Agnico mines humming along

The message out of Agnico-Eagle Mines’ (AEM-T, AEM-N) headquarters after the second quarter is one of stability and efficiency.

The company says the first half of the year was all about optimizing its five mines, and with the process moving steadily along, it finds itself on solid footing.

“We have less risk than we did a year ago,” Agnico CEO Sean Boyd said on a conference call. “We have less operating risk and less technical risk . . . we’ve gone through a major mine-building phase, and growth will come from these new mines.”

With the past technical problems at the Goldex mine in Quebec in the rear-view mirror — the mine has been shuttered indefinitely — Agnico is moving forward on the back of five operating mines unencumbered by the political risks that many other producers are contending with.

“Our hallmark has always been to maintain a low political-risk profile,” Boyd said. “It works for us, and we have no desire to change it. We think political risk will be a more important consideration in the future in a rising gold-price environment.”

Freed of such headaches and riding more stable assets, Agnico boosted production at its five mines by 34%, compared to the same period last year.

Its Pinos Altos mine in Mexico led the way with record production of 63,356 oz. gold and low US$358 per oz. cash costs.

Meadowbank in Nunavut also reached record production, turning out 98,403 oz. gold with the mill processing 9,901 tonnes per day.

Meadowbank’s success is particularly satisfying given the technical and logistical obstacles the company has had to overcome at the Arctic mine.

“We did struggle last year at Meadowbank,” Boyd said. “We had to totally revisit it and come up with a plan to lower risk and focus on predictability.”

One of the key evolutions at the mine was to lessen the movement of waste and achieve a more conservative factor of dilution.

“The key point is that we are showing consistency in the operation and demonstrating an ability to mine and process high volumes,” he said.
With the new mine plan being executed well, Agnico will focus on cost reductions while looking to extend the mine life.

Over at the former company-maker, the La Ronde mine in Quebec, Agnico concedes that the mine is going through a challenging transition as it moves from the upper to the lower section of the mine.

The greater mining depths bring the challenge of heat congestion. Tonnage hauled from the lower mine was 5% less than expected, while costs were 7% higher than expected.

The higher cash costs were largely driven by less by-product production in the lower mine and lower prices for by-products.

But despite these obstacles, Agnico says it is on target to reach gold production guidance.
Also in Quebec, Agnico’s Lapa mine is a steady performer with 25,000 oz. gold production per quarter.

The company’s focus at the mine is to extend its mine life to 2016 in the near-term, and beyond that further out.

Across the pond at its Kittila mine in Finland, anticipated maintenance shutdown of the autoclave closed the mill for 18 days. Agnico says it expects to close the mine for another 20 days in the second half, in keeping with its scheduled 44 days of shutdown for the year.

Outside of maintenance issues, the mine is performing well — so well, that Agnico is pushing ahead on studying a mine expansion that would increase production by 25%. It expects to have a study on the expansion out by year-end.

The motivation to expand is spurred on by solid exploration results from an area north of the deposit.

Kittila’s operating profits jumped to $80 million this year, which is a 70% increase over last year’s results.

Boyd credits the improved profits to the mine becoming a more stable and consistent operation.

“We can see something that may parallel La Ronde’s development over the last twenty-five years,” Boyd said, “in that it’s shaping into a world-class deposit that may undergo a number of expansions funded by the cash flows generated from the mine itself.”

And while operations in the north of Europe and Canada are humming along nicely, it is the company’s more tropical asset — Pinos Altos in Mexico — that was the largest cash-flow generator for the quarter.

“Our experience in Mexico is exactly what shareholders are looking for in the gold business,” Boyd said. “We paid $80 million for the project in 2006, spent $400 million building it and generated almost $150 million in six months, for an annualized profit of $300 million. So the payback period in Mexico is quite quick.”

As for the much-maligned Goldex mine in Quebec — the mine was shuttered after severe flooding and rock instability — Agnico says mining the affected zones is at an indefinite stop.

But that doesn’t mean the mine has generated its last dollars for Agnico shareholders.

After exploring satellite zones on the property the company has decided that they are economic enough to build a smaller and higher-cost mine than Goldex, that could generate a return above the company’s hurdle rate.

It expects to have production out of the satellite M and E zones in 2014. A scoping study done on the zones envisioned production of 5,100 tonnes per day, extracting 300,000 oz. through 2017.

A CIBC research report on the company estimates that the new plan at Goldex could yield annual production of 74,000 oz. cash costs and US$1,000 per oz. gold.

Company-wide, Agnico expects to produce 975,000 oz. gold for the year.