Earnings Call Transcript - AEM Q1 2024

Operator, Operator

Good morning. My name is Lodi, and I will be your conference operator today. I would like to welcome everyone to the Agnico Eagle Q1 2024 Conference Call. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi, CEO

Thank you, and good morning, everyone. I appreciate you joining us. It's my pleasure, along with my colleagues, to share the news of another strong quarter for Agnico Eagle. Before we dive into the details, I want to recognize the hard work of all our employees. Our teams on the ground work tirelessly, often in challenging conditions, and I want to express my gratitude to our geologists and engineers who spend time away from their families. Thank you for your efforts in delivering results, which certainly makes our roles at corporate easier. We’ll have several executives discussing our positive quarter today, but this success is truly thanks to you all. Please prioritize your safety, as well as the safety of your communities and the environment. Now, before we proceed, I’d like to draw your attention to the forward-looking notes. We will discuss some anticipated positive outcomes, so please review those notes and statements. Operator, if we could start on Page 6, that would be great. We have a lot to cover this morning, but there are three key takeaways. First, we have had an excellent start to the year. Second, we are making significant progress on our key value drivers and catalysts that will propel our company forward in the next 12 to 36 months. Third, we have achieved impressive drill results that we are eager to share with you today. Regarding our strong start, we produced approximately 880,000 ounces, maintained good cost control, and we are reiterating both our production and cost guidance. These strong operational outcomes, coupled with a favorable gold price, have resulted in healthy financial results. Jamie will review these details shortly, but highlights include our second consecutive quarter of record operating margins and record free cash flow. Regarding our key projects and value drivers, the Detour project is progressing toward the goal of producing a million ounces annually. A couple of years back, we identified that potential, and our team's hard work is leading to significant progress. We aim to discuss this further in midyear during a technical session in June, followed by a site visit, where we will outline project parameters and next steps. We expect to undertake an exploration ramp to access the ore body, collect bulk samples, and confirm continuity—an essential first step for what we believe will be an exciting project. At Upper Beaver, progress is also impressive, and we expect to share an update around midyear, likely alongside our second quarter results, where we will detail the project parameters and next steps again focusing on exploration efforts. At Malartic, we are making excellent strides, with the shaft development on track and underground work ahead of schedule, yielding positive results. Additionally, Malartic has produced some outstanding drill results, which will be elaborated on by Guy later today. Given our promising drill results from Malartic, Detour, and Hope Bay, we believe these significant assets have the potential to influence our growth strategy positively. With gold priced at $2,300, we anticipated reporting strong results, and we are. We remain optimistic about the gold price's future. I started in this industry in 1999 when it was $290, and it has now reached $2,350, suggesting we are entering a long-term positive trend. However, it's crucial to note that we do not take this high gold price for granted. We are committed to cost control, shareholder metrics, and maintaining capital discipline. At Agnico, we are determined that increases in gold prices benefit our owners and are not offset by rising costs. As Dominic and Natasha will present momentarily, you will consistently hear about our commitment to business improvement across all mines and opportunities. Our focus on maintaining strong costs at $2,300 is as unwavering as ever. The projects we're pursuing, including Detour, Upper Beaver, and Malartic, remain our primary focus at this gold price. Overall, we've had a strong start to the year, and at Agnico Eagle, we believe in not just what we achieve, but how we achieve it. Now, I would like to introduce Carol Plummer, our EVP of Sustainability, People, and Culture, who will discuss our 15th annual sustainability report.

Carol-Ann Plummer-Theriault, EVP, Sustainability People and Culture

Thank you, Ammar, and good morning, everybody. We're certainly happy to release the 15th Annual Sustainability Report, which is titled Global Approach regional focus. This report highlights how we are deeply rooted in and committed to the regions in which we operate even as we grow and evolve as an organization. While our vision and goals are global, our strategies are tailored to each region, taking into account their environmental, social and economic context and adapting to their specific needs, priorities and challenges. We're proud of our people who are working every day not only to complete the work of a global miner but doing it safely and respecting our commitment to the environment and our communities. Sustainability is central to our strategy, and it's through the stories of our people, the partnerships we have created, the relationships that they maintain and the challenges that they face that you can see how it is integrated into the very fabric of our company. We prioritize close collaboration with local communities and indigenous people, valuing their perspectives as integral components of our operational approach. This is how we make mining work for everyone. Working together, we can reduce our environmental impact, increase social benefits and positively contribute to the local economy. You can see on this slide some of the highlights from 2023. I'm particularly happy to point out the safety record and a 34% improvement in safety frequency year-on-year. We continue to work on our decarbonization plan. We invested in our communities, and we worked with our employees to make sure that we can maintain our commitment to mine responsibly. The full report can be found on our website or by clicking on the link in the press release. And I will now pass on to Jamie to discuss the Q1 results.

