Earnings Call Transcript - AEM Q3 2021

Operator, Operator

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kirkland Lake Gold Third Quarter 2021 Conference Call and Webcast. Thank you. Mark Utting, Senior Vice President, Investor Relations, you may begin.

Mark Utting, Senior Vice President, Investor Relations

Thanks very much, operator, and welcome everyone to our third quarter 2021 conference call and webcast. With the timing of our planned merger with Agnico Eagle, which we are very excited about, this will likely be our last conference call. And I think if you looked at our results, you will agree with me that we are finishing with a bang. We got record earnings, extremely low unit costs, and a continuation of an industry-leading track record over the last five years for returning value to shareholders. We are going to talk about all these things on today’s call. With me today are most of the members of the Kirkland Lake senior executive team. Speaking today will be Tony Makuch, our President and CEO; David Soares, our Chief Financial Officer; Natasha Vaz, our Chief Operating Officer; Ion Hann, our Vice President of Australian Operations; Larry Lazeski, our Vice President, Detour Lake; and Evan Pelletier, our Vice President of Mining, Kirkland Lake; as well as Eric Kallio, our Senior Vice President of Exploration. Slides accompanying today’s presentation are available on our website and through the webcast. Following the presentation, we will open up the call for questions and answers. I will draw your attention to Slides 2 and 3 of the presentation, which contain our forward-looking information and other cautionary language. We will be making forward-looking statements in today’s call, so I ask you to give that information due consideration. We will also be referring to non-IFRS measures during the course of the call. Reconciliations involving those measures are provided starting on Page 37 of the MD&A we filed late yesterday. Finally, all dollar amounts mentioned today will be in U.S. dollars unless otherwise stated. With that, I'll turn the call over to Tony Makuch, President and CEO.

