Agnico Eagle Mines Limited (AEM) Q2 2023 Earnings Report, Transcript and Summary

Good day. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Second Quarter Results 2023 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]. And now, I will turn the call over to Ammar Al-Joundi. You may begin.

Thank you, very much, and good morning, everyone. Before we jump in, I would like to point out that we believe talking about some forward-looking concepts and statements and there is some documents at the beginning of the package that you might want to go through. We have our team with us today. We're going to be in a very good position to talk about the quarter and a very good position to answer questions afterwards. But really today there are only three key takeaways that we'll go through. One, we had a very strong operating quarter, consistent performance by the team across all the sites, and I'm proud to say now for several quarters in a row. Two, excellent progress on our Abitibi optimization programs. As many of you know, we have a very ambitious program to consolidate and optimize our Abitibi platform. We believe, we have the potential to add several hundred thousand ounces of additional production, potentially and we've made some good progress on that and we'll talk about that and where we are. And the third point is we've had some excellent exploration results. Gi will talk about that, but excellent results across many of the operations. And I would say that all of these results are in places we already operate. We have infrastructure, we have teams, and we have the capacity to utilize and leverage off existing infrastructure. These are not exploration results, at the top of a mountain range in the middle of nowhere. These are in our backyard, and they will make a big difference. Gi will talk about it. In fact, we're so confident that we've increased his exploration budget putting us over $300 million this year, demonstrating again the confidence we have in the business. When we talk about strong operations, just hitting some highlights, record quarterly production, costs $840 cash costs at the bottom of our guidance range, all with another quarter of exceptional safety performance. I'm proud to say that we have now had the safest first half of the year ever in the 66-year history of the company. There is nothing more important than the safety of our people and our communities. And I've said it before, I'll say it again. You cannot have that kind of safety performance without excellent operating capabilities. And you can't have the kind of operating results we've had without that type of safety performance. That's all led to impressively record quarterly cash flow and Jean Robitaille will be talking about our financials, later on. So, hitting some highlights, payable gold production of 873,000 ounces, good cost control, all in sustaining costs of 1,150 an ounce. Cash costs of $840 an ounce at the bottom end of our guidance, generating almost a billion dollars of operating cash flow this quarter. Just getting into a few more, just frankly, I'm quite proud of this, so I'm going to hit a few points. Malartic produced its 7 million ounces since we've had it, in 2011. We've updated the Odyssey project. Dominique is going to talk about that, but just some highlights. And additional 1.7 million ounces, additional three years out to 2042. And most importantly, still open at depth, still getting some very good exploration results in geologic upside. I mentioned on a call this morning, Malartic was discovered by the Goldie Brothers in 1923. So that mine has been around for a hundred years. It's produced with us and previously over 12 million ounces. It's got a mine life out another 20 years. It's still open. It is just a great example of putting yourself in the best places in the world based on geologic potential and political stability a hundred years and plus. Detour, Natasha is going to talk about some of the great progress the team has made there to build that mine, but from an operating perspective, proudly, record quarterly mill throughput at Detour. At Goldex record quarterly mill throughput since the restart. At Macassa record, quarterly mill throughput, record Skipped Tonnes, record underground development. The team there has really, frankly delivered on that mine, great ore body, great operating team. Meliadine, record monthly mill throughput in May, and Meadowbank record production for the first six months of the year, again, with one of the safest orders in the company's history. I'll address the question now because we'll get it later, I'm sure. With the very strong start of the year, we are already being asked, are we going to update and improve guidance? What I would say is it's very early. We've only had the first two quarters, but I will say we are clearly off to a very strong start. We are clearly tracking production that would be above the midpoint of our guidance. And we are clearly tracking costs very well relative to our guidance. So, an excellent start of the year. We're very confident and we're, confident going forward. Next slide, actually keep it on this slide here. So, if we do the update on the key drivers, again, Natasha and Dominique are going to talk about it, I'll just hit a few points. As I mentioned Canadian Malartic, we updated the internal study on June. We talked about the additional ounces, the additional years, the potential there. But really what's exciting more than anything is the significant geologic upside that we continue to see there. That is a fantastic asset. At Detour Lake, Natasha is going to talk about it, the great progress we've made, but also Gi is going to talk about some of the exploration results to bring in potentially underground ore. Remember, our objective at Detour, our vision is to try to get that to a million ounces a year. This is a mine that's already out to 2052, that is still going to be increasing, and to get it to a million ounces a year, it's going to be a combination of increasing the mill throughput and bringing in higher grade ore from the underground. And we're working on that, and we'll be looking to give some updates in the first half of next year. On optimizing some of the other assets. Good progress looking at the potential at Macassa, the upper zones in Amalgamated Kirkland. We're doing our work on Upper Beaver, we're doing our work at Wasamac. As I remind everyone the opportunities there are not just the base case standalone for those projects, but really what we're excited about and what we're working hard on is can we develop those assets without having to build additional mill capacity and utilize existing infrastructure, mill infrastructure and tailings infrastructure at either Malartic or LaRonde. As a reminder, the Upper Beaver and Wasamac each have a potential for between 150,000 to 200,000 ounces a year, Amalgamated Kirkland and the upper zones at Macassa 20,000 ounces to 40,000 ounces a year and that's progressing well. So just between those projects, we have the potential for an additional 350,000 ounces to 450,000 ounces a year using existing infrastructure, which reduces our permitting risk, which reduces our environmental footprint and materially increases our return on capital. That's something we're very focused on, and that doesn't include other projects, for example, at Cam Flow, for example, potentially a second shaft at some point at Malartic. Now, before I turn it over, we're also getting questions on how are these studies going? Frankly, they're going well. There are no delays whatsoever. We expect to start to come out with some guidance in the first or second quarter of next year. But understand something as simple as the underground, at Malartic, it just takes a lot of drilling. These things just take a little bit of time and frankly, I'm very impressed with the way the team is working and the progress made. And again, we expect to be able to start giving some guidance in the first or second quarter next year. Not everything is probably going to work, but things are looking pretty well so far. So, with that introduction, I will turn it over to Dominique to talk first about Odyssey.

