Earnings Call Transcript - AEM Q4 2023

Operator, Operator

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to Agnico Eagle’s Fourth Quarter and Full-Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi, CEO

Thank you, operator, and good morning, everyone. First, let me say thank you again for joining us this morning. It's always great to have our owners, friends, and analysts joining us. This morning in particular, my colleagues and I are excited to talk to you about our fourth-quarter and full-year results. The results, as you will hear, are very strong. But while these results are strong and we're going to talk about them, we're more excited to talk about our future, not just our guidance for 2024, 2025, and 2026, but the next several years. And importantly, we'll talk a little bit about some of the key projects that will propel Agnico Eagle forward. It will propel us forward by delivering more value per share at mines that we already operate in regions we've been in for decades and with people and teams already in place. We'll go through a number of slides this morning, and you'll hear from a number of our most senior executives about the business and how it's going. But really, the message we want to leave with you is a simple message. It's a message of stability, consistency, and quality. The quality of the projects, quality of the assets, and the quality of our people. It's a message, hopefully, that you will walk away thinking and appreciating that Agnico has built a unique position in this industry. With some of the largest longest-lived gold mines in the world, operating in the safest jurisdictions with great exploration potential, continuing great exploration potential, great operating results, and great projects. It's a company with a 66-year history of fiscal prudence, capital discipline, and per-share focus. Before I jump in, I would suggest and note that there are forward-looking statements. So in discussing our fourth-quarter and full-year 2023 highlights, we have four important milestones and achievements to share. One, record gold production. Best ever in the quarter, best ever for a full year. That's impressive for any company. It's especially impressive, I think, for a company that's been around for 66 years. Two, record cash from operations. Best ever in a quarter, best ever in a year. Three, record mineral reserves, up 10%. It's almost 54 million ounces. So it shows that not only are the operations doing well, but the reinvestment into the business and into the future is doing well. And then four, most proud of all, the best annual safety performance in the company's history. I've had the pleasure of talking about solid safety performance on a number of these calls. You know we're passionate about it. I'll say it again, there's nothing more important than keeping our people safe, our community safe, and the environment safe. And I want to say a special thank you to all of our employees who are listening in, not only for taking the responsibility to keep themselves safe, but the responsibility to keep their colleagues and co-workers safe. And then we'll also talk about the future. We'll talk about our guidance, solid three-year production guidance with industry-leading costs. And we're excited about the projects that we have in place that we think will add significant value, and we'll give more clarity on that towards the middle of the year. These results, which we're very proud of, are clearly a function of the assets we have, but really none of this could happen without the quality of the people that we have. We talked about safety. It's impressive enough on its own, a 35% reduction versus what were already aggressive targets. But really interesting is that every single operation met or exceeded their safety targets last year. It's also about an engaged workforce, a happy workforce. In 2023, we continued to improve the results of internal surveys regarding employee satisfaction. We had 80% of employees fill out the survey, that's exceptional. And almost 80% of our employees said Agnico Eagle was a great place to work, not a good place to work, a great place to work. Agnico Eagle was recognized in Forbes' list of Canada's 50 Best Employers. We're doing more training. We have more Indigenous employees and colleagues, and we have lower turnover. It's not just the assets; it's not just the regions; it's the people that we think give Agnico Eagle a tangible competitive edge. When you go underground at Agnico and you're talking to a young capable person, they tell you that their uncle and father worked at Agnico and they tell you that one of their grandparents worked at Agnico. You don't get that everywhere. Looking forward, from 2024 to 2026, our production outlook is really two words: steady and reliable. Our guidance for 2024 is exactly what we said it would be. Our cost guidance between 8.75% to 9.25% is up a little bit from what we were able to do in 2023, but it's only 4%. And we're hoping to, just like we did in 2023, do the best we can, and we have a track record of being able to do that. Our 2025 guidance remains the same at 3.4 million to 3.6 million ounces, same guidance that we gave last year, and 2026 shows steady production. Again, steady and reliable. Now let's talk about our mining platforms, including two of the 10 largest gold mines in the world, Detour and Malartic. At Detour Lake, it's already competing frankly with Malartic to be the largest gold mine in Canada. It's good; we've got both of them competing with each other. Mine life past 2050. It is a great ore body. Guy will talk about the exploration success we've continued to have. Now we aim to provide more specific guidance by midyear. The next step, if all goes well, would be what you would expect, potentially looking to put in exploration ramps to possibly take some bulk samples, confirm grade continuity, confirm ground conditions. With Canadian Malartic, we're ahead of schedule on development, and we're getting positive tonnage reconciliation with the internal zones. Everything is going well. The third item at Amalgamated Kirkland is something we're really proud of. The production estimates for 2024 to be 19,000 ounces, 35,000 ounces in 2025, and 50,000 ounces in 2026. At Upper Beaver, it's a long life high-quality asset, very low cost. We continue to do the work there and will be giving an update towards mid-year. We are making good progress on Wasamac as well. I think most of you know that when we acquired the Canadian assets of Yamana, we were primarily focused on Malartic. The work we're doing now has brought us to a place where we believe we can generate a better return on capital. Moving on to Nunavut, I'm very proud of the team at Meadowbank, which added 500,000 ounces of production, extending the mine life for two years. We'll also be extending it further, but we're not going to talk about that now. This is a mine that's got infrastructure in place, low risk, very well done by the team. To sum up at a very high level, we are proud of our results in 2023, solid guidance, and good progress on excellent projects. With that, I'll turn it over to our CFO, Jamie Porter.

