CMS 2022: Agnico Eagle banks on Canadian production upside

The largest producer of Canadian gold, Agnico Eagle Mines (TSX: AEM; NYSE: AEM), is banking on its soon-to-be-consolidated in-country portfolio to underpin its near and long-term production growth profile, executive chair Sean Boyd told the recent Canadian Mining Symposium organized by The Northern Miner in London, U.K.

In an era where most gold majors have exited the Abitibi Gold Belt, including Barrick Gold (TSX: BX; NYSE: GOLD), Placer Dome, and even Teck Resources (TSX: TECK-A, TECK-B; NYSE: TECK), the major is doubling down on the historically significant and emerging gold belts of Canada. It is on the verge of consolidating its Canadian position via the proposed deal with Pan American Silver (TSX: PAAS; NASDAQ: PAAS) to buy fellow Canadian miner Yamana Gold (TSX: YRI; NYSE: AUY; LSE: AUY) in a US$4.8 billion cash-and-shares transaction.

It had inked a deal with the two precious metals miners early in November after South Africa’s Gold Fields (NYSE: GFI; JSE: GFI) waived its right to match the rival bid for Yamana in a proposed deal poorly supported by the market.

Upon closing late in the first quarter of 2023, the deal will have split Yamana’s assets in Latin America and Canada between them. With the acquisition of Yamana, Pan American will strengthen its position as a top precious metals producer in Latin America. At the same time, Agnico would consolidate its ownership of one of the world’s biggest gold mines, the Canadian Malartic in Quebec.

According to Boyd, Agnico expects production to grow from 240,000 oz. per year in 2005, to a forecast 3.3 million oz. in 2022. “This translates into value creation,” said Boyd at the Nov. 28 live event. “We have built per share value comparable to 2.7 oz for every 1,000 shares held in 2005, to 7.3 oz per 1,000 shares today, respectively.”

In Canada alone, Agnico is projecting to produce 74% or 2.4 million oz. of its 2022 production guidance, rising to more than 3.1 million oz. in 2023. It is ranked as the world’s number-three gold miner by output.

Of its 50 million oz. in reserves, 54% is in Ontario, 19% in Nunavut and 13% in Quebec.

Boyd described the Detour operation and Malartic as key anchors to its growth strategy.

“As we sort of move through the next few months and roll in the other half of Canadian Malartic and Detour, we are confident we’ll be able to tap more value from the assets,” said Boyd.

“We have concepts where we can see the Detour mine producing over a million ounces a year; we bring a lot of Agnico in-house technical expertise to look at it a little bit differently,” he said.

Company builder

Agnico’s homegrown value strategy, in essence, started in 1988 with the LaRonde Complex in Quebec, which remains the company’s oldest operating asset. LaRonde’s 2.2-km deep Penna Shaft is now the deepest single-lift shaft in the Western Hemisphere.

The LaRonde mine extension, the portion of the mine below level 245, achieved commercial production in December 2011. It is expected to be in production through 2030.

Boyd described how the fledgling gold producer’s management team cut its teeth at the operation and laid the foundation for its future senior management team’s success. “With a single asset, we weren’t turning a profit. We thought to give ourselves exposure to other quality deposits, take our LaRonde experience, and apply it to these assets. So, we started to expand in the region by acquiring Goldex and Lapa, and we expanded into Mexico and Finland,” he recounted.

“But we did so in small bites, small increments where we could take that Quebec-based team, use all the skill sets – we call it ‘LaRonde University’ because we had that broad range of skills where we take those individuals and move them into those other deposits. And since then, we’ve added assets to build the base,” said Boyd.

By 2012, Agnico had built five mines and established four regional mining platforms. By 2016, it had further consolidated the Abitibi region with the acquisition of its current 50% stake in Canadian Malartic and, more recently, with its merger with Kirkland Lake Gold which handed it control of the Detour Lake and Macassa mines in Ontario’s portion of the Abitibi Belt.

At Detour, Agnico completed a rework of the mine plan in July, lifting the reserve base 38% and improving the long-term outlook for the operation materially. Gaining complete control of the 640,000-oz.-per-year (100% basis) Canadian Malartic mine represents the crowning of Agnico’s unofficial ‘Canada-first’ strategy.

“Think about the fact that we’ve announced two-kilometre step-out holes at Detour, outside of the known mineralization. Think about Malartic, where we’ve got a kilometre to a kilometre-and-a-half in the sediments – step-outs outside of the East, and Goldie deposits which are the core of the underground development,” said Boyd.

He continued to point out that Agnico’s current Canadian production base is bigger than Barrick’s 61.5% interest in Newmont’s (NYSE: NEM) Nevada Gold Mines joint venture. “But it doesn’t get the press because it’s Canada. It’s not Nevada, but it’s bigger.”

Meanwhile Agnico has enjoyed success in Canada’s Arctic, where it built the Meadowbank Complex and Meliadine mine in Nunavut, and consolidated its regional holdings with the acquisition of distressed TMAC Resources and its Hope Bay mine in January last year. The operation has underperformed since first gold was poured in 2017, requiring TMAC to make investments to improve the mill and increase its capacity to 2,000 tonnes per day from 1,000 tonnes per day.

Agnico is eager to once again wield its experienced, patient expertise to reorganize and eventually restart the operation, said Boyd.

Steady hand

Boyd began his career as an accountant starting as a clerk at Clarkson Gordon (today Ernst & Young). Soon enough, he was appointed audit lead, working on a new account called Agnico Eagle Mines. “I got to meet Paul Pena, who was essentially the founder of Agnico, which instilled a lot of the values of the company that still hold today.

He jumped, joining the Agnico head office team of five in 1985.

“A lot of that effective strategy we’ve talked about is based on the consistency of the management, the board, how they work together, the employees, low turnover, multiple generations of employees working there. And that’s, I think, been a big part of the success of being able to be patient, being disciplined over time, and putting the pieces together to ultimately not only build a bigger business, but a more successful business,” said Boyd.

He also noted how risk and the perception of risk are close at heart for the management team. “We’ve tended to focus on things like political risk, keeping the business manageable, so you’re not taking on excessive execution risk, and we take our lead from our technical people when we look at adding components to the business, and what we’re asking them to do is, is make a call on geology. We follow the geology,” said Boyd.