take questions. We have -- nice thing is we have more people here in person and we have the contingent online that can help answer questions. So, again, over 1 million ounces first half, position for a stronger second half, and further growth in production, as we look beyond 2021. As far as strategy and risk, again, strategy is to stay in very-low geopolitical risk pro-mining jurisdictions. That’s our comfort zone. We’ve had a lot of success with that business model. No need to change that. On ESG, as we said, record safety performance in the quarter. We’ve done a lot of work in the communities, particularly over the last year and a half, helping out during these challenging times. That will continue going forward. We’re already low intensity in terms of greenhouse gas emissions and fresh water usage. We’ve got plans to do even better, as we go forward. So, that’ll be a prime focus of us. Dividend, again, $0.35 a quarter. So, we’re clearly focused on return of capital. And we feel as we continue to grow output and build cash position, there is room to pay a higher dividend. So, that will be a focus of us going forward. We talked about the exploration success, particularly focused on the pipeline projects and the opportunities near the mines. We went through that. As we said, that’s a big part and has been a big part of our ability to provide above average per share value creation over our long history. And because it works so well and because we have that expertise and have that success, we’re investing more in that area to add additional value and there is no reason to change the strategy. It works well. It’s focused on things like per share cash flow growth and generation, and that will continue as we move forward. So, operator, that’s it for the formal presentation. We’d be happy to open up the lines and take questions.

Thank you. [Operator Instructions] Your first question comes from Tyler Langton, JP Morgan. Tyler, please go ahead.

Good morning. Thanks for taking my questions. Yes, maybe just to start, sort of in the release, you kind of talked about inflationary pressures. I was trying to see them, but it’s still on track to hit in your guidance, just due to some initiatives, you can take. And I guess, could you just give a little bit more detail on sort of what type of pressures you’re seeing, on what costs and kind of what these initiatives are? And then just, I guess, is 2021 benefiting from any sort of I guess fuel hedges or supply contracts where if they kind of roll off or expire, and sort of inflationary pressures mean the same? Could we see sort of, I guess, added pressure next year?

Hi Tyler, it’s Ammar here. There is inflationary pressure across the board. But, as you can imagine, cost control is a focus of Agnico and every mining company. Our team has done a great job, as you mentioned, in managing that. We’re maintaining our cost guidance, not only with the inflation pressure, but also with the volatility in currency. Our Treasury team has always -- is on top of this, we’ve got about 50% of our position hedged into -- through the rest of this year and a portion into next year. So, there is inflationary pressure. Our team has done a good job managing that. And at the end of the day, when the operations are firing on all cylinders, that helps your costs as well. So, across the board, they’ve done a good job.

Okay. Then maybe just switching to Hope Bay, I guess, this quarter sort of production was above sort of the quarterly exit rate you have, and costs were lower. Could just give some thoughts on what you expect for the second half?

Yes, Dominique speaking. This quarter has been a bit higher than expected, question also of timing there because we’re running on enough. So, we’re still expecting to be in at 18,000, 20,000 ounces per quarter at Hope Bay. The mill is exceeding the recovery. So, we’re very, very happy about how it’s going at the mill. And the underground is still progressing. We’re going to move to the DCN Zone. That’s going to create a give more flexibility and more productivity for the second half of the year.

Thank you. Your next question comes from Puneet Singh, IA Capital Markets. Puneet, please go ahead.

Hi, good morning. I’ve seen Meadowbank had another strong quarter and production originally had guided with step-up in the back half of the year. In yesterday’s release, you mentioned you were reviewing the plan there to give you some flexibility in the years to come. You’re still maintaining your overall world production guidance. So, could you provide more color what kind of effects we could see this year at Meadowbank?

Meadowbank continues to improve on all aspects, very proud of the team over the success and achievement at the mine moving the tons as well as the long haul trucks. We’re still improving, optimizing the mining sequence between the IVR, Whale Tail Phase 1, Phase 2 and Phase 3. This is work in progress. We still expect to have a good year at Meadowbank. You see in the press release about some more challenges, let’s say, at the northeast of Whale Tail pit. That’s normal. As we are mining, we’re discovering the pit. And the teams as usual are adjusting the sequence related to that. We have good monitoring tool, radar to motorize that. And there’s no big issue or related to it.