James Porter, CFO

Thank you, Carol. As Ammar mentioned in his opening remarks, we had a great start to the year with stable consistent operating results and excellent cost performance, pairing with higher gold prices to drive record cash flows and financial results. First quarter gold production totaled 879,000 ounces, a total cash cost of $901 per ounce and all-in sustaining cost of $11.91 per ounce. With this strong start to the year, we are very well positioned to achieve our full year production and cost guidance. Our all-in sustaining costs for the first quarter were actually below the low end of our guidance range at $11.91 per ounce. This resulted from the deferral of certain sustaining capital expenditures at Detour Lake till later in the year. As a result, we do expect higher all-in sustaining costs in subsequent quarters, but still expect all-in sustaining costs per ounce to be within our guidance range of $1,200 to $1,250 for the full 2024 year. The higher gold price in the first quarter, combined with our strong operating and cost performance led to significant margin expansion. And we had record operating margins in the first quarter at over $1 billion, led by our two largest mines, Detour Lake and Canadian Malartic. We will maintain our focus on costs and ensure that the benefit of higher gold prices is allocated to strengthening our balance sheet, providing financial flexibility and continuing to return capital to our shareholders. We move on to Slide 9. We'll look at our financial highlights. Our revenues increased 21% over the first quarter of 2023 to over $1.8 billion. Importantly, our cash provided by operating activities increased by the same percentage, and our free cash flow actually increased by over 50% to a record of $396 million for the quarter. We are seeing the benefit of higher gold prices with margin expansion helping to strengthen our financial position, adding approximately $190 million of cash to our balance sheet in the quarter. On an adjusted basis, net income per share was $0.76 in the first quarter, approximately a 30% increase relative to the prior year period. We continue to pay a strong quarterly dividend of $0.40 per share, which is at a healthy level and represents approximately half of the free cash flow we generated in the quarter. We also repurchased 375,000 common shares for approximately $20 million through our normal course issuer bid in the first quarter. While we expect the majority of our capital returns to shareholders will continue to be through the dividend, we do have the financial flexibility to be opportunistic with respect to additional share buybacks. At current gold prices, we would expect to generate substantial free cash flow in subsequent quarters. We will remain disciplined with our capital allocation, with excess cash being directed to further strengthening our balance sheet, paying down debt, reinvesting and improving our business, and continuing to return capital to shareholders. We move on to Slide 10. I'm very proud of the work our team has done this quarter to further strengthen our financial position and flexibility. Strong quarterly operational and financial results added cash to our balance sheet and reduced our net debt position to $1.3 billion. During the quarter, we upsized our revolving credit facility to $2 billion. This new facility reflects Agnico's size, scale and investment-grade status and significantly increased our available liquidity. We do have approximately $800 million of debt maturities over the next 15 months, and we will look to either repay those from cash on hand or refinance at the appropriate time. We were also pleased that Moody's upgraded our credit rating during the quarter to Baa1 with a stable outlook, which reflects our strong and strengthening credit profile. Overall, the balance sheet is in great shape. We're always looking for opportunities to strengthen it, improve our liquidity and overall financial flexibility. I'll now turn the call over to Dominique, who will provide an overview of our Quebec and Nanobit operations.

Dominique Girard, Senior Executive

Thank you, Jimmy. I'm on Slide 11. We had a strong quarter, achieving an all-time record at the Canadian Malartic complex. With the addition of higher-grade material from the underground at Odyssey, Canadian Malartic has set new records after 12 years of operation. We also performed well in project development with progress in ramp construction, shaft sinking, and surface work. Guy will discuss the potential extension of the Deep 2 Zone, which supports our field meal strategy, and we’re very excited about that. In terms of automation, Agnico is recognized globally as a leader in remote operations, evident in our recent transitions. For instance, during the quarter, we moved the Friday night shift from manual to fully automated operation. This change not only increases productivity but also enhances the work-life quality for our employees by eliminating the need for them to work night shifts. Saturdays and Sundays are now also fully operated remotely. I’m pleased to share that the ODC team completed the first fully automated truckload during a shift change 40 kilometers from SZ5 in Laronmine. I want to thank our teams for their efforts in pushing the boundaries of automation and leveraging regional synergies. Moving to Slide 12, Nunavut had an exceptional first quarter in both cost control and gold production. Meliadine and Middle Bank exceeded budgeted performance, particularly in underground operations where our activities surpassed expectations. This success results from our management team’s efforts to improve the business by implementing a bold action plan after facing last year's cost pressures. Four key points from Jean-Claude Blais’ presentation highlight the reasons for this success: focus on what matters, empower a dedicated team, be open-minded to challenge the status quo, and execute diligently. We are very proud of this achievement.