Tony Makuch, President and CEO

Okay. Thanks, Mark, and thanks everybody for being on the call. It's not necessarily our last quarterly call because we just have a different name, maybe when we are talking to you in future quarters. But we have had lots of significant success at Kirkland Lake Gold over the last few years and definitely a very, very strong Q3. As we go through the results, you can see lots of outperformance in a number of areas, particularly, Fosterville in Australia, where we’ve achieved full-year guidance in three quarters already, and it continues to excel. It's not just about grade; it's about tons and grade coming out of Fosterville as well. There’s a very high level of safety performance and operational performance with high attention to detail in terms of social issues. We’re doing a very great job in terms of the environmental cleanup happening in the Northern Territory of Australia, and I want to attribute this to the leadership and all the people working for us in Australia who are doing an exceptionally good job. We really need to thank them for what they do. Then over in Canada, we had significant success in Q3, particularly at Detour, which had a very exceptional record as well. This demonstrates strong leadership in the company. We see significant performance from corporate management down through operations, fundamentally driven by all the people working at Macassa and at Detour. They are making a big difference, and we really thank them for their hard work in achieving these results in the quarter. As we say, we're looking at a very strong Q4 as well to finish off the year. Moving on to Slide 4, I want to highlight a few things. We did have a recent announcement regarding our agreement to merge with Agnico Eagle Mines. From our perspective, it's an exciting development for our company and our shareholders. This merger creates a new leader in the global gold mining industry. This is a gold mining company that can definitely lead the transformation not only of itself but also change the perception of our industry as we move forward. Moving to Slide 5, I’ll provide some highlights of our merger with Agnico. We are creating the highest quality senior gold producer with the lowest unit costs, the best risk profile, leading in key areas of ESG, and an extensive project pipeline to drive future growth. The combined companies have very strong financial strength, an extensive pipeline of projects, and a solid balance sheet, all coupled with operations that are performing well and profitably. We definitely see opportunities to fund future growth internally. The merger and consolidation activities in the region of Northeastern Ontario and Northwestern Quebec will provide significant value creation and opportunities through synergies. We are also implementing other business improvement initiatives, one of the biggest being the development of the new Kirkland property, which will be amalgamated into the Macassa operations in Kirkland Lake. This will provide substantial benefits to Northeastern Ontario and certainly for the shareholders of Agnico Eagle. We see the new Agnico Eagle being poised for a premium valuation, driven fundamentally by increased scale, low-cost operations, and superior financial performance. Continued strong balance sheet trends and good execution of operating results will be key to driving that increased valuation. We believe this merger is the right deal for our company, our people, and our stakeholders. Moving on to Slide 6, let’s talk about our third-quarter results. Slide 6 focuses on our responsible mining efforts. For us, responsible mining is integral to everything we do and is ingrained in our culture. All of our Canadian operations participated in the first National Day for Truth and Reconciliation. We organized learning seminars for all employees, supporting community initiatives, and engaged actively with local indigenous companies. Additionally, all our truck fleets were painted green to support mental health awareness with seminars and employee training programs. In Bendigo, Australia, we committed $600,000 to the Gobbe Wellness Center and Cancer Wellness Program to assist with the sustainability of the program and expansion of wellness services for regional patients. We have also taken additional steps in Q3 2021 to achieve further reductions in our corporate emissions including testing and building an energy storage system from entirely recycled components. Now turning to our financial and operating results on Slide 7, Q3 2021 was a quarter marked by financial progress. The main highlights, as Mark mentioned, include record quarterly earnings, solid year-over-year production growth, unit costs significantly better than full-year guidance, and strong cash flow generation. This record performance was driven by our strong operating results, including quarterly production, throughputs, and all-in sustaining costs at Detour Lake. Q3 was a tremendous quarter for Deep Lake production, with 189,000 ounces produced, which exceeded the previous record of 166,000 ounces in Q2 by 23,000 ounces, or 14%. We’re on track for a new record in Q4 of this year. Fosterville had a very strong quarter, contributing significantly to our record results due to grade outperformance and higher levels of throughput. Overall, our unit costs in Q3 remained within full-year guidance ranges. We are also being impacted by exchange rates and inflation pressures in certain areas, but our operations are doing exceptionally well at managing these costs. We are in very good shape to meet our guidance for the year. In terms of cash flow, we generated operating cash flow of $323 million and free cash flow of $141 million. David Soares will provide additional detail on those areas. Moving to Slide 8, we continue to maintain a very strong balance sheet with cash at September 30 of $822 million. Again, this reflects a clean balance sheet with no debt. We have also maintained a very successful track record in returning capital to shareholders. During Q3, we returned $175.3 million, including $50 million in dividends paid on July 14 and $125.3 million for repurchasing 3.1 million shares through our NCIB. On Slide 9, a significant component of our successful track record with capital allocation includes investing in capital for future value creation. We released encouraging exploration results from all three of our cornerstone assets, and exploration continues to progress well in line with our key growth projects. Eric Kallio will provide more details shortly. However, I want to highlight that the recent announcement of a 10.1 million ounce increase in open-pit measured and indicated resources at Detour Lake that tripled our open-pit mineral resources. This is a milestone that will support strong growth in mineral reserves future iterations of our resource statement. Earlier this week, we announced additional new drill results that continue to highlight that 10 million ounces increase in resources is just the beginning—there’s potential to continue to grow the resource before the end of this year. Besides the exploration success at Detour, we are making very good progress with various projects in terms of value creation. We are optimizing operations which included increasing throughput in the mill. The mill ran at almost a 20 million-ton per year rate during July and August. We have implemented significant improvements in grade management at Detour and have many infrastructure installations underway to support long-term operational improvements. Additionally, at Macassa, we are on track with the #4 Shaft project, which is set to be completed later this year. We have also made significant progress in expanding the South Mine Complex and identifying new areas of high-grade mineralization. In Fosterville, we have some new and exciting exploration results that were released at the end of August. Our goal at Fosterville is to demonstrate operational production of between 300,000 to 425,000 ounces annually for the next 7 to 10 years, and we are confident in achieving this for our shareholders. Moving to Slide 10, we will take a closer look at our year-to-date results: we achieved solid year-to-date operational performance and surpassed our full-year guidance of close to 1.1 million ounces, with a 5% increase from year-to-date 2020. We accomplished a very solid unit cost performance with record earnings and strong cash flow generation. As shown on the slide, we have repurchased 4.5 million shares for nearly $184 million and returned a total of $334 million to shareholders, representing $1.28 per share and $317 per ounce produced in year-to-date 2021. Moving on to Slide 11, let’s look closer at our track record for returning capital to shareholders. We have now returned $1.36 billion to shareholders since we first introduced our NCID in May 2017 and our dividend policy in March 2017. Just over $1 billion was used to repurchase 31.2 million common shares, and $315 million went toward 17 quarterly dividend payments. These dividend payments have increased 7-fold since we began issuing them in 2017. Since mid-2016, we have eliminated $190 million of debt, including paying $98 million of debt held by Detour Gold Corporation shortly after its acquisition on January 31, 2020, which also included closing out Detour's hedge position with an additional $30 million. In aggregate, we have provided $1.6 billion of value to shareholders since mid-2016 while also building the industry's strongest assets. Moving to Slide 12, we can see our performance against guidance. We are very well-positioned to achieve our production guidance as we enter the last quarter of the year. We are targeting the top end of our production guidance range and are also on track to achieve our operating cash cost per ounce guidance. We expect to meet—and potentially beat—our all-in sustaining cost guidance for the year despite ongoing inflationary pressures from fuel and energy costs. Our total capital expenditures guidance is $530 million to $585 million, and we are tracking in line with that range. Additionally, we anticipate exploration spending to fall at the low end of our guidance between $170 million to $190 million due to access issues for drills and equipment, which has been a challenge for the industry heading into 2022. With that, I'll turn the call over to David Soares, our CFO.

