Agnico-Eagle Mines Limited (AEM)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET

Executives

Sean Boyd – President and Chief Executive Officer

Timothy Haldane – Senior Vice President, Latin America

Yvon Sylvestre – Senior Vice President, Operations

Analysts

Stephen Walker – RBC Capital Markets

Steven Butler – Canaccord Genuity

David Haughton – BMO Capital Markets

Joung Park – Morningstar Research

Matthew Van Cleve – John Tumazos Very Independent Research LLC

Barry R. Cooper – CIBC World Markets, Inc.

Greg Barnes – TD Securities

Jeff Wright – Global Hunter Securities LLC

Don MacLean – Paradigm Capital, Inc.

Nazima Walji – CBC Radio

Anita Soni – Credit Suisse

Presentation

Operator

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» Agnico-Eagle Mines Ltd. - Special Call

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Agnico-Eagle Mines Limited Second Quarter 2012 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session; instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, July 26, 2012 at 11:00 a.m. Eastern Time.

I will now turn the conference over to Mr. Sean Boyd, President and CEO. Please go ahead, sir.

Sean Boyd

Thank you, operator, and good morning everyone. Thanks for tuning into our second quarter 2012 conference call. Just like to remind everybody that this presentation and call does include forward looking statements including estimates and forecasts. So please be forewarned, and you’re welcome to read our disclosure and disclaimers in the presentation, which is posted on our website.

But as we look at our second quarter, we continue to build on the momentum that our operations established in the first quarter to the point where we decided that it made sense to increase our forecasted production guidance above the upper end of the previous range, and now at 975,000 ounces.

So our performance in the first half of 2012 sets us up for a solid second half to 2012. That is not a surprise to us, as we came through last year, we did have some challenges, but we did remind our shareholders and the market that we did possess a several world-class quality assets that we were going to continue to move forward, to optimize and to improve on their operations, and that’s what’s occurred in the first half of this year. If we look at our business, our business actually has a lot less risk than it had let’s say a year ago.

We have less operating risk, we have much better predictability at these mines as we’ve gone through a stage of mine building and commissioning and start-up. As a result, we can now focus efforts on efficiencies and optimization.

There is less technical risk in our business now as we’ve gone through the major mine building phase of building five mines over a short period of time. And the growth that we expect to achieve over the next few years will come from those newly built mines that have more predictability and more stability.

We’re now moving in because of the fact that these mines are more mature. We’re now moving into a significant exploration phase at these world-class assets. And we can see some of the early results of that emphasis now on exploration where we’ve had good results across the board. We put out a press release in June, updating the market on several projects, and we continued that update in this press release with an update on the Meliadine project where we continue to extend several zones, and we made a new discovery in the last few months at Normeg.

One of the hallmarks of our company over many years is that, our approach is to maintain a low political risk profile. So we can still provide moderate, low-risk growth without having to increase our political risk profile. It works for us, there’s no desire to change and we actually think from a strategic point of view that political risk is going to become a much more important consideration when looking at gold equity investments in the future in arising gold price environment.

When you put it altogether, essentially what we’ve got is a business that’s generating strong cash flow that allows us to fund an attractive dividend with the potential to increase it, and allows us to continue to invest in exploration and capital investment programs to expand and build on these world-class assets.

Our operating highlights in the quarter. As we said, we saw an exceptional improvement from year-over-year in terms of output at these mines. And that was largely driven by record performances coming out of Mexico. We saw over 63,000 ounces produced in the quarter at cash costs in the mid $300 range. We saw record production driven off of record throughput. At Meadowbank, they produced almost 100,000 ounces in the quarter, and they average 9900 tons a day; that drove solid cash flow and solid earnings.

In the first half of the year, we had record six-month cash flow of almost $400 million, which I think is really what we’ve been after as we went through this mine building phase as to get that cash on cash return, and reinvest a portion of that in the business and return a portion of that back to the shareholders.

At Goldex, we’ll get into a little bit more detail. But the simple word on Goldex is the GE Z zone. Production from there remains suspended indefinitely. But we did announce a new development plan on satellite zones M and E at Goldex. And we expect first production from those satellite zones in 2014. And as we said at the start, based on the solid start to the first half, we’re comfortable increasing our production guidance for the full year now to 975,000 ounces, which we would characterize as solidly achievable.

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