Natasha Nella Vaz, Operational Executive

Thanks, Tom, and good morning, everyone. So I'll start with the operations in Ontario. Here, we had another strong quarter and solid performance. Combined, the sites generated around $300 million in operating margins, as you can see on the table, with industry-leading costs. At both operations, Macassa and at Detour, we're continuing to steadily ramp up production. And just coming back to Ammar's point earlier on, we remain laser-focused on optimizing and continuously improving our assets. I'll give you a few examples. We'll start with Macassa. First off, we have seen improved productivity throughout the mine and the mill this quarter. The site hit records in underground development. They hit a record in skip tons and a record in mill tons, really incredible work by the team and they keep going. They keep their heads down and they're working on other initiatives, such as improvements in energy management and workforce availability or productivity and also fleet availability, just to name a few. And then in keeping with our regional strategy, we're continuing to integrate the 8-K deposit into the production profile this year. We're still tracking well to complete a bulk sample extraction of the 8-K later in Q4. And just as a reminder, this is the ore that would be sent to the LaRonde mill. Moving to Detour, we set a quarterly record for total tonnage mined, but we also delivered mill throughput that was the highest for our first quarter period. The team already knows this. I've mentioned this to them a couple of times, but I'm particularly proud of them and our results this quarter, especially considering we faced some challenges with the abnormal breakage of our grinding media. And in terms of continuous improvement efforts at Detour, we have many. But of course, as you know, our main focus is to continue advancing the mill optimization efforts. We still expect to reach the mill throughput of 36,000 tonnes per day, roughly around 28 million tonnes a year in late in the second half of 2024. Now moving on to Slide 14. I'll touch on our other assets starting in Finland. At Kapila, the team had an inaugural celebration for the commissioning of the new shaft in March. And based on the performance in the quarter, they are tracking pretty well to meet guidance. We're also continuing to see positive exploration results, demonstrating the expansion potential at the Main Zone, the Sisar Zone, and in the Rua area. And then over in Australia, Fosterville, they continue to generate strong cash flows with costs among the lowest in the industry despite decreasing grades. This is a testament to not just the sustainability, but their continued focus on improving productivity and controlling their costs. Finally, in Mexico, at Pinos Altos, we continue to operate with consistent stable production. Here also, we focused our efforts over the past year on improving productivity and controlling our costs. All in all, our operations are continuing to exhibit a stable and consistent approach to safely delivering on our objectives. Our site teams are continuing to work hard on improvement initiatives while also advancing our pipeline projects. And with that, I will now pass it over to Guy, who will provide us with an update on exploration.