David Soares, CFO

Thank you, Tony, and good morning everyone. I will start on Slide 13. In Q3 2021, we achieved record net earnings of $254.9 million or $0.96 per share. This represents a 26% increase from $202 million in Q3 2020 and a 4% increase from $244.2 million from the previous quarter. The increase from both the prior quarter and the prior year was mainly driven by higher revenues. Adjusted net earnings totaled $241.3 million or $0.91 per share. The main difference between adjusted net earnings per share of $0.91 and net earnings per share of $0.96 in Q3 2021 relates to the exclusion of $15.6 million in net tax recoveries stemming from optimization of discretionary deductions for Ontario Mining Tax on filing the 2020 tax returns. There were also foreign exchange gains attributed to non-operating assets, particularly in the Northern Territory, as well as costs from system implementation and COVID-19. Turning to Slide 14. In Q3 2021, total revenue was $667 million. The change from Q2 2021 was mainly driven by an 8,000-ounce increase in sales volume, partially offset by lower realizable oil prices in the quarter. Compared to Q3 2020, revenue increased by $34 million, or 5% year-over-year, primarily due to higher gold sales volume, reflecting record gold production at Detour Lake and strong production at Fosterville, somewhat offset by unfavorable impacts from lower average gold prices. Moving on to Slide 15 regarding EBITDA, Q3 2021 EBITDA was $451.6 million, comparable to the Q2 EBITDA of $451.3 million. Compared with the same period in 2020, EBITDA increased by $67 million, mainly due to higher revenues. Now looking at income taxes, our Q3 2021 net earnings benefited from a lower effective tax rate of 25.3% versus 31.6% in Q3 2020, primarily due to the $15.6 million net tax recovery related to optimizing eligible tax deductions for Ontario Mining Tax following a restructuring of the company's Canadian entities early in 2021. Moving on to Slide 16, we're looking at cash flows for Q3. The largest contributor to cash growth was our operations, generating approximately $396 million before taxes of $78 million, growth capital investments of $88.5 million, and exploration spending of $39.4 million in the quarter. Other cash outflows included costs incurred at our non-operating sites, primarily the NT and Holt Complex, totaling $15 million and corporate G&A of $14.3 million. During the quarter, we returned $175.3 million to shareholders, including $125.3 million used to repurchase shares through the company's NCIB and $50 million in dividend payments. Turning to Slide 17, looking at our cash balance and cash flow year-to-date, we've generated nearly $1.1 billion in cash flows from our mining operations after sustaining capital. We paid $298 million in income taxes. We invested $217 million in key assets and $120 million in exploration expenditures and returned $334 million to shareholders, which included approximately $184 million used to repurchase shares and about $150 million in dividends paid on a year-to-date basis. This left us with a cash balance of $822.4 million. Next, I will turn it over to our COO, Natasha Vaz, to discuss our operating results.