Jamie Porter, CFO

Thank you, Ammar, and good morning, everyone. As Ammar mentioned, 2023 was a record year on a number of fronts. We had the safest year in the company's 66-year history and record quarterly and full year gold production. This excellent safety and operating performance led to very strong financial results. We generated an operating margin of $979 million in the fourth quarter, driven by our two largest mines, Detour and Canadian Malartic. Gold production in the fourth quarter was a new quarterly record at 903,000 ounces, and for the full year, we hit the very top end of our production guidance of 3.44 million ounces. We were also very pleased to report that we achieved our cost guidance with our total cash cost for the year coming in at the exact midpoint of our guidance at $865 per ounce and our all-in sustaining costs at $1,179 per ounce, well within our guided range. We are proud of the work our teams have done on controlling costs in what's been an inflationary environment over the past several years and on the team's focus on continuous improvement. A tangible example of this focus on cost is in Nunavut, where cost optimization efforts are driving costs lower by about $100 an ounce in 2024. This has helped enable us to extend the life of the Amaruq deposit, as Ammar just alluded to, from 2026 to 2028, adding 500,000 ounces of production. Moving on to Slide 12. We look at our financial highlights; record gold production drove record operating cash flow for both the fourth quarter and the full year. While we recorded a net loss per share of $0.77 in the fourth quarter, this was driven by non-cash impairment charges related to Macassa and Pinos Altos. On an adjusted basis, net income per share was $0.57 in the fourth quarter, representing a 50% increase relative to the prior year period. I want to briefly touch on the impairment charges recorded in the quarter. At Macassa, we recognized a net of tax impairment charge of approximately $600 million, primarily reflecting the write-down of goodwill that was recognized at the time of acquisition back in early 2022. Macassa had excellent performance in 2023 in terms of production, cost control, and reserve replacement, and this is a mine that has produced over 6 million ounces in its 100-year history. We see tremendous exploration upside and production increasing by 50% over the next three years. However, we are not able to recognize all of this value in an impairment model, and this, combined with higher costs and capital estimates assumed back in 2022, led to the impairment charge. At Pinos Altos, we recognized a net of tax impairment charge of approximately $70 million, reflecting higher expected operating capital costs, in part related to the strength in the Mexican peso over the last year. Despite these accounting charges, the business remains strong. We generated a record $300 million of free cash flow in the fourth quarter, and that's after investing nearly $0.5 billion in capital and exploration spending. We continue to pay a strong quarterly dividend and repaid $100 million of debt in the quarter. For the full 2023 year, we generated $947 million of free cash flow, declared dividends of approximately $800 million, and continued to demonstrate our commitment to delivering strong returns to shareholders. Based on current gold prices, we expect to continue to reinvest approximately two-thirds of our cash flow into sustaining and growing our business, exploring to find more ounces, and one-third of our cash flow into delivering returns to shareholders and continuing to strengthen our balance sheet. Moving on to Slide 13, I'm pleased to report that we were able to continue to strengthen our balance sheet in the fourth quarter. We repaid the outstanding balance on our credit facility and reduced our net debt position to approximately $1.5 billion. We've also recently significantly improved our overall liquidity. Earlier this week, we closed a new upsized revolving credit facility in the amount of $2 billion. This new facility reflects Agnico's size and scale and investment-grade status. It provides us with additional financial flexibility, and we were very pleased to have had strong support from our many banking partners. We do have increased debt maturities in 2025, and we'll look to refinance or repay those from excess cash at the appropriate time. Overall, the balance sheet remains very strong, and we're constantly working to make it stronger, improving our liquidity and overall financial flexibility. With that, I'll turn the call over to Dom, who will provide an overview of our Quebec and Nunavut operations.