Okay, great. Thanks. And then, my final question is, last year in the third quarter you took a look at the dividend and hiked it quite a bit. And Sean, you were mentioning at the top with strong cash flow you’re looking to add increasing. And again, are you following the same timeline this year reviewing your dividend policy? Should we expect an update in Q3?

Well, we do it every quarter, and last year we bumped it twice in the year. So, we review it and look at it every quarter. So, it’s certainly something that will be reviewed in Q3. And given that we expect stronger output in the second half and build on the success of the first half, our ability to pay is certainly -- will continue to go up. And if you look at our track record, we kind of like to pay a dividend. So, that’s certainly a focus at the Board level, on a quarterly basis.

That’s good to hear. Thank you very much.

Thank you. Your next question comes from Anita Soni, CIBC World Markets. Anita, please go ahead.

Hi. Thanks for taking my call. I’m just focusing on the exploration results that you had put out a couple of weeks ago. I think you noted there that you were looking to grow your reserves and resources. And I was just trying to understand whether or not that to growing them also applies to reserves this year. And maybe you could just give us, and I know there were a lot of like pretty good hits and some additions, but if you could just give us an idea of how we can see reserves playing out this year and then also where we can see some resource additions this year?

Maybe I can take this one, Anita. Good morning. It’s Guy. So yes, obviously, as you noted, we’re ramping up activity. There will be combination of drilling to track from existing operation, but also from the pipeline project. So, as you see, we’re currently doing our own assessment of the survey for our reserve. At Hope Bay, we’re working and integrating more drilling at Upper Beaver. And as Sean mentioned, we’re thinking about building the study further in 2022. We are also working to bring some of the East Gouldie eventually. We’re infilling it, we’re still not sure yet what will be the drill spacing needed. So, there’s a lot of moving parts. Obviously, we are, for example, Malartic with the pit, until we get the underground ready to move from resources to reserves, there won’t be anything to replace what’s currently being mined from the pit. So, you can clearly see over there that replacement will happen in a bigger chunk, once we’re going to get the underground project ready to be moved to reserves. At LaRonde, we are positioning ourselves more on the long-term strategic, putting those exploration drifts at 1, 2 and 3 kilometers. So, we’re still working on both assets, optimizing both the short term reserve well from operation, but more positioning ourselves for a much longer term vision and Kittila is a good example of that and therefore eventually put the story together to think about the deposit below the current resources limit that 1.5. We know we’re still on the deposit 2 kilometers. So there’s a lot of moving parts. We are expecting that altogether we’ll be able to grow the reserves by year-end, but it will be a mix from existing operation and some pipeline project update.

Okay. And then, my second question with Kittila and the shaft expansion there. You guys have pushed that out into first half of 2022. Remind me again, that’s more cost related -- like that was supposed to mitigate costs, right, as that was the main sort of synergy that we would see from that shaft.

Yes. The shaft is going to reduce the mining costs while in operations. We’re going to have less tons to be moved with the trucks. So, this is part of the strategy to improve the cost.

And Anita, as we find some really good drill results, continuing good drill results at Kittila, it’s got a very long mine life, but it’s going to go down below 1 kilometer. So, the shaft does make good sense.

Yes, for sure. I was just trying to figure out what to push out in my model. Thank you. That’s it for my questions.

Thank you. Your next question comes from Mike Parkin, National Bank. Mike, please go ahead.

Hi, guys. Thanks for taking my questions. I just got a few. For Canadian Malartic, can you give us an idea of what percentage of the ore feed was from Barnett, noted a nice tick up there and throughput?

The 60% of the ore is coming from Canadian Malartic. So, the remaining is going to be a mix between Barnett and partially stockpile as the mill is processing more. I think it’s like 30%. I could bring -- go back on that Mike.