Natasha Vaz, Chief Operating Officer

Thank you, David, and good morning everyone. I'm on Slide 18, which outlines our consolidated production results for the quarter and year-to-date. Overall, as Tony mentioned earlier, we achieved solid operating results in the quarter with production just over 370,000 ounces, compared to 339,584 ounces in Q3 2020 and a record production of 379,195 ounces in the previous quarter. Our operating cash costs per ounce sold were $438, which is well below our full-year guidance. For all-in sustaining costs per ounce sold, we also had a strong result of $740 per ounce. This represents a 16% improvement from Q3 2020 and 5% better than the previous quarter. Year-to-date production totaled 1.5 million ounces at Detour, which is a 5% increase from year-to-date 2020. Our operating cash cost per ounce sold was $466 compared to $407 in year-to-date 2020 and our AISC per ounce sold was $785 versus $804 in year-to-date 2020. I'll now turn the call over to Ion Hann, our Vice President of Australian Operations, to provide an update on Fosterville.

Ion Hann, Vice President of Australian Operations

Thanks, Natasha. I'll start with Fosterville on Slide 19. As you have heard, Fosterville had a very strong Q3. Fosterville produced 135,000 ounces in Q3 2021 based on processing just over 180,000 tons at an average grade of 23.6 grams per ton and average mill recoveries of 98.7%. Production in Q3 2021 exceeded expected levels mainly due to continued grade outperformance in the Swan Zone. For year-to-date, we produced 401,400 ounces, significantly higher than target levels, largely reflecting grade outperformance in the moldable Swan Zone stopes during year-to-date, as well as some changes in sequencing that moved higher grade stopes from Q4 into Q2 earlier in the year. Production year-to-date 2021 compared to production of 476,000 ounces for year-to-date 2020, reflects a lower average grade consistent with the previously stated plan to reduce production to create a more sustainable operation while we continue our extensive exploration programs. Partially offsetting the impact of the planned reduction in average grade was a 28% increase in tons processed, totaling just under 525,000 tonnes year-to-date 2021. Turning to costs, we achieved strong performance for both Q3 and year-to-date, with operating cash costs of $170 per ounce, and all-in sustaining costs of $337 per ounce. For the year-to-date, operating cash costs averaged $184 per ounce, with all-in sustaining costs of $367 per ounce. I will now turn the call to Larry Lazeski, General Manager and Vice President of Detour Lake Mine.

Larry Lazeski, Vice President, Detour Lake

Thanks, Ion. We'll start on Slide 20. As Tony mentioned earlier, Q3 was an outstanding quarter for Detour Lake. We achieved record quarterly production in Q3 of 189,000 ounces based on processing 6.2 million tons at an average grade of 1.04 grams per ton and average recoveries of 91.6%. This is an increase of 35% from Q3 2020, and an increase of 14% from the previous quarterly record of 166,000 ounces in Q2. The quarter-over-quarter increase was largely due to a 5% increase in tons processed and an 8% improvement in average grade. Mining during the quarter focused largely on high-grade areas as part of the Phase 2 mining plan. Year-to-date 2021 production totaled 501,800 ounces, which is 38% higher than the eight months after the acquisition last year and a 22% increase from full year-to-date 2020. Regarding our operating cash costs, we averaged $601 in Q3 and $647 per ounce for year-to-date. Importantly, the mine achieved record all-in sustaining costs of $937 per ounce sold. Our strong cost performance was achieved despite some inflationary pressures we've seen on diesel, fuel, energy, and in a few other areas. We're continuing to work on mitigating the impact of those cost pressures. Moving to Slide 21: as Tony mentioned earlier, we have a significant number of projects at Detour Lake. Our growth capital expenditures at Detour for the first nine months of the year totaled $137 million, with $66 million for deferred stripping and $70 million for procuring mobile equipment, as well as projects involving tailings management area, process plants, and construction of a new assay lab. With that, I will turn the call over to Evan Pelletier, our Vice President of Mining at Kirkland Lake.