Thank you, Ammar. Odyssey project, if we put it in perspective, the first hole where we discovered East Gouldie Zone in 2018. In 2021, we released a first study and we just updated that one last June. Very good improvement, where we production profile increased by three years. So, we have now in front of us a 20 years life of mine with 8.5 million ounces on the production plan. And this is just the beginning, as Ammar said. This is, there's still full of potential to just increase those zones. And eventually, maybe also on the regional aspect too. Maybe one important point about that updated study and where we are today is we de-risked the project with now. In 2020 we had 5% of the quality, the ounces, which were under indicated resources. Now we're up to 53, which is a good news, and the grade is still there, there's no discrepancy that the team are happy about that. And also, we have now 60% of the surface construction completed. In the last two year and a half, which was not the easiest year to do that, but I need to say the fact that we were in a B2B, the fact that also we had good Gi’s, good leaders with experience to deliver that. This have been done, very well done in those years. And I have, in the room here [indiscernible] which are two leaders, key Gi’s, which are worked on that. We are now going to reduce the pace of the construction through the workers. That side decrease from 400 to 450, so it's going to be easier pace. And now we're getting into the next phase, which is syncing the shaft. But overall at the current gold price, the value of the project is $2.5 billion with the 33% return on the investment. An update on the ramp, how it's going. This is how it's ramp up, going on track. So, the team did, over one kilometer drilling last month, in May, it was a record. So, we are now at 600 meters below the surfaces, and we start the production from the Odyssey South Zone, which is the first one we're going to mine there for the next 3 years, 4 years, 5 years at approximately 80,000 ounces per year. We are on track with that. Maybe a good news on the reconciliation so far. We talked to you about the internal zone, which was something difficult to see from the surfaces or to understand from the surfaces. Now we're touching it and we see that there is upside through those zone. And that could potentially add more answers from 2024 to 2027. But it is still already, we're defining the infill drilling program right now to better understand those zones. The first to was supposed to be 30 tonnes at 2.6. It ends up to be 45 tonnes at 2.9. So, this is a great bonus that we had. The next important phase also is all the shaft sinking. So, to access the East Gouldie Zone which you could see on the bottom left of the figure, there's two things. We need to bring the ramp and to build all the infrastructure and to start to develop the first pyramid. We also need to sink the shaft, so it's a 1.8-kilometer shaft. Today, we're at the 76-meter done, and we need, we are also in the step that is now back to the, or we're just initiating the full cycle to sink the shaft. So, we took the first 4-meter bench last week, and the next one is coming in the coming weeks, and we start to installing the seal. So that's a good news. That was an important step and all the construction done behind in the past year was to achieve that. So, everything is on track on that side. There's, we add up to 16 drills on the property in the second quarter. So, as you could see, we're still drilling intensively. In the past year, we've put emphasis on two doing conversion, again to derisk that study. But now we're turning back to do more exploration and potentially add resources. And on top of that, we need to recall that the meal have 40,000 tonnes per day capacity still available in the, one of the best place in the world. So, we have homework to do to bring some ounces through that meal. So, on that, I will pass the microphone to Natasha.