That’s okay. Is that going to be fairly steady or is that kind of becoming a bigger proportion as we move into the back half?

That’s going to be steady for the remaining of the year, approximately 60% coming from Canadian Malartic. But, that’s going to increase more in 2022 and further.

Okay. That’s good. Second one, can you just give us a bit more color in terms of what you saw happen there at Goldex? There’s a note on that seismicity event. Just kind of severity of it, what you’re doing to kind of address it in terms of the additional rock support?

Yes. Deep mining involves seismicity. It is normal, as we’re mining deeper. This is not new for Goldex. But the thing is, we’re -- as we go adjusting our protocols, adjusting our mining methods while we go, it happens in the deep one, at level around let’s say 1 kilometer below surfaces. No major issue with that. And again, the mining method protocol is all integrated into our mine plan. And there’s no impact or significant impact on that.

Okay. Is that anything that you’re benefiting from all your years of experience at LaRonde in terms of just best practices and rock support?

Yes. That’s an excellent point. We -- there is synergy between the two divisions. LaRonde is like a 50 kilometers close to Goldex, and the team -- we have very strong team. They’re working together, as well as using also expertise, external expertise, which are the same people helping and supporting the teams to be the best practice.

Great. And then, just last thing, I’ve read a couple of articles about issues with supply of shipping containers. And I know your barge season is either just underway or just across. Have you experienced any challenges there or is the barge season up into the Nunavut region going as planned?

Yes. I’m happy to say that we are on target. The teams have worked, let’s say -- worked hard on that. We had some challenges on the logistic part with the channel that was blocked in the COVID closed port in China. But overall we’ve been able to put what was planned on the barge. We saw also that containers were kind of difficult to find, but we were in advance on that and well planned. So, this is not a problem. And maybe to add on the installations, the fact that Nunavut is running with let’s say material majority that has been bought in 2020, this is positive for us, as well as we did all the procurement for this year barge going up to mid-2022 have been done in Q4 last year, Q1 this year. So, this is an advantage for the Nunavut operations.

Thank you. Your next question comes from John Tumazos from John Tumazos Very Independent Research. John, please go ahead.

Thank you very much. Could you give us a little update on the strategy for Hope Bay? At the onset of the acquisition, it was described more as a long-term exploration and development project where you wanted to find more ore, have a bigger mine, better amortize the fixed costs of the side up north. Here we are in the June quarter at a lower cost at Meadowbank in Mexico. Are the June results sort of not sustainable? Are you going to use up some of the better stopes, or are you getting just better cost performance than you expected, or you’re modeling a $1,200 gold long-term for your decision-making and ignoring the current results, say 1,800?

Yes. Maybe I will start with Hope Bay and ask Guy to complement -- to continue on that. But, the strategy at Hope Bay, now we are mining that there is deposits at an average, as I said, 18,000, 20,000 ounces per quarter. The integration is going well with the team and we see progress here and there. And really the idea -- what we’re looking now, let’s in parallel, why we’re mining the Doris, which is pain for the fixed costs of the sites and partially the fixed costs related also to exploration. We continue to look what is the more-bigger picture. We’re doing trade-off, with the mill. As we see good improvement and we see potential maybe to use the mill, we look at what could we done with the low CapEx to have good recovery and higher throughput through that mill. This is one of the trade-offs. Another one is to look to build a bigger mill to process more coming from Madrid. So, this is on the way. We’re going to still need some time through the end of this year to analyze and to do those trade-offs. And the good news I could say, and then I am going to give it to Guy, is Doris, there is -- it is limited drilling that that’s been done. And now, we’re mining and we -- when we arrive, we continue to drill. It’s always extending. So, we’re able to replace everything we’re mining right now. We’re able to replace it into the Doris deposit. But I will give it to Guy who could talk maybe a bit also about Madrid and Boston, which are -- Madrid is a very interesting one.