Guy Gosselin, Exploration Executive

Thank you, Natasha, and good morning, everybody online. This quarter, we continue our exploration efforts to build on last year's record mineral reserves momentum, focusing on opportunities near mine and key value driver projects in our portfolio. Our strategy remains the same: one, extend life of mine to maximize available milling capacity at our key operation; two, maximize available milling capacity; and three, advance some specific high-potential projects by increasing mineral resources and mineral reserves, both in quantity and quality. Today, I would like to discuss three projects in particular, where we see strong opportunities. First of all, Malartic and Odyssey. We've seen some excellent results in the Eastern extension of the East Goldy that could significantly contribute to our field strategy. Second, at Detour, we continue to see broad mineralized intercept in the upper part of the underground extension of the deposit to the west of the open pit that continue to support our vision of an underground project at Detour. And third, OP, where we got what I would qualify as some very spectacular exploration result in the gap between Suluk and Patch 7 at the Madrid deposit that could move the needle because of the high-grade nature of those intercepts that could significantly improve the scenario for future project development. So starting with Malartic on Slide 15. We saw that the zone is getting thicker again in the eastern extension with some very solid intercepts returning 3 grams over 32 meters and 4.5 grams over 33 meters, respectively, at 40,000 meters away from the current mineral reserve. And that at a depth between 1.1 and 1.6 kilometers depth. This could lead to the development of another thick mining area along the East Goldy horizon, demonstrating that the zone remains open for additional significant discoveries and future potential reserve additions that could help in our long-term field strategy. Moving on to Detour on Slide 16. Exploration efforts continue to focus on the western extension of the deposit completing 58,000 meters in the first quarter, focusing particularly into the shallow portion of the potential underground project, where we continue to see broad mineral intervals of good-grade mineralization with examples of 5.4 over 16, 3.9 over 25, and 3.4 grams over 29 meters. These results show the potential for modernization having both grade and characteristics that are likely amenable for underground mining, supporting our vision to bring the Detour Lake mine to a million ounces of gold a year production from the combined open pit and underground operations in the future. And last but not least, on Slide 17, and I'm particularly proud, we completed 30,000 meters of drilling at OB this quarter, which is almost 50% more than last year safely. We focused this year's winter drilling campaign for ice-based drilling at the Madrid deposit and a previously unexplored gap between Suluk and Patch 7 to follow up on some of the exciting results that were communicated in February. The most recent follow-up drilling returned exceptional results, 12 grams over 19 meters, 20 grams over 80 meters, 14 grams over 60 meters, and also high-grade and estimated through width. The core intercepts on those were just spectacular solid from wall to wall, demonstrating the potential for a significant new thick mineralized area that could potentially host up to 2 million ounces between 10 and 20 grams that could have a very positive impact on the project redevelopment scenario, considering the high-grade nature compared to the rest of the deposit and the apparent simple geometry of this new zone. I would like to thank all our exploration team and the various jurisdictions that put a lot of good thinking and hard work into these large exploration programs to deliver them safely and in the most cost-efficient manner. Our focus on exploration remains to focus on opportunity by advancing key value driver projects to accelerate their integration into mine development scenarios. And with those excellent results, we can anticipate that additional exploration budget could be added in the second half of the year. And on that, I would like to return the mic to Ammar for some closing remarks.

Ammar Al-Joundi, CEO

Well, thank you very much, Guy. We probably should have started with that. Well, good work. And thank you, Carol, Dom, Natasha, and Jamie. Before we jump into questions, thank you. Just really to summarize. We had a strong quarter operationally and financially. We're all proud of our team for delivering results but also for continuing the focus on business improvement and our commitment to capturing gold price increases for the benefits of our shareholders. We made good progress on our key value drivers, and we have had, as you just heard, some excellent exploration results. We are delivering on 2024, but we're also building the company for the future. Our strategy remains the same as it's been for the last 67 years: focus on the best regions based on geologic potential and political stability, try to build the highest quality business that we can for our shareholders, for our communities, and for our employees, continue to focus on the bottom line, continue to focus on per share metrics, continue to focus on return on capital. And we think we are uniquely positioned with a competitive advantage in some of the best places in the world to mine for gold. So with that, I want to thank my colleagues for their presentations. Thank all of you for being patient. And operator, if we can now open it up for questions, please.

Operator, Operator

Your first question comes from Ralph Profiti from Capital.

Ralph Profiti, Analyst

Two of them, please on Odyssey and maybe for Dom can chime in. Just wondering about matching Odyssey capacity and the mining rates at Odyssey in that sort of 2025 to 2027. It seems like we're getting there a little bit earlier. I'm just wondering, is there some production perhaps being brought forward because of that temp order being repositioned higher in the strata. And then when you combine that with some of the development ahead of schedule, is there some sort of back envelope that you can get an extra sort of maybe 15,000, maybe 20,000 ounces of gold production in 2025? Just wondering if you can comment on that a little bit.

Dominique Girard, Senior Executive

Yes, Dominique here. The teams are working on all the different scenarios to integrate new drill holes, to integrate modification to the shaft by, let's say, we just change a loading station. And also adjusting with the sinking rate that we're doing. These plans are going to come up more later during the year with optimization. But as you mentioned, there is a place of improvement and the team is working on that.

Ralph Profiti, Analyst

Okay. And is there any mining deeper in the deeper levels of the ore body, perhaps honestly North, that was going to happen ahead of shaft completion, where perhaps if we move up the temporary loader, there's perhaps a partly offsetting cost impact moving that up in the Strata?

Dominique Girard, Senior Executive

Yes. Maybe on the loading, the positive impact is going to be a shorter run. So we're going to be able to do more tonnage. So that's going to help to bring out the waste or the ore. But really the focus is on accessing the East Goldy deposit. So now we're at the level of the Eagle deposit with the ramp; we're still not touching the ore. That's going to be more coming into 2026. But again, the focus is to be able to really unlock by having the shaft being able to skip that out of the mine in 2027. And this is where the heart of the ore body is.