Thank you, Dom, and good morning everyone. I'm on slide 9. The slide highlights the evolution of Detour and the journey that it has been on, to make operational improvements on all fronts, actually from the mine to the mill and on the maintenance front as well. The culture of Detour has always been one that's focused on safety and on minimizing our footprint, but also one that focuses on cost control and value generation. By just going back to basics on how we operate, by assessing innovative approaches, by constantly pursuing efficiencies, and most importantly of all by empowering our people. As you see here, there are some initiatives that the sites has successfully achieved. And what we've shown here just scratches the surface. The bottom-line is that you can see that we have a track record of delivering improvements and these improvement initiatives is an ongoing process. And so, we continue the transformation of Detour into one of the world's largest and most profitable gold mines by assessing the potential, like Ammar said, to achieve the 1 million ounces annually. As you know, this comes in the form of two main projects, increasing the milk capacity and assessing the underground potential. As Ammar mentioned, both are currently ongoing, but from a mill tonnage perspective, as shown on the graph, we have steadily been delivering year-over-year and growing mill capacity by 5% on an annual basis. This past year, we've completed the installation of the screens on the secondary crusher, and we believe that we can add an additional 1.4 million tonnes to the throughput from 2022 to get us to an annual throughput of about 27 million tonnes. And as mentioned before, we're also advancing several projects to improve the runtime and sustain throughput of 28 million tonnes by 2025 or even sooner. And as a result of our ongoing efforts this quarter, the tonnes per operating hour improved significantly and combined with the high mill availability, the mill recorded its best quarterly mill throughput and close to what we need to achieve the 28 million tonnes a year. Now we are looking at sustaining it, and so we're looking at small modifications in different areas. We're looking to improve the efficiencies of the sag discharge screens. We're looking at small changes to extend liner life. We're tweaking the refeed system to so that it operates, better and more efficiently in the winter. We're relocating some of the pipelines in the mill to maximize efficiency of pipe, replacement during our shutdowns. And in parallel, we're also assessing a few projects to potentially exceed the mill throughput beyond 28Mtpa year. And we're going to be trialing the, or sorting and we're going to be working on an expert system. Like we have at some of our other mills. And then in terms of the underground study, we're continuing to advance this based on a revised mineral resource set factors in additional drilling that was completed earlier this year. And as Ammar mentioned, we expect the report and the results of the study to be shared with you sometime in the first half of 2024. But in parallel, the expiration team is continuing to carry out an aggressive drilling program at Detour and Gi will be expanding on this and some other exploration programs next. But before I end, I just want to commend the sites, on an incredible quarter and a year, so far. So, on behalf of Dom and myself, thank you for all your hard work, your passion to continually look at ways of improving and optimizing our business. Not just at Detour, but at all our sites and for making our jobs a little bit easier. So, with that, I'll turn the call over to Gi.