Yes. Thank you, Dominique. Hi, John. So, we’re looking at -- it hasn’t changed from our plan. We still continue to assess Doris. And recent results demonstrate that we can continue to extend the zones that are currently being mined, close from the existing facility. So, we’re going to continue to work on that, which is more the short-term plan. The midterm plan is also ongoing, which is better understand what is Madrid, what is Boston? So, we’re currently ramping up drilling at Madrid for a couple of things, reducing the drill spacing, increasing our understanding of the deposit, testing for some parallel structure there to put some medium-term thinking about what’s best to be built for Madrid. And at the same time as well, we are ramping up our activity at property scale to look at the more longer term plan. So, currently, when we came in, there was only two, three rigs that were operating. We’re now having seven rigs, four of them being in the Doris, three of them being in the Madrid. And we’re bringing additional drill rigs. So, I’m having in mind that next year we’re going to have 10 rigs or plus in our property scale. It’s just that by the time we bring the supply and we’re bringing the equipment needed to ramp up our activity, we did what we could with what’s available on site when we came in. And now, we’re spreading our wings at property scale. So -- but I think we’re going to continue to look at those three things. If we can continue to get good grade, extend the zone, and we’re seeing some low-hanging fruit in the West Valley area and the BTD extension. So, we’re quite positive on all aspects from that standpoint, in terms of exploration upside.

Thank you. Your next question comes from Tanya Jakusconek, Scotiabank. Tanya, please go ahead.

Hey. Good morning, everyone, and congrats on a good quarter. And thank you for taking my questions. Can I start with Guy, just to circle back on Anita’s question on the exploration results that came out, because there were a lot that came out in the press release a few weeks ago? And from what I understood from your comments, we’re looking at some of the mines to add to their reserve base, in addition to Upper Beaver and Hope Bay adding to reserve. And then, we’ve got some, I think, Santa Gertrudis, East Gouldie, LaRonde on the resource side. Am I correct in those assets? And where am I missing in terms of reserve additions at the mine sites?

No. I think, you pretty much covered them all, we’re also looking. But it’s all done when all the -- because a lot of drilling will come out when will it be supported by study, when will those studies be made available. So, this is why we mentioned at Upper Beaver will potentially come into 2022. So, we won’t be updating reserve until we get that new study on some other cases. Santa Gertrudis, we’re still working on it. Can we do something with the outside, can we bring a portion of it to reserve. We’re also working at t La India with the sulphide. So, all of that -- and from existing operation and existing working area, we will partly replace what we’re going to mine. And the rest of the reserve replacement or growth will come from the number of pipeline project studies that will be there to finalize the global equation about reserve renewal and growth.

Okay. And maybe if I could ask about Amaruq, there wasn’t any information on Amaruq and the exploration release and/or in this press release. Just wondering what work is planned there for reserve replacement.

We’re working on a couple of opportunities. It’s good you bring that point because we’ve been updating the market on a couple of projects, but as you noted, we haven’t updated on all of them. At Amaruq, we’re getting some interesting number towards the west of Whale Tail day and even we are back looking at Mammoth for some underground area. But, we were adding a lot of resource that we’re still pending. So, we see opportunity over there, and as a whole, like Meadowbank. Amaruq, we’re looking at all of the opportunities there. So, we’re conducting some regional -- proliferation, which is maybe not going to pan out short-term, as to turn out into resources. But, so close to the mine and the western extension at Whale Tail and Mammoth. I think we’ve been quite pleased recently visually with some of the drill hole and some preliminary results we’ve got. We’re looking back and what can we do with some of the -- we know for a fact that long-term there was some zones that were left behind around default, for example, either to the east, the underground. So, we are on understanding all of those, as I recall residual mineral inventory in addition to conduct a lot of grassroots exploration at property scale. So, we will be in a better position to update maybe at the back end of the year in the next exploration update.

Okay. I’ll look forward to getting more on that. And just maybe with Amaruq, if I can circle back on the inflation. I wanted to review closer the inflation and the cost structure and then the capital. And so, I just wanted to zoom in on -- and I appreciate you have currency hedging, and I think you mentioned that you’re not seeing inflationary pressures in 2021. But, as we look into 2022, maybe from what you are seeing out there and the areas that you are operating in, can you comment on what you are seeing in terms of labor inflation and your jurisdictions, maybe some of the inputs, freight costs, cyanide, et cetera, et cetera, that could have an impact on you in 2022?