Operator, Operator

Your next question comes from the line of Mike Parkin from National Bank Financial.

Michael Parkin, Analyst

Congrats on the good quarter. Question is just on Canadian Malartic. The throughput this quarter and actually last quarter has been like a significant step-up from where we were ever since really the start of 2022. Is that more of a blend of like Barnett or being a bit softer, allowing you to push the mill a little harder? Just trying to understand the roughly 7-ish plus percent improvement in the last couple of quarters versus that last couple of year run-rate. What's driving that? Is it sustainable? Any color would be awesome.

Dyane Duquette, Operations Executive

Yes, Mike, this is Guy. The Barnett ore is softer and we're able to process more than initially planned. But right now, we're also processing underground ore and also a stockpile, which came from the Canadian Malartic pit at the time. We need to time also the process plant with the detailing facilities, so this is where the team is also looking to optimize, but we're going to turn into in-pit disposition in the second half of the year. So we need to match this, let's say, tailings and also milling capacity, but we have flexibility within the plan.

Michael Parkin, Analyst

Okay. And for in-pit tailings, given the underground is not directly underneath it, there isn't really any need to add like a solidifying agent like cement to it. Can you just dump it in without any additives?

Dyane Duquette, Operations Executive

Yes. We don't need to make a specific plug because, as you mentioned, we're not at the top of where we will mine. We have conducted various studies and consulted with external experts to ensure everything is in order, and there are no issues with accessing the Canadian Malartic pit.

Operator, Operator

Your next question comes from the line of Greg Barnes from TD Securities.

Greg Barnes, Analyst

Just returning to Hope Bay and some of the drilling success you've had there in that Gap Zone. I think you mentioned a couple of times in the presentation the MD&A, it's changing your thinking in terms of how you expect the Hope Bay development to proceed. Just wondering what that means.

Dyane Duquette, Operations Executive

If we have a section in that gap with a million ounces at a grade of 10 to 20 grams, we should prioritize accessing it sooner, which hadn't been clear in previous scenarios. We're considering the possibility of adding another mining area and adjusting the proportions of ore from different locations. Accessing that higher-grade ore earlier will be beneficial from a return perspective. This means we might need to expedite our plans for establishing a mining area in the new zone and evaluate how much ore can come from different sections of the deposits. All of this is based on fresh exploration results, and we're working to align our studies to incorporate this information into designing the best possible project.

Ammar Al-Joundi, CEO

And it's just Ammar here. I'll jump in. And you know us, we don't want to get too far ahead of things, and there's a lot of work and it all goes to capital discipline. But Hope Bay, we don't see Hope Bay as a small thing. We've said from the beginning, if we go ahead with Hope Bay, it's going to be between 300,000 and 400,000 ounces a year. So these are important drill results, take them with the appropriate amount of caution. But they do look pretty good.

Greg Barnes, Analyst

So now, with the second mining front, higher grades, I would assume you'd be pushing towards the higher end of that production range now in terms of your thinking on this.

Ammar Al-Joundi, CEO

Yes.

Greg Barnes, Analyst

Okay. Good enough. And on Slide 15, the Odyssey mine, just thinking about the second shaft and looking at the cross-section, where do you think that second shaft is going to go and obviously jumping ahead timing?

Dyane Duquette, Operations Executive

Well, it is not clear yet. The team is going to provide more information soon regarding that. Additionally, the new Odyssey, which is expanding, will also introduce new concepts. The team is considering various options for the second and possibly a third shaft.

Ammar Al-Joundi, CEO

As you see, we have both good results in the Western extension and in the Eastern extension. So obviously, it opens up some process of thinking about where it could be a center of gravity and where should we do things. So there's a deposit being open on both sides of the first half. Now you can build the scenario that you prefer.

Operator, Operator

Your next question comes from the line of Anita Soni from CIBC.

Anita Soni, Analyst

Congrats on a good quarter and all the exploration success. I had similar questions to Greg. Can I just follow up on sort of the school, what that means? You said it's obviously like you can extend it to the east and to the west. But would that change any of your ideas on how much tonnes you could push out of that asset?