Thank you, Natasha, and good morning everybody. So, to continue at Detour on page 10 of the slide deck. We continue to see excellent results, below the west pit and the extension. So, now the focus is really out now to get to an underground researchers’ model, reduce the drill spacing over that large area. We look at the scale where we continue to get good result up to two kilometer away from the pit. So, based on those good results we've been getting year-to-date, and I'm not going to go through the long list, we've seen in the press release, but those are the kind of grade and width that mix it at first site for an underground scenario. So, the focus is really to continue to advance, we're currently ahead of schedule with the drilling. We see unit cuts that are better than expected with good productivity on our drill over the air on our drilling program. So, we're planning to add, as part of what I want to mention, an overall addition of $32 million. A portion of that $5 million is to carry on drilling at the same pace with those 10-rail rig. And in order to be in a better position by year-end to provide sort of a first overview of what could be underground resources 42 around which we're going to be building our business case for the underground project. At the larger scale, I would say if we go to next Slide 12, on the overall, the rest of the portfolio, we've seen overall very good result on several assets. For example, at Meliadine during Q1 and Q2, we've seen result in [indiscernible] at some of the deepest drill hole ever drill at Meliadine. That support what we believe that the deposit remains open has significant upside. It's one of those that we see a very good potential for reserve replacement. So, we want to be a bit more aggressive. So, with that, again, that stage gate approach. We want to add to the budget that was approved, adding another 25 kilometers of drilling, and also extending that drill platform to the east so that we have a better understanding of how much we can continue to grow Meliadine. Moving to Kittila, we've seen, again, some very good results close to the Rimpi Roura and [indiscernible]. Those are very near-term opportunity where we can quickly bring additional resources, bring them to reserve, very close some existing infrastructure. And in parallel while conducting some geotechnical drilling closer to surface, we've encountered some of that Parallel and Sisar Zone in an area that was previously in a, maybe not understood properly. We started to understand the Sisar Zone about six or seven years ago at a certain depth. And now we realize that some of those drill holes closer to surface, were potentially stop a bit short. So, we now, we are already assisting, now if we left any of those potential parallel structure in the upper part of the mine, which could be very appealing because we already have all of those infrastructure over there, which could provide additional flexibility for the team over there at Kittila. Moving to Macassa continue to get a good result in the extension, both of the main break and the saltine complex. But more importantly, now that we have an old shaft number four in place, and a much, much better I know capacity, both with the ventilation access and everything. So, now we are starting to put some long-term thinking and establishing long-term exploration platform like we did back in the days at LaRonde. So, establishing long-term exploration drift to the east, to the west of Shaft number 4, because we know that the deposit remains open at depth and all of those. And so, it open up with Shaft number 4 infrastructure. A very good playground to think long-term at Macassa. And maybe to wrap up on a little bit on Monarch that Dominique cover in the, or beginning of representation. Again, another site where we want to continue to add additional drilling in the second and a half. Based on the good result that has been delivered. We see, again, humiliating the opportunity to continue to grow. We just took about 9 million ounces out of the total 16 million ounces. So, we see the opportunity to continue to convert the remaining resources that are currently not in the plan and bring them into a further update of the project while we continue to grow the footprint of the deposit that continue to be open laterally. Moving to next page, quickly obey, this is another one where we took sort of a state gate approach. We were basically starting with budget for the first six months, but based on the very good result we've seen both at the risk and more recently at Madrid. And I think this is why we see maybe, a change in the dynamic. We always knew that Madrid was open a depth and laterally. Now we are seeing excellent grade with good thicknesses at depth, that shows that the structure seems to be maybe better define higher grade with visible gold and with large step out that we've conducted, like that whole 105, which is 500 meters, step out below. So, we see excellent potential to significantly grow. So, it's going to continue to take time to bring it to resources, but now we see what we believe when we did the acquisition, that we can significantly grow the deposit and identify higher grade source of war. So, those things are unraveling and we're pleased with the results so far, which convinced us to add another $14.5 million for the second half of the year. And on that, we will be handing over to Jean, I think.