Dominique Girard, Senior Executive

Thank you, Jimmy. Good morning, everyone. I'm going to cover the two regions in Canada on my side, Quebec and Nunavut, and Natasha will follow with the other regions. Before going to those highlights, Ammar, I would just like to add something or build on what you mentioned about why we're in this position right now. There's the aspect of the people, and there's the aspect of the region where we are. But there's also a secret ingredient. It's a bit personal, but I strongly believe in that, which is how we do stuff. How we work all together here at the corporate office with Natasha, Jamie, under your leadership, Ammar, Caro, Jean, and Guy. This is what makes the difference. This is what I felt when I started in 1998 at Laurent. And again, 26 years later, under your leadership, Ammar, this is what we're doing. And when you go on site, you still feel that same thing where we're in Toronto office; we work together. So on that, I will move to the Quebec region. We produced over 1 million ounces at a cash cost of $850 million, generating an operating margin of over $1 billion. I'm very proud and thank you to the team for controlling the costs and continuing to optimize the business and leverage all the synergies. Quebec is a well-established platform. You're going to see in the coming slides, this is just the beginning. We have three mines and enormous geological potential within 100 kilometers. The Canadian Malartic is going to be the biggest mine in Canada in 2024. The Odyssey project is the Phase 1 underground that we will land out. This is a 20-year life of mine at 550 ounces per year. The ramp-up is going well; we're producing 3,500 tonnes per day, which will bring approximately 80 ounces per year in the coming two years. The team is now looking for opportunities to start to mine the zone at the top and to bring answers potentially in 2026. Some other good news is that we see upside from the internal zone, and we're seeing more tonnes at the same grade. The shaft thinking showed great improvement during December and January. We’re heading in the right direction. The surface construction is 65% completed. Now moving to upper Beaver, it's a long-life high-quality asset, very low cost. We're continuing on that project, and we will give updates towards the middle of the year. At Wasamac, we're making progress, and as we acquired the Canadian assets of Yamana, we weren't convinced that the plans would meet our hurdle rates. We believe we can generate a better return on capital there as well. Moving on to Nunavut, again, great work by the team. We added 500,000 ounces into the plan for production coming in '26, '27, and '28. It's part of our work at Meadowbank and Meliadine to improve productivity and costs, and this is a part of the plan. Overall, low risk, very well done by the team.

Natasha Nella Vaz, Senior Executive

Thanks, Dom, and good morning, everyone. I'll start with the operations in Ontario. We had a strong year and solid performance at both of our operations. As you can see on this slide, we generated over $1 billion in operating margins in 2023 with industry-leading costs. Now at both of our operations, Macassa and Detour, we're focused on optimizing our assets through several continuous improvement initiatives. One of the big initiatives at Macassa are the productivity gains that we were able to sustain in 2023. We first started that with the commissioning of number 4 shaft and then upgraded the ventilation system. These gains have resulted in production coming up just above the top end of guidance. Now, in terms of creating further value at Macassa, we have integrated the AK and the near-surface deposits into the production profile. As Ammar mentioned during the merger, we identified AK as a near-term opportunity. Now staying in the Kirkland Lake area, an internal assessment is underway regarding Upper Beaver, which is considering either an exploration shaft or an exploration ramp to further convert and explore the deeper portions of the deposit. Now moving to Detour, this site has a track record of delivering improvements. Our current focus is to continue advancing the mill optimization. We expect to reach a mill throughput rate of 28 million tonnes a year later this year, one year earlier than anticipated. Additionally, we believe we have a better understanding of the potential to reach a mill throughput of 29 million tonnes a year by the end of 2026, and we'll continue to work on this. The Detour underground study is advancing, and we'll provide an update later this year.

Guy Gosselin, Senior Executive

Thank you, Natasha. Good morning, everybody. Starting with the year-end reserve and resources statement, it's been a very good year in terms of mineral reserve replacement. We've been successful, adding 10%. This is a 5 million ounces addition to the reserve. We're seeing resources stable in the measured and indicated category and growing inferred by 26% year-over-year. The quality has also improved with a grade that is higher. Moving to specific projects, it's been a great year for Macassa in terms of production and significant net growth in mineral reserves. We've seen a significant growth of the total mineral reserves at Macassa, and we’re very pleased with the evolution at the AK Zone closer to surface, now adding 160,000 ounces. Also, at Hope Bay, focus has shifted from investigating Doris to the Madrid area. We continue to see excellent results, one of the best drill holes we've ever seen on the project.