Evan Pelletier, Vice President of Mining, Kirkland Lake

Thanks, Larry. Starting on Slide 22, production at Macassa in Q3 totaled 46,000 ounces, with operating cash costs of $657 and all-in sustaining costs of $859. The increase in production from Q3 2020 mainly reflected a higher average grade in Q3 2021 compared to the same period a year earlier. The reduction in production from Q2 2021 reflected lower tons processed largely due to higher levels of underground maintenance and reduced equipment availability, as well as the impact of lower than planned average grades predominantly from mining sequencing. Looking at year-to-date production at Macassa, we totaled 148,854 ounces based on processing 243,615 tons and an average grade of 19.4 grams per ton with average recoveries of 98%. Year-to-date production is lower than planned, largely due to reduced equipment availability caused by increased maintenance requirements, poor battery performance, and delays in receiving new batteries. Moving to Slide 23, we are doing very well at Macassa advancing our key projects, mainly #4 Shaft and exploration initiatives. During Q3 2021, the Shaft advanced about 500 feet and has reached a depth of 6,100 feet as of September 30, 2021. We have also completed the development of the 6,100 level station. Progress has been made on our ventilation expansion involving the completion of two vent raises. With that, I will turn the call back to Natasha Vaz.

Natasha Vaz, Chief Operating Officer

Thanks, Evan. To wrap up the operating review, I'll look at the outlook for the full year, I'm on Slide 24. On a consolidated basis, Tony has already touched on it, and as he mentioned, we are on track to achieve the top of our production guidance of 1.31 to 1.4 million ounces. Our operating cash costs per ounce are on track, and we are positioned to meet or potentially exceed our all-in sustaining costs per ounce guidance. Fosterville achieved its full-year guidance in the first nine months of the year, so we expect Fosterville to produce around 500,000 ounces for the year or higher. With respect to operating cash costs per ounce, we should be under budget in the guidance range of $230 to $250 per ounce. At Detour, we are targeting another record quarter in Q4 with production set to exceed the Q3 level of 189,000 ounces. Thus, we now expect production for the year to be at least 700,000 ounces with operating cash costs likely at the top end of our guidance range or slightly higher. At Macassa, we’re seeing improved results in Q4, although we do not expect to reach our guidance, with production now anticipated to be within 190,000 to 210,000 ounces at operating cash costs above the guidance range. With that, I'll turn the call over to Eric Kallio, our Senior Vice President of Exploration.

Eric Kallio, Senior Vice President of Exploration

Thanks, Natasha, and good morning everyone. The first slide today is number 25 from the Detour Lake project, where we continue to have tremendous success with both drilling and advancement of resources. The peak product will be an updated resource, and we will see a substantial increase in ounces from our latest year-end announcement. As indicated, the updated resource has added approximately 10.1 million ounces to the overall total, bringing the new total to about 14.7 million ounces exclusive of reserves, which at year-end were about 15 million. All this material lies in a pit shell spanning about four kilometers long and extending to a maximum depth of 600 meters from surface, with all reserves located at the top shaded in dark green and resources below shaded in yellow and lighter green covering the area for our recent drilling. Important to note is that these increased accomplishments come from about 180,000 meters of drilling, or two-thirds of the planned 270,000-meter program started last year. The limits of the test are approaching the boundary of drillings, and we are still seeing goodwill at those limits. Now turning to my next slide, on number 26, we see additional details from the resource model, along with new drill results just released demonstrating additional upside potential. As announced, the new results include 39 holes and 6 wedge holes targeting mainly the West Pit. This has provided a lot of positive insights, including reinforcement of the geological model and some encouraging drilling results. Some key highlights from the drilling include some wider and higher grade intercepts on the west side of the current pit shells. Hole number 300 represents drilling under the north wall of the pit, also resulting in good intercepts. I'd also like to highlight hole 295 located in the Eastern part of the Saddle, which intercepted 20 grams over 25 meters. All these factors suggest a continuation of positive drilling results. We still have another 12 drill rigs on site continuing the program, and we are feeling very positive about the project. Now moving to my next slide, number 27, this one focuses on Fosterville, where we also saw excellent success in Q3, including multiple high-grade intercepts from both the lower Phoenix and Robbin’s Hill areas. The lower Phoenix area is where we've focused most of our drilling and progressing the resource model. For Cygnet, our second zone located 100 meters in the footwall, we see it as an important target as well. Until early this year, most of the work at Swan was not freely available to us, but it became available when the new drill finished in June. We currently have five drills set up at this location enabling us to conduct extensive drilling. Additionally, a significant amount of drilling is happening at Robbin's Hill, and we are beginning to trend toward underground drilling as we advance. Now, I’ll pass it back to Tony.