Yes. Hi, Tanya. So, the big question is, is this temporary or -- is it transitory or permanent? And we’ll find out the answer to that as we go through the months ahead. On the labor side, which is about 40% of our costs and probably representative of other mining companies, we don’t expect anything abnormal. We’re expecting that -- it’s hard to say, we haven’t had the negotiations, but we’re expecting in line with historic numbers, which are sort of 2% to 4%. And we always try -- as you know, Tanya, we always try to anticipate that and have offsets to control that, as we go through our mine plan. With regard to freight cyanide, consumables, those costs, we’ve gone well so far, the areas we operate. We have -- we’re the biggest customers. We have the longest-term relationships. We benefit from that. But eventually, it will go through to us like everyone else. It’s too early right now to say about ‘22 and ‘23, again, because the jury is still out as to if this is a transitory inflation pressure or permanent.

Okay. And maybe if you can just give us some insights, are you seeing any tightness in any portion of your supply chain and/or labor or specialization, i.e. exploration and/or other?

Yes. I’ll start with the latter. Yes, we’re seeing tightness in exploration labor in particular. We’re all dealing with that. Again, we’re benefiting -- when you’re in the same district for decades and you’re their best customer, you get better treatments. So, we benefit relative to others. But, absolutely, particularly with exploration, we’re seeing tightness in labor. With regards to supply chain, our team has done a fantastic job. They’re always on it. They became more focused with COVID. And as Dominique referred to earlier, I think, they put us ahead a little bit. So, we haven’t really had any issues on tightness with supply with regards to consumables and that type of thing.

Your next question comes from Carey MacRury, Canaccord Genuity. Carey, please go ahead.

Thanks. Just a question on Upper Beaver, you’ve been getting good results there, Guy mentioned an upcoming study. Just wondering how you’re thinking about that project now. I think about a year or so ago, Sean, I think you mentioned that, maybe that wasn’t a project but -- or maybe the project was better suited for somebody else than Agnico? So, just wondering how you’re thinking about that project? And is there any sort of potential timeline to production, or is it still too early?

Well, I think the exploration results that we’ve seen lately are higher gold grade, but particularly higher copper grade. We’re seeing another structure potentially at depth, which is changing the complexion as we look at it. And so, it’s definitely a mine. We know that. And it’s just how do we fit it into our overall pipeline and capital allocation process. So, I think the view is, it’s not a rush. So, if we take an extra quarter or two to do some more drilling and finish the analysis, that’s okay, because we think sort of long-term on this. The sort of timeline will be more driven by permitting. You’ve probably got three, four years of permitting in this particular instance, just based on its involving federal authorities as well. So, that means, let’s say we green-light something at some point next year, you’re probably looking at 2027 or so, roughly, based on a permitting timeline. We don’t know the exact sort of timeframe, but that is sort of roughly what we’re thinking. So, it’s an important asset, particularly because it’s going to grow. It’s -- as you know, it’s in a historic, high grade camp. And it’s not only Upper Beaver, it’s what do we do with Upper Canada, and we haven’t said much about that. But we look at it as this large sort of land package well suited, as we talked about in our conference call about geopolitical risk. It’s an area we know pretty well. And it’s -- essentially, we see it as an extension of our business in Quebec. It’s just over the border in Ontario, has lots of similarities. So, that’s how we’re thinking about it. Now, it’s to complete the exploration work -- complete the study and sort of work that into the other studies we’re working on as well as to how it fits.

Thank you. There are no further questions at this time. I will now turn the call back to Mr. Boyd for closing remarks.

Thank you, operator. Again, thank you, everyone. Thanks for the interest and the good questions. And if there’s any other information you need, please reach out to us. Have a good afternoon. And for those that are going to have a long weekend this weekend, have a great long weekend. Take care.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.