Thank you, Gi. Just some brief comments on the financial results for the quarter. Overall, as Dominique summarized up upfront, just a phenomenal performance from an operating and a safety perspective leading to phenomenal financial resulted in a number of new records. From a gold production perspective, we hit a new record of 873,000 ounces, and that reflected a 100% of Canadian Malartic for the second quarter. In terms of operating margin again, close to a billion dollars of operating margin with very strong contributions from our two biggest mines, which happened to be the two biggest mines in Canada, Detour and Canadian Malartic. And also, a strong contribution from Fosterville. From a cash cost and all sustaining cost performance were in great shape relative to guidance. We came in at $840 per ounce total cash cost, which is $25 below the midpoint of our guidance. And 1,150 in terms of all in sustaining costs, $15 below the midpoint of our guidance. So, our cost did benefit from Canadian dollar weakness in the quarter relative to what we've guided, but also the strong operating performance really helped to ensure that we had a strong cost performance. You can see in the, the table at the bottom right that we've been successful in managing our costs, keeping a lid on our costs over the past three quarters, where they've actually been fairly stable or in decline. We move over to the next slide, just some financial highlights here on Slide 14. We'll walk through our overall, the records that I mentioned. We had record revenues for the quarter. We sold 859,000 ounces. We're benefiting from the strong gold price environment at a realized price of $1,975 per ounce. So again, record revenues, very strong earnings. Our adjusted earnings per share were $0.65 in the quarter, again, reflecting the strong operating performance. If we look at our capital spending for the second quarter, we came in, if we include capitalized exploration at 416 million, which is in line with our guidance. So, great results overall, Q2. My last slide just talks, will summarizes our balance sheet position, current strength, and financial flexibility that we have. We were active in terms of debt repayment in the quarter. You'll recall that at the end of the first quarter, we drew a billion dollars on our credit facility as part of the acquisition of the other 50% of Canadian Malartic. We repaid 900 million of that in the second quarter. 600 million via the term credit facility and 300 million from cash on hand. So, we ended the quarter with 433 million in cash, down about 300 million from where we were at the end of the first quarter. But overall, very strong financial position to be in. We actually improved our net debt position to $1.5 billion in the quarter and increased our overall liquidity to $2.1 billion. So, we're in great financial shape. And with that, I'll turn it back to Ammar.

Thank you, Jamie. And I would like to on this first call, for Jamie formally, welcome him to the company. We have a great leadership team and we're also very protective of our culture. And I think with Jamie, we got a super smart Gi with a lot of experience, but also a nice Gi who fits in very well. So, welcome Jamie. And congratulations for already delivering the highest cash flow record ever for the company. That was mostly you. So, just finishing off before we jump into questions. Look, this is the same strategy we've had for 66 years, which is we want to provide, we want to build a high quality reliable, consistent gold company with superior leverage to gold, but not only superior leverage to gold, but importantly superior leverage to gold on a per share basis, and on a risk adjusted basis. And we're going to do that by building profitable, high quality, low risk business based on two key factors. Well, several, a few key factors. One, a leading position in what we strongly believe are the best mining jurisdictions in the world, based on two criteria. One, obviously the geologic potential, but it has to have the geologic potential for multiple mines over multiple decades. And two associated with that, the political stability to actually operate multiple mines in multiple decades. When you look at Malartic around since 1923, when you look at Detour, originally as an underground mine going to Canada's largest open pit mine, going back potentially to an underground mine. When you look at all of the things that Gi talked about, all of those exploration results. They're tremendous, but they're in established camps where we've been for a long time. This strategy works, it's worked for years, and we think it's even more important given the geopolitical issues going on in the world today. We have built this business, uh, largely on demonstrated technical skills. All of these projects we're working on are tough, but we're going to make them happen or we're confident we're going to make them happen. We've had Jean Robbins Hill, his team talk about some of the things they're working on. We have an excellent technical team and we delivered these results. Let me step back. The team delivered these results not in an easy quarter. We had the fires in Ontario and Quebec. We had the earliest and longest caribou migration season that we've experienced in none of it. That's a good thing. It shows the health of the herds up there. But the team delivered record results with those challenges. We're going to continue our emphasis on per share metrics. We're going to continue to understand that if you want to be in a region for 50 years or 60 years or a hundred years, you can't just be good at ESG. You can't just be accepted in the community. You have to be part of the community and that's what we've always done and we're going to continue to do. We're going to continue to focus on creating value through the drill bit. We are going to continue discipline capital investments based on knowledge and diligence. And we're going to continue to return capital to shareholders building on our 39 years of consecutive dividends. We sometimes people at meetings mention that Agnico Eagle is the sleep well at Night Gold stock. And I would say that I hope that even with the challenges, what we've been able to deliver in this quarter demonstrates that we are in fact the sleep well at Night Gold stock. And so, with that operator, I'd like to turn it over to questions.

Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer session. [Operator Instructions]. First question, the queue comes from Ralph Profiti with Eight Capital. Your line is open. Please proceed.

Hi great, Thanks operator. Good morning everyone. Ammar, two questions from me. Firstly, there was some discussion about the challenges in defining some of the internal zones at Odyssey. And when we think about potentially adding production 2024 to 2027. Is that dependent on sort of a successful surface exploration drilling program? Or will we need to move more towards an underground drilling strategy to better define those resources?

I'm going to take that one. The internal zone were originally recognized from surface drilling, but they are a bit different in nature than the Odyssey South and Odyssey North that sits at the context of the porphyry. Now, as we are getting closer, we're having a lot more access, a lot more drilling as we are in filling and bringing the Odyssey out into production. And now we get to better understand the shape of those. So, we took a conservative approach so far, not putting any of that into the mine plan, and now they're showing up as an incremental done, and we see more of that, that will show up as production will take place and we're going to get a better understanding because they are not as well defined and the south zone. So, it takes more drilling, takes more development, and you're going to see them showing up progressively along with in the life of mine.

And one thing, and maybe Dominique, you can mention on this, the team, and it's a good question, and the team has already changed the ramp positioning so that when we're down there we're much better able to exploit the additional ounces to the extent that they're there. Dominique, I don't know if you want to, I guess I've explained it well enough.

No, that's fine.

Great. Yes, that's quite helpful. Maybe a question for Detour and Natasha. First onset, does the nature of the mineralization show favorability to ore sorting? And is this simply sort of a low-density unmineralized versus high-density? And would ore sorting sort of be more amenable in the underground scenario versus the open pit or both?

Hi, Ralph. I'll start and then I'll let Jean add to this. So, with respect to the ore sorting, we haven't started the phase II trial, but we are looking at about a 1.5 million tonnes of material that we plan on trialing this year. Majority of which is all of it is actually at the pit. Jean, do you want to add?

Yes, I will step in. Listen the proposes to use marginal or stockpile mainly and just do an upgrade with the ore sorting. So, it's ongoing 1.5 million tonnes. We anticipate complete the study in the next let's see 12 months and we'll see from there.

Okay, thanks very much.

Thank you.

Your next question in the queue comes from Anita Soni with CIBC. Please proceed.

Good morning, everyone. And congratulation on the strong result. My question is with respect to the drill results at Hope Bay. Could you just give us some context in what, that means to the mine plan and when you expect to restart Hope Bay, and the timeframe on that project?

Hi, Anita. I'm going to put some color maybe on that. We were obviously, we know there is for Hope Bay to work, we see the need for the mine to be much larger like we are doing at Meadowbank, Meliadine something that will be between 300,000 ounces to 400,000 ounces of Hope Bay year. Therefore, we were needing either to find additional mining area to be able to ramp up the tonnage or find better grade. And I think what we are demonstrating in with that two drilling at Madrid is that we have potentially identify an other mining area with good grade, better grade. So, it shows that, we can not only potentially grow the critical mass of resources, but get better grade and that will eventually be incorporated as we're going to get more drilling into a updated study. So, it just means that we know we were right, that there are a lot more gold over there locally. It seems that it's even better grade and we are going to continue to need more time for drilling, but we now recognize that it's, not just a wishful thinking, it's there and those through a whole are demonstrating that it works to carry on drilling on it.

And secondly on Fosterville. So, you received your permits to resume mining at your and processing at your prior rate. And I think you didn't upgrade the guidance because you're catching up on development work. But would that have an impact to 2024? I think my understanding it was about 30 in the order of 40,000 ounces, give or take 10,000 ounces for next year that it could have a potential positive impact?

Hi, Anita. So right now, we're currently working on updating the mining sequence based on the mid-year models and getting ready for the budget season and looking at the production profile for the remainder of 2023 and going into 2024 onwards. So, I would say for now, we've decided to focus in on the capital development in an effort to get ahead of the critical areas of the mine. And we'll have an update on the rest of the life of mine towards the end of this year.