Tony Makuch, President and CEO

Okay. Thanks, Eric. And I’m turning now to Slide 31, which is the final slide in the deck. In conclusion, you can see we had an excellent quarter in Q3 2021. Besides the operating results, we also had important highlights in terms of our merger announcement with Agnico Eagle, which creates a new leader in the gold mining industry—one characterized by the lowest costs, highest margins, best jurisdictions, and an extensive pipeline of development and exploration projects to drive sustainable, low-risk growth. Moreover, with a very strong balance sheet and capable personnel, we are well-positioned to create value for shareholders. Q3 was a record quarter in both earnings and earnings per share for Kirkland Lake Gold. Detour Lake achieved a truly outstanding quarter with record earnings, throughput, and good all-in sustaining costs. Fosterville continued to outperform, and the #4 Shaft project at Macassa remains on track for completion by late 2022. We believe the new ventilation system at Macassa and our fleet of new equipment being added as we move into 2023 will further transform Macassa into a top mine. Eric’s drilling successes illustrate the strength of our value creation initiatives at each of our assets and mines. Looking ahead, we are poised to finish 2021 on a strong note, as Natasha suggested we’re ready to evolve our 2021 guidance and look forward to 2022 as part of a world-leading gold mining company, securely positioned to generate sustained long-term value for shareholders. Before I conclude, I want to emphasize the importance of continuing safe practices in light of the impending holidays. This time of year brings an influx of production demands, but I encourage everyone at Kirkland Gold, including our suppliers and contractors, to prioritize their health and safety. It’s crucial that no ounce of gold produced or any amount of cash flow is worth the health and safety of any individual. We want you to be able to spend time with your family during the festive season. With that, we will take some questions. Thank you.

Operator, Operator

Operator Instructions. Our first question is from Tyler Langton with J.P. Morgan. Your line is open.

Tyler Langton, Analyst, J.P. Morgan

Good morning. Thanks for taking my questions. Maybe just to start, can you talk about the levels of cost inflation that you're seeing right now, particularly in materials, labor, and fuel? What are your expectations heading into 2022?

Tony Makuch, President and CEO

I apologize; I missed the initial part of your question, but you’re asking about labor and costs. Yes, we don't see anything significantly unusual in terms of labor costs; labor follows the typical annual trends we see each year. But as we train and develop people, they tend to have increased productivity, which offsets that. Regarding commodity prices, some of the key areas have been impacted primarily by increasing diesel and energy prices. There have also been adjustments due to foreign exchange rates that have affected us. However, our operations have been adept at managing these costs, and we anticipate being able to maintain solid operational performance. Natasha, do you want to add some clarity?

Natasha Vaz, Chief Operating Officer

Yes, we have seen inflationary cost pressures as Tony mentioned, particularly in diesel and electricity. Detour has experienced some supply chain challenges. However, with effective cost management and higher-than-planned gold sales largely from Fosterville, our operating cash costs per ounce were significantly better than our 2021 guidance. As for inflationary pressures in 2022, we expect that to continue, but we are committed to managing costs effectively.

Tyler Langton, Analyst, J.P. Morgan

As a follow-up, at Macassa, you mentioned improvements in Q4. Are these largely resolved, or could they extend into Q1 of next year?

Natasha Vaz, Chief Operating Officer

Yes, the underperformance at Macassa was primarily linked to equipment availability due to maintenance and battery performance issues. The battery truck industry is new and experiencing high demand, leading to delivery and quality challenges. We are seeing improved results in Q4, but we are working diligently with our suppliers to mitigate any further impacts going into future quarters.

Ovais Habib, Analyst, Scotiabank

Thanks, operator. Hi, Tony and Kirkland team, congrats on a strong quarter. My first question is regarding Fosterville. Obviously, Fosterville had a fantastic year with Q3 production beating expectations. You’ve made changes to mine sequencing to bring higher grades forward, and I'm curious if you expect this trend to persist into 2022?