Ammar Al-Joundi, CEO

The panel is open on both sides, extending towards Norway and South Latin to the West. We are essentially increasing our mineral inventory and adding more inferred resources. As the area thickens with better grades, it is becoming a point of interest. There was a gap in our drilling in this area of a couple hundred meters, but we were pleasantly surprised. Previously, we believed that the deposit was narrowing, but it seems to be expanding again. We plan to allocate more drilling in the second half of the year to gain a better understanding of this area with a reasonable drilling pattern. We aim to target a drill pit worth $175 million to determine the extent of this new section at 30 meters and assess how many ounces we can find and what decisions that drives. This area is very close to our existing infrastructure, located between 400 and 1,000 meters east of the current reserve. It's not far and appears to be quite thick, suggesting it is in proximity to the extension of the main deposit. This development is definitely capturing our attention.

Anita Soni, Analyst

And then on Detour, the decision to defer the capital, I guess, until later in the year, is that related to the results of the study maybe waiting for that to come out and see if you can better deploy capital? Or was there something else behind it?

Natasha Nella Vaz, Operational Executive

It's Natasha. Thanks for the question. No, it has nothing to do with that. It was just timing. We're continuing to negotiate better terms with our suppliers. And as part of the process, we just slightly delayed the purchase of equipment and parts associated with it. That's it.

Anita Soni, Analyst

I have four before I turn it over is to capital allocation. You talked about returning capital to shareholders. Can you talk about, Jamie, the priorities in order, like what will you address first? I know you have your buyback that's expiring in a little bit. Would you renew that? Would you consider buying back shares at these levels?

James Porter, CFO

Yes. Thanks, Anita, for the question. Yes, we did indicate in the press release that we will be renewing the buyback program. And in my remarks, I indicated that the primary focus of the increased cash flow will be to strengthening our balance sheet. We do have, as I said, $800 million in debt maturities over the course of the next 15 months or so. So we want to be well-positioned with cash on hand to have the ability to repay that from our balance sheet if that's what we decide to do. But we're still paying very healthy shareholder returns. The dividend is 50% of the free cash flow that we generated in the quarter. So that will continue to be the focus of our shareholder capital return program.

Anita Soni, Analyst

Okay. So first debt repayment and then secondly, the potential increase in dividends or just maintaining the dividend?

James Porter, CFO

I'd say maintaining the dividend for now. We'll look at that repayment and just further strengthening the balance sheet, providing financial flexibility and we'll be opportunistic with respect to the share buyback. It's there for that reason. In the first quarter, we saw the gold price move, and our share price didn't. So we stepped in to a small extent, but that's what we'll use that for going forward.

Operator, Operator

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research.

John Tumazos, Analyst

Thank you very much. Congratulations on all of the progress in so many dimensions. I'm trying to imagine how the mine planning might evolve in the new zone that's east of East code over 1,000 meters east and deep. Would that likely be another shaft 1,000 meters to the East? Or would that be a ramp from deep since the project plunges in that direction? First question. Second question, the grade intercepts in the mid-300 meters at Detour underground targets. Does that suggest that the pit doesn't need to go to 550 meters, and it's more economic to mine from underground, which of course solves the problem of waste dumps and where to put the waste stripping because the underground mining is less disruptive.

Dominique Girard, Senior Executive

Thank you, John. This is Dominique. The scenario we have is positive. The team is exploring various options. We will be able to extract 12,000 tonnes per day from the shaft, including waste, which will be the limit for this operation along with the ramp. We need an additional exit to remove the ore, which could involve a second shaft or a new ramp, possibly through the more modern east Malartic zone first. There are several possibilities being considered. The team is also assessing the most efficient approach for the shaft development, whether it be through a ventilation raise converted into a shaft or continuing with our current method. While I can't specify the scenario at this moment, we have added six additional resources to analyze all these options.

Ammar Al-Joundi, CEO

And John, it's the right question that you're asking. In this case, because the mill is unconstrained, we really wanted, as Dominique said, to get more tons up. If it was the mill was constrained, then it becomes a question of what's more economic to access at a shaft versus a ramp. In this case, and again, it will be up to the engineers because the mill is unconstrained, as we all know, we're going to have 40,000 tonnes a day available. To the extent you have this ginormous ore body, you want to bring up tons.

Dominique Girard, Senior Executive

And just for clarification, Dominique mentioned the roughly 11,000 tonnes a day on the shaft, there's roughly the equivalent amount on the ramps coming up. So we're going from 22,000 tonnes a day, and we would look at getting higher.