Thank you. All the best.

[Operator Instructions]. The next question in the queue comes from Mike Parkin with the National Bank. Please proceed.

A couple just kind of housekeeping items with Canadian Malartic, the depreciation per ounce reported for Q2. Is that fair to kind of assume a similar rate going forward? Or is the book value still not quite set in stone and therefore depreciation pronounce could be a little bit volatile at that asset?

Thanks, Mike. It's the latter. The way the accounting works for that is you have really 12 months from the time of acquisition to do the purchase price allocation. But I'd say, we recorded in the second quarter is a good, is the best estimate for Q3 before, and if there's an update, it would be towards the early end of the year.

Second, where are you in terms of being cash taxable in Detour Lake? Are you paying taxes? Are you still consuming tax pools?

Yes, so I think our forecasts have us actually paying cash taxes. I mean, obviously we're paying Ontario mining taxes, but cash taxes starting next year. But that's all dependent of course on the, the plans with respect to underground development, which would defer the payment of cash taxes to subsequent years.

And then also on Detour, I remember in the past from past owners they've negotiated discounted power costs. Is that something that's behind you now and you're paying kind of average grid prices or do you still have those rolling contracts with discounted rates up applied?

We still have the contract in place until the end of this year and we're working on a new program starting next year fully.

And is the discount, I remember it was pretty significant. Is it still kind of that similar scale where it's meaningful savings for you Gi’s?

Correct. Until the end of this year. Yes.

And the next question in the queue comes from Tanya Jakusconek. Your line is open. Please proceed.

Good morning everyone. Congrats on a good quarter, and thank you so much for taking my questions. Well, I think I'm going to start with Gi, first just on the expiration results. Gi, I know I asked this question on the Q1 call as well, and you've had more drilling done to date. And I know we talked about reserve replacement. With what you're seeing today, is that still on track to replace your reserves, this year?

Overall, yes, with the, what we foresee with the addition of, is Goldie on the top of the ongoing replacement at each of the site, we expect the overall reserve to be at least replaced if not growing by year-end.

One asset that you didn't talk about in on these expiration results or maybe and I apologize, may the press release was long and maybe I missed it but you didn't talk about Fosterville. Has anything changed there with respect to, what do you think is, you see on the expiration side or the expiration upside?

No, we continue to drill in specifically two area. We continue to infill the, in the Robbins Hill area where we are getting kind of a mixed bag of results, but I think it is, kind of in line with the known part of Robbins Hill above the decline so far. And at the bottom of the Phoenix, you know, in what we call the cardinal splay, we continue to see some interesting results sometime wide, the average grade width within it with some smaller scale vein with VG, obviously nothing like this one's only. But we see again, good potential in the down plunge extension of the Phoenix.

My second question is just a little bit to talk about the inflationary pressures, and maybe that's over to Ammar. You've mentioned in the press release that you are seeing some relief. I know I ask in what areas are you seeing the relief? I'm just trying to understand because different companies with different assets are seeing different things. So, I'm just interested in where you are seeing relief versus your guidance that included the 2022 pricing?

Thanks, Tanya. So, one, we had some tailwinds with the currency which helped, which continues to, but certainly we have seen relief on some of the consumables. Energy is a big one. As I think you can see on the press release, we've been able to hedge a good portion of our diesel, I think it's at $0.65, if I recall, versus $0.93 in our budget. So, the team did a pretty spectacular job in my view of waiting out the peak and coming in when the markets were more advantageous We're seeing relief on steel grinding material a number of consumables. We're also starting to see and often exploration is a leading indicator. We're starting to see better drillers available higher quality more numbers, better performance. The biggest challenge probably remains with respected, to cost pressure is people. We are still working very hard to make sure we get the people and the highest quality people. Now I'll repeat what I've said before, as difficult as it is for us. When you are the number one employer and you've been there for 60 years and you have the best projects, you always get the best teams available. So, while it's difficult, I would say our strategy leaves us in a competitive advantage, even in that area.

And just want to say the same thing with explosives and cyanide, you're seeing some relief there as well?

Yes.

Okay, that’s good. And I know that most of, and maybe just for myself, like you would have very low inventories on site given your location except your isolated mines, but your other mines would have very low inventory on site, so you'd be pretty much buying on spot markets now, would that be a fair statement?