Ammar Al-Joundi, CEO

Well, thank you, everyone, and we've covered a lot. But I'll just finish by saying we are trying to build a high-quality business. We think there's a lot of opportunity. We don't care about absolute size; we care about value and value per share for our shareholders. We want a low-risk business in the best jurisdictions. We define the best jurisdictions as having the best geologic potential for multiple mines and political stability. We want to focus on quality for us, which includes the best ESG practices. This is not just the right thing to do; it's an essential thing to do. If your strategy is to be in a region for multiple decades and build multiple mines, you better treat the people and communities and the environment well. We want to continue disciplined capital investment. We are uniquely positioned in the industry, with good regions that have multiple decades of proven mineral potential. We produce more gold in Canada than eight companies combined. What you heard today is there is an abundance of opportunity to do that. With that, operator, thank you and we'll turn it over to questions.

Operator, Operator

Your first question comes from Josh Wolfson from RBC Capital Markets. Please go ahead.

Josh Wolfson, Analyst

Thank you very much. First question I had was on Amaruq and the mine life extension. It looks like the reserves didn't really change here aside from depletion. I'm wondering, was this an adjustment in the existing mine plan? Or what's behind the extension there?

Guy Gosselin, Senior Executive

If you do the math, you remove what we mined last year and with the addition of the high grading, we've seen positive reconciliation that contributes to some of those ounces’ additions. We did not completely deplete what was mined, and that extension of 500,000 ounces was completed after the reserve exercise.

Josh Wolfson, Analyst

Okay. Got it. So it's not reflected in the reserve. Maybe along the same lines, the Detour initial underground resource at 1.5 million ounces, I'm assuming there's a larger opportunity here. I guess, I'm just wondering, is this resource going to be the basis for the June update, or should we expect the potential for additional drilling or resource updates with that release?

Guy Gosselin, Senior Executive

There will be a few aspects to answer your question. What we're going to provide clarity on is the tradeoff between what's in the resources pit and what could be mined underground more profitably into the underground plan we're thinking about.

Ammar Al-Joundi, CEO

With regards to the proposed changes to the constitution concerning open pit, it would require two-thirds of the vote. As an example, if there's no open pit mining, it also applies to aggregates, which means you can't build roads or buildings.

Ralph Profiti, Analyst

Ammar, can I get some context around the positive tonnage reconciliation from the internal zones at Malartic? How much of a contribution was it in 2023? Is there anything in the model in the 2024 guidance?

Ammar Al-Joundi, CEO

What we've seen this year, when mining the Odyssey South, we've managed to add something like 40% more tonnage by integrating that material adjacent and it's been kind of adding 40% more ounces. We're integrating positive reconciliation into our model.

Natasha Nella Vaz, Senior Executive

The power outage at Detour was just a minor one, and we recovered from that quickly. In terms of achieving the 28 million tonnes yearly throughput rate, we have a number of initiatives. We just need to tweak the system right now to allow it to operate better.

Anita Soni, Analyst

How much of the AK deposit is the tonnage at Goldex? And how will that play out for the next, I assume about 10% and does that just stay at that 10% level?

Dominique Girard, Senior Executive

The plan is to have 1,000 tonnes per day coming from Akasaba and 7,000 tonnes per day coming from Goldex.

Anita Soni, Analyst

And similarly a question for Macassa and the proportion of ore that you would see from the AK deposit.

Natasha Nella Vaz, Senior Executive

With the AK deposit, we're going to be doing a bulk sample this year, sending that to the LZ mill, and we're going to be ramping up to about 500 tonnes per day on average for the AK deposit.

Greg Barnes, Analyst

Ammar, can you talk a little about how you see the production profile evolving beyond 2026?

Ammar Al-Joundi, CEO

We don't give specific guidance beyond three years, but we have good assets and we're confident about our production going forward.

Greg Barnes, Analyst

You talked about an increased throughput rate at Hope Bay, have you set the bar at roughly 300,000 to 350,000 ounces a year. What kind of size are you thinking about above that at Hope Bay?

Dominique Girard, Senior Executive

There are two aspects at play: how we use the current infrastructure and minimize the CapEx, and how we could expand that infrastructure to bring in higher tonnage.

Ammar Al-Joundi, CEO

We're focused on the gold projects that we have. We're not going to a jurisdiction we know nothing about to chase a particular type of metal.

Josh Wolfson, Analyst

Could you give us more color on what to expect with the update later in the first half of 2024 on the Abitibi optimization?

Ammar Al-Joundi, CEO

You can expect more guidance on where we are in next steps on Detour and Upper Beaver. We are doing the work on transportation options about projects, but the updates will focus on those projects.

Operator, Operator

And there are no further questions at this time. I will turn the call back over to Mr. Ammar Al-Joundi for closing remarks.

Ammar Al-Joundi, CEO

Thank you, operator, and thank you everyone for joining us once again. We wish you all a happy weekend. Thank you.