Agnico-Eagle Mines (AEM)

Q1 2011 Earnings Call

April 29, 2011 8:30 am ET

Executives

Picklu Datta - Vice President and Controller

Jean Robitaille - Senior Vice President of Technical Services

Tim Haldane - Senior Vice President of Latin America

Ammar Al-Joundi - Chief Financial Officer and Senior Vice President of Finance

Unknown Executive -

Ebe Scherkus - President, Chief Operating Officer, Director and Member of Health, Safety & Environment Committee

Sean Boyd - Vice Chairman, Chief Executive Officer and Chief Executive Officer of Sudbury Contact

Analysts

John Tumazos - Independent Research

Joung Park - Morningstar Inc.

Barry Cooper - CIBC World Markets Inc.

TheStreet Recommends

Anita Soni - Crédit Suisse AG

Tony Lesiak - Macquarie Research

David Haughton - BMO Capital Markets Canada

Presentation

Operator

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

Sean Boyd

Thank you, operator, and good morning, everyone, and thanks for joining us on our first quarter 2011 conference call. It's a big day for us today. We have our annual meeting later this morning. What I'd like to do today is move through the front end of the slides fairly quickly so that we can get to a discussion of the operations, but also talk a bit about the exploration results that we announced yesterday on a separate press release. And this is an important next phase for us now that the mines are built and up and running to accelerate infrastructure, increase our drill programs at our newly built mines so we can convert more resource into reserve and hopefully, translate that into future growth and production.

In general, when we look at the quarter, we saw some continued improvement at Pinos Altos in Mexico, some good improvements at Kittila on the recovery side, some steady results coming out of our Abitibi mine. There's still some work to do on the cost side at Kittila, and there's still some work to do at Meadowbank. As you know, we had a fire in the kitchen facility at Meadowbank. I think from our perspective, what was important was the quick reaction and response of the team in the middle of the night, who reacted quite quickly to isolate the fire at the kitchen facilities, and the team worked extremely hard to get the mine up and running in short order with portable kitchen facilities. I think the important -- another important aspect of their response was the fact that we're not going to see a delay in the installation of the secondary crushing unit that we expect to be ready for the second half of this year. And I think that's important to note, although production was lower because of harsh winter conditions and the fire at Meadowbank. As we move through to the second half of this year, we should see about a 20% increase in output in the second half versus first half, which is going to drive production, cash flow and also lower unit cost because of increased production.

So that's the backdrop for the quarter. I'll move through the slides relatively quickly here so that we can get into the exploration and an update from Ebe on the production side. There's no change in our strategy. It remains focused on growing the current asset base, looking for selected acquisitions, ramping up exploration at the existing operations to convert that reserve to resource. All of that should drive per share growth and production and also in reserves, because we're not going to be required to issue stock in order to maximize the assets that have been newly built.

When you look at the actual financial results, on a normalized basis, earnings about $0.45. Important I think to note is the cash flow that we generated in the quarter. Even with 250,000 ounces of production, we generated $1 per share in cash flow over $170 million. So our expectation is that as we move forward with increased output, which will drive unit cost down, we should see increases in cash flow as we move through the balance of the year.

In terms of the actual forecast going forward, no change from the update after the Meadowbank fire. In terms of production or cost, I think there is a potential to see lower unit cost because of the significant impact that a higher silver price has on our results. And as most of you know, we were budgeting silver prices in the low $20 an ounce range. We're seeing silver prices in the high $40 range. So that could have a significant impact on lowering our unit cost on the back of increased gold output in the second half of the year. So we're looking for a strong second half as we get the additional crushing capacity installed at Meadowbank.

Our financial position remains strong. We've got credit facility of $1.2 billion that we can draw on, along with the increasing cash flow. So we're sitting here now with a much broader technical skill set, given that we've built all of these mines and a vastly increased financial capacity with the increased cash flow coming from the new mine.

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