That's right. I mean, as you correctly stated, it's a different story up in none of it because you have the barge season. But yes, where we operate in the Abitibi in particular, it's a very substantial mining district and we can operate with lower inventory, so much more spot pricing.

And if I could ask just one final question, and Ammar, I know you talked about the guidance and sort of changing the guidance, but we're above the midpoint on production. Maybe you can just guide us to, because the whole sector, I would say majority of the sector is second half weighted with a strong Q4. Can we just review with you how you second half looks like if it, is it evenly distributed and are any minds taking a lower production profile in the second half that we should be aware of?

I think what I would suggest is the third quarter, at least by my forecasts. And I caveat with, I've been in this business for 25 years, and you never know what's going to happen. But the third quarter should be very similar to the second quarter, should be. The fourth quarter, the variability Tanya, as you know, is going to Kittila whether we get the SAC approval or not. But what I would say is our guidance, is assuming we don't get it, and if we do get the approval to continue to operate at 2 million tonnes a year. Then I would, that's 30,000 roughly extra ounces. So, without changing the guidance, I would expect the third quarter to be similar to the second and the fourth quarter to be less, if we don't get the SAC, but that's in our guidance. And if we do, then it would be similar again to the second quarter.

And then, just a clarification, I think Anita asked on the Fosterville. From memory I had about 30,000 ounces maybe. Natasha can confirm that if we were to go back to the additional throughput, what the permit allows you, it would be an additional 30,000. Is that fair?

I think, I mean, we're still working on our budget for next year. What I would say is it allows us to operate those six hours at night that we weren't able to operate. So that's going to have an impact on ounces. We are catching up a little bit on development. The Gi’s frankly did a stellar job in the first half of the year dealing with that restriction. But also, and this is important, very important. In the scheme of things, it's not a huge number, but it also makes the work environment a lot better for our employees. They, it was a tough work environment. It was hot. We don't like to do that to anybody. And so, I just want to make sure we emphasize that it's not just the ounces, it's also importantly the work environment for our employees.

And your next question in the queue comes from John Tumazos from John Tumazos Very Independent Research.

Thank you. With the $28 million drop in first half exploration expense from a year ago. Could you explain how much of that is more being capitalized due to success versus any streamlining versus more or less meters being drilled?

Hi John. So, it's mostly, I would say a reprioritization of the asset. So, we are doing less on other project, let's say in Mexico for example, [indiscernible] through this. We've basically stopped drilling of it there, reassessing the potential. We've also reduced activity for example, in Columbia, but I would say the budget on key value driver or the number of meter has been change. So, it was Missy to say we in a lower gold price environment like we were facing during the budget period, we thought that less money should be allocated to grassroots project and we should focus on operating asset and key value driver.

When you drill in the Abitibi sort of in your backyard, are the costs lower than when you're operating in Sonora or Columbia or other grassroots places?

It's very variable depending on the location. To be honest, John, if you have no water, if you have to, if it's more labor intensive. But I think all-in-all, we are drilling at similar costs in Mexico. It also depends on the size of the project. So, when we have a similar scope of work, similar kind of drill program, we can achieve good costs. The costs are just not dispatched the same way you have to transport water or a figure, you're in the B2B where you can find water a little bit everywhere.

And the next question in the queue comes from Anita Soni from CIBC. Please proceed.

Just a follow-up to Tanya's question about the cadence of Q3 and Q4. So, the downtrend, if all else being equal in Kittila not getting its permit is because you would have to throttle back Kittila in the fourth quarter. And I think the second half of the year Laron will have sort of periodic shutdowns to deal with that. I guess some tie in of the new system there. Is that correct?

Yes. Broadly correct Anita.

Okay, all right. Thank you, very much.

There are no further questions at this time. Speakers, do you have any closing remarks?

Well, we just want to thank everyone, we know it's a busy day. And then finally, I hope all of you get a little bit of time off in the next couple of weeks with your families. Summers in Canada are short. So, thank you everyone for joining us, and have a good day.

Thank you. Ladies and gentlemen, this will conclude your conference. Please disconnect your line.