Ammar Al-Joundi, CEO

In response to your question about Detour, we are aware that the initial 300 meters shows limited material, which continues to go deeper. This indicates that, considering the grade, there is promise for underground mining. As you mentioned, this will lead to less disturbance and waste, allowing access to a higher-grade portion. At Detour, we aim to optimize the feed at the mill, but we need to evaluate if we can achieve a better grade. We expect that accessing the area from underground through a more selective ramp will yield a higher grade. All the factors you've pointed out suggest that focusing on the western part of the deposit makes the most sense, especially as we look towards a future that combines both open pit and underground mining.

John Tumazos, Analyst

Could you provide an update on the 1,000 meters to the east of East Odyssey? Have you drilled in that area, or is it unexplored ground for the 1,000 meters to the east?

Ammar Al-Joundi, CEO

We have collected information in the area, and there was some initial drilling that indicated some economic potential. Currently, we don't have any inferred resources because the drilling spacing is too wide. However, we were pleasantly surprised to observe a pattern to the east of Scud where the zone is becoming narrower, now ranging between 10 and 5 meters, while still maintaining a decent grade. We were also surprised to see the zone re-expanding back to 30-33 meters with grades between 3% and 4.5%. This was unexpected because I initially thought the thickness would be limited within the typical plunge of the ore body. Nevertheless, seeing the system expand again is encouraging, and we still observe good grades between 3 and 4. We have additional information in the area. As you can see in our graph, we already have some reserves and will transition to resources and mineral inventory. We plan to continue our drilling efforts since we have only 9 million ounces in the Plan Odyssey, while there are 16 million ounces in total underground plus in inventory. Much of this is categorized at a lower level, and we aim to infill the area between the current reserve and the new findings, especially in areas that appear to be thicker again.

Operator, Operator

Your next question comes from the line of Tanya Jakusconek from Scotia Bank.

Tanya Jakusconek, Analyst

Great. Congratulations on a strong quarter and impressive exploration results. I'd like to start with Natasha regarding Detour. I have a couple of questions about the cash flow; specifically, what is happening with the ball, the themes, and the SAG mill? I want to clarify what needs to be addressed to achieve the right balance. Additionally, have you resolved the issue with the grinding media getting caught in the mill?

Natasha Nella Vaz, Operational Executive

And thanks for the question. So let's start with the grinding media. So the grinding media is basically these 5-inch steel balls; they are consumables that are going into the SAG, and it's grinding the ore. And so what we have seen is very abnormal is that these balls are pretty much chipping and flaking. And so it's accumulating steel in this mill. We're working with our suppliers. This is a supplier that we've used for 10 years, and they're on it. They're working with us on this. We have new grinding media that was introduced sometime in mid-March. And so far, it's yielded favorable results, but it's still early days, but we're working with them and we're looking to resolve this issue fairly soon.

Tanya Jakusconek, Analyst

And then is this media or was it just a bad batch that maybe you got or I don't know.

Natasha Nella Vaz, Operational Executive

Inconclusive, we're doing the investigation with our suppliers and a third party. Okay. And then this year, with respect to SAG and ball mills, we're just optimizing the grinding efficiency and trying to find that old balance between the SAG and the ball mill. And there's a few things that we're doing in here. We're introducing a new instrumentation in the SAG mill just to stabilize the operating conditions. We're optimizing the screen and grade sizing to improve the flow and the distribution of the load. And we're also testing new liners basically just to extend the line of life. That's basically what we're doing on the front end.

Tanya Jakusconek, Analyst

Okay. So it's just trying to get that balance between the two to just make it consistent. Is that a fair view of that?

Natasha Nella Vaz, Operational Executive

Yes, fair.

Tanya Jakusconek, Analyst

Okay. And then the second part on Detour is we do have that study coming out at the end of the second quarter. From a conceptual basis, should I be thinking that it's going to be based on that 1.6 million ounce resource of the underground that was released in February, plus some additional ore or additional resources or inferred that are coming in from part of the pit?

Ammar Al-Joundi, CEO

You're right. Yes, you're right, Tanya. So as we are relooking at within the outbid that you described for the inferred that we produced that year. And also when you look at the larger resource pit that we show in blue on the long section, so what portion of that could we mine quicker by accessing underground? And so it will be a combined kind of what could be within the resource pit, what is outside to the West. You're right.

Tanya Jakusconek, Analyst

So it's not going to be any new additional ounces within your resource envelope.

Ammar Al-Joundi, CEO

No, the study we will be producing will still be based on the number we produced at year-end. But we are, obviously, we are still working on the next scenario that continues to integrate all of those numbers. We have those, let's say, an additional kind of mineral inventory that could help at enhancing. But what we will be looking in the PEA will be the number from what we've had at the year-end 2023. So as you don't picture it at a certain point in time that we're going to continue to update over time.

