Agnico-Eagle digs deep in Quebec (September 29, 2008)

Denver, Colo. — If it isn’t broken — don’t fix it. That seemed to be the subtext of gold producer Agnico-Eagle Mines (AEM-T, AEM-n), at the Sept 8-10 Denver Gold Forum.

“Our message is: ‘It’s going to be more of the same,” Agnico- Eagle chief executive Sean Boyd told investors and analysts at the prestigious gold conference. “We’re just going to keep doing what we’ve done over the last years and continue to grow the company. . . We don’t want to be everywhere — but we want big assets — long-term deposits.”

The mid-tier gold producer has found some of them in the Abitibi region of northwestern Quebec. Its flagship LaRonde mine, about 650 km northwest of Montreal, is Canada’s largest gold deposit, the company says, and even after 18 years of production the mine’s reserves have been maintained or grown year after year.

About 60 km east of LaRonde, sits Goldex, where Agnico-Eagle poured its first gold in May. Commercial production is expected in the third quarter of this year with an estimated average annual production of 175,000 oz. a year.

Also east of LaRonde is Agnico’s Lapa gold project, about 11 km away. The company is forecasting that this new mine will start production in the third quarter of 2009, and anticipates average production of 125,000 oz. per year.

“We have a cornerstone in Quebec,” Boyd told the Denver Gold Forum. “We don’t have to chase things. We can be patient.”

Like many other speakers at the conference with operations in Quebec, including Osisko Mining (OSK-T, OSKFF-o) and Aurizon Mines (ARZ-T, AZK-x), Boyd said Quebec was a good hedge against everything from growing resource nationalism in other parts of the world to currency risk. Quebec is also well known for its pro-mining government and boasts some of the lowest energy costs in the industry.

Currently, Agnico is sinking a shaft for an extension to its LaRonde mine, and production from that extension is forecast for 2011, Boyd said.

The LaRonde extension will reach deeper ore that is not accessible by the current Penna shaft mining and milling facility. The 2,250-metre Penna shaft is the deepest single-lift shaft in the Western Hemisphere, Agnico notes on its website.

LaRonde has proven and probable reserves of 34.9 million tonnes grading 4.4 grams gold per tonne for 5 million oz. gold.

Last year, LaRonde produced 230,992 oz. gold at a total cash cost of minus US$365 per oz. (Byproduct production for the year totalled 4.9 million oz. silver, 71,577 tonnes of zinc and 7,482 tonnes of copper.)

In the second quarter of 2008, LaRonde produced 59,452 oz. gold at a cash cost of US$113 per oz. Apart from industry-wide cost inflation, Agnico’s higher costs were also due to lower zinc prices and lower zinc grades.

LaRonde “continues to produce very well,” Boyd said during his presentation. “Our shaft sinking is well under way. . . (and) we’ve extended the mine life in the upper mine.”

Looking east of LaRonde, Agnico’s underground Goldex mine has been operating since April and is approaching commercial production. Proven and probable reserves stand at 23.1 million tonnes grading 2.2 grams gold per tonne for total contained gold of about 1.6 million oz.

Agnico believes Goldex will have a mine life of about nine years and the mineralization remains open to the east and at depth. Annual production is expected to average 175,000 oz. gold.

Goldex will be a low-cost, high-tonnage operation processing nearly 7,000 tonnes of ore per day. And because the Goldex gold camp is just 60 km away from LaRonde, the company can make use of the same infrastructure and other synergies to boost the economics of its mines in the Abitibi region.

Lapa contains probable gold reserves of 3.8 million tonnes grading 8.9 grams gold per tonne for total contained gold of about 1.1 million oz. The company anticipates it will produce about 125,000 oz. gold a year.

In addition to its Quebec operations, Agnico-Eagle owns the Meadowbank gold project in Nunavut (initial production to begin in January 2010); the Kittila mine in Finland, about 900 km north of Helsinki (production expected to start in the fourth quarter of this year); and the Pinos Altos gold-silver project in northern Mexico (production expected to start in the third quarter of 2009.)

“A key attribute of ours is that we have big deposits,” said Boyd, who has worked at Agnico-Eagle for 23 years. “So we’re seeing a dramatic increase in production output. We’ve got big deposits that are wide open. That’s a good position to be in, in this industry.”

Gold production from LaRonde, Goldex and Kittila is forecast to come in at between 300,000 oz. and 320,000 oz. this year, up from 230,000 oz. in 2007.

Boyd said that by 2010, Agnico- Eagle has the potential to increase gold production five-fold from the 2007 level.

He also noted that by the end of this year, the company’s existing projects could grow Agnico- Eagle’s reserves to 18-20 million oz. of gold.

For the first six months of the year, net income reached US$37.3 million, or US26 per share, compared with US$62.7 million, or US49 a share, in the first six months of 2007. (Agnico-Eagle blamed the decrease largely on a 35% drop in zinc prices between the two reporting periods.)

In Toronto at presstime, Agnico- Eagle traded at about $53.80 per share in a 52-week trading range of $45.85-82.80. With 143.8 million shares outstanding, the company has a market cap of $7.75 billion.