Tony Makuch, President and CEO

Ion, would you like to address this?

Ion Hann, Vice President of Australian Operations

Certainly. The grade outperformance we have observed this year is mainly attributed to three specific stopes, which have contributed approximately 60,000 ounces to the overall outperformance. While we have good modeling for the majority of the Swan stopes, there are instances of extreme variations that can be difficult to predict. We have seen some outperformance already in Q4. However, the main driver of this outperformance has been those three high-yield stopes before any planned changes.

Ovais Habib, Analyst, Scotiabank

Are you considering any adjustments in drilling or additional grade control to refine that model?

Ion Hann, Vice President of Australian Operations

Drilling to pinpoint very small physical changes in grade is something we typically do not intend to undertake. We understand where these outperformance events can occur and will aim to model them better in future. The Swan stopes are reconciling well, but those occasional outliers can be more challenging.

Tony Makuch, President and CEO

We are expecting a solid 2022 as we move into it, correct?

Larry Lazeski, Vice President, Detour Lake

Absolutely. We see 2022 being a strong year for Fosterville.

Tyler Langton, Analyst, J.P. Morgan

Great, and just switching gears to Detour, it was great to see throughput moving higher in Q3 at 7,000 tons per day. Are you targeting production rates of around that 70,000 to 73,000 tons per day for Q4?

Tony Makuch, President and CEO

Natasha or Larry, can you address that?

Natasha Vaz, Chief Operating Officer

Overall, we're in good shape for Q4 on the mine side. We are processing sufficient material to meet our target. The mill emissions have improved as well. We’re expecting a small shutdown in the quarter, but we do not foresee any significant issues. Larry?

Larry Lazeski, Vice President, Detour Lake

We're optimistic we'll finish the year strong. Early results in October have been promising, and we are mining high-grade zones as part of our Phase 2 plan. We're also set to realize benefits from growth projects in the coming quarters.

John Tumazos, Analyst, John Tumazos Independent Research

I know you provided some explanation, but I'm interested in the increased throughput at Detour. It wasn't easier rock, so it sounds like a significant increase in uptime due to better maintenance practices and infrastructure improvements. Please discuss how you achieved such improvements.

Natasha Vaz, Chief Operating Officer

We have worked on optimizing our blast patterns to manage fragmentation. We have been focused on ensuring high intensity drilling. The material is of consistent quality, and our mill team worked closely with the mine team to ensure a reliable feed.

Mike Parkin, Analyst, National Bank Financial

Can you provide insight about what the potential bottleneck in the mining and milling operations might be from present? Where is the focus of your optimization efforts currently?

Natasha Vaz, Chief Operating Officer

We believe both the mine and mill are performing well. To enhance throughput going forward, we may need to focus on the back end of the plant, specifically the CIP circuit, and that’s part of the strategy Larry's team is working on.

Fahad Tariq, Analyst, Credit Suisse

What elements or improvements will be incorporated into next year's mine plan, especially regarding the optimization of the back end of the plant?

Tony Makuch, President and CEO

Yes, all improvements will be factored into next year's plan, including the CIP and any change in capacity. Natasha, can you provide more color?

Natasha Vaz, Chief Operating Officer

We will factor in all improvements that enhance productivity and drive value into next year's plan as we develop it more thoroughly.

Fahad Tariq, Analyst, Credit Suisse

With Fosterville, you mentioned strong throughput in Q3, and is that expected to be sustainable into Q4?

Natasha Vaz, Chief Operating Officer

Expected throughput will be decent in Q4. While there is a minor shutdown, the grade may have an impact. Ion can elaborate on specifics.

Ion Hann, Vice President of Australian Operations

The mine is well sequenced right now, and we expect to see continued strong productivity. We are confident in our current production levels and their sustainability.

Mark Utting, Senior Vice President, Investor Relations

Thanks everyone, again, for joining our call today. As you heard, we had a very strong third quarter and first nine months of 2021. More importantly, we are positioned for a very strong finish to the year, relative to our guidance. Looking ahead, we are excited about the upcoming merger with Agnico Eagle and are looking forward to 2022 as we aim to be a leading name in the gold mining industry. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.