Operator, Operator

Your next question comes from the line of Tanya Jakusconek from Scotia Bank.

Tanya Jakusconek, Analyst

Great. Congratulations on a strong quarter and positive exploration results. I want to start with Natasha regarding Detour. I have a couple of questions there. I'm trying to understand the cash flow and what is happening between the ball and the themes and the SAG mill. I would like to clarify what needs to be done to achieve balance. Additionally, I would like to know if you have resolved the issue with the grinding media getting caught in the mill.

Natasha Nella Vaz, Operational Executive

And thanks for the question. So let's start with the grinding media. So the grinding media is basically these 5-inch steel balls, they are consumables that are going into the SAG and it's grinding the ore. And so what we have seen is very abnormal is that these balls are pretty much chipping and flaking. And so it’s accumulating steel in this mill. We're working with our suppliers. This is a supplier that we've used for 10 years, and they're on it. They're working with us on this. We have new grinding media that was introduced sometime in mid-March. And so far, it's yielded favorable results, but it's still early days, but we're working with them and we're looking to resolve this issue fairly soon.

Tanya Jakusconek, Analyst

And then is this media or was it just a bad batch that maybe you got or I don't know.

Natasha Nella Vaz, Operational Executive

Inconclusive, we're doing the investigation with our suppliers and a third party. Okay. And then this year, with respect to SAG and ball mills, we're just optimizing the grinding efficiency and trying to find that old balance between the SAG and the ball mill. And there's a few things that we're doing in here. We're introducing a new instrumentation in the SAG mill just to stabilize the operating conditions. We're optimizing the screen and great sizing to improve the flow and the distribution of the load. We're also testing new liners basically just to extend the line of life. That's basically what we're doing on the front end.

Tanya Jakusconek, Analyst

Okay. So it's just trying to get that balance between the 2 to just make it consistent. Is that a fair view of that?

Natasha Nella Vaz, Operational Executive

Yes, fair.

Tanya Jakusconek, Analyst

Okay. The second part regarding Detour is that we have a study scheduled for release at the end of the second quarter. Should I understand that it will be based on the 1.6 million ounce resource of the underground that was announced in February, along with some additional ore or resources or inferred material coming from parts of the pit?

Ammar Al-Joundi, CEO

Tanya Jakusconek, Analyst

So it's not going to be any new additional ounces within your resource envelope.

Ammar Al-Joundi, CEO

No, the study we will be producing will still be based on the number we produced at year-end. However, we are still working on the next scenario that continues to integrate all of those nitro. We have an additional kind of mineral inventory that could help enhance our prospects. What we will be looking at in the PEA will be the number we had at the end of 2023. You should not picture it as a snapshot at a certain point in time, as we will continue to update it over time.

Operator, Operator

Your next question comes from the line of Tanya Jakusconek from Scotia Bank.

Tanya Jakusconek, Analyst

Great. Congratulations on a successful quarter and positive exploration results. I would like to begin with Natasha regarding Detour. I have a couple of questions about the cash situation. Can you explain what is occurring with the ball and the themes and the SAG mill? I want to grasp how to balance these components and what actions are necessary. Additionally, have you addressed the issue of grinding media getting caught in the mill?

Natasha Nella Vaz, Operational Executive

Tanya Jakusconek, Analyst

And then is this media or was it just a bad batch that maybe you got or I don't know.

Natasha Nella Vaz, Operational Executive

Tanya Jakusconek, Analyst

Okay. So it's just trying to get that balance between the two to just make it consistent. Is that a fair view of that?

Natasha Nella Vaz, Operational Executive

Yes, fair.

Tanya Jakusconek, Analyst

Okay. And then regarding Detour, we have that study scheduled for release at the end of the second quarter. Should I be thinking that it's based on the 1.6 million ounce underground resource that was announced in February, along with some additional ore or inferred resources from part of the pit?

Ammar Al-Joundi, CEO

Tanya Jakusconek, Analyst

So it's not going to be any new additional ounces within your resource envelope.

Ammar Al-Joundi, CEO

No, the study we will be producing will still be based on the number we reported at year-end. However, we are actively working on the next scenario that will continue to integrate all of those elements. We have additional mineral inventory that could help enhance our findings. In the PEA, we will focus on the figures we had at the end of 2023. So, keep in mind that this is a snapshot at a certain point in time that we will continue to update over time.

Operator, Operator

Your next question comes from the line of Tanya Jakusconek from Scotia Bank.