Earnings Call Transcript - AEM Q3 2025

Operator, Operator

Good morning. My name is Danny and I will be your conference operator today. I would like to welcome everyone to the Agnico Eagle Mines Limited Q3 2025 Conference Call. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi, CEO

Thank you, Operator. Good morning, everyone, and thank you for joining our Agnico Eagle third quarter conference call. I'd like to remind everyone that we'll be making a number of forward-looking statements, so please keep that in mind and refer to the disclaimers at the beginning of this presentation. Once again, we are pleased to be sharing a good news story with you. In a nutshell, with record gold prices with strong and, importantly, safe production, along with continued solid cost control we are once again delighted to be reporting record financial results. Across all metrics, our business is running well. And beyond the record financial results, we continue to invest in the best pipeline we've ever had and we continue to invest in the most ambitious exploration program we've ever had, which continues to deliver exceptional results. With almost 70 years of history behind us, we have never been stronger than we are now, and we have never had a better future than we have today. Before I turn this call over to my colleagues, who will go through our business in more detail, I'd like to spend a few minutes summarizing the key takeaways. One, we're reporting record financial results, driven by record gold prices, but coupled with strong and consistent operational performance. We delivered another exceptional quarter of strong production at 867,000 ounces, putting us year-to-date at 77% of our full year guidance range. We sold gold at an average price of $3,476 per ounce, another record and a full $20 per ounce higher than the spot average in the quarter, well done to the treasury team. At the same time, we continue to work hard to control costs, which means continuing to deliver benefits of these record gold prices to our owners through record margins. While our reported Q3 cash costs of $994 an ounce are higher than the previous quarter, the majority of this cost increase is due to higher royalty costs which are a direct result of the higher gold prices. If we back out the impact of these higher royalties, which, again, are the direct result of higher gold prices, our Q3 cash costs would have been $933 an ounce, well below the midpoint of our cost guidance range. Year-to-date, our average cash costs were $943 an ounce. Again, if we back out the impact of higher royalties, our year-to-date average cash costs would be $909 an ounce, well below the bottom end of our cash cost guidance range for the year. All of this, the record gold prices, the solid production, the continued good cost control has led to another quarter of record financial results for our owners. Record EBITDA, record adjusted net income, and record returns to our shareholders. Two, we continue to strengthen the company to strengthen the balance sheet and to return record amounts of cash to our owners. We repaid $400 million of debt this quarter. We returned $350 million directly to shareholders through dividends and share repurchases, and we increased our net cash position to $2.2 billion while at the same time receiving an upgrade in our credit rating. Three, we continue to invest heavily in building the foundations of our future growth, advancing construction, development, and studies of our 5 key pipeline projects and investing heavily in an exceptional exploration program. At Malartic, we are ahead of schedule on the underground development, ahead of schedule on the shaft, and progressing studies for Marban, Wasamac, and a potential second shaft. At Detour, the ramp portal is built. We have begun building the ramp to access the underground, and we continue to optimize the mill. At Upper Beaver, I was there just on Monday, we are on budget and we are ahead of schedule. The team is doing an exceptional job. At Hope Bay, we continue to get great drill results, and we are accelerating on-site activity. We've upgraded the port, we're upgrading the camp. We've emptied the mill building. We're progressing the Madrid ramp, and we have completed the box cut for a ramp at Patch 7. At San Nicolas, we continue to progress engineering on this high-grade, high-quality copper project in the best mining jurisdiction in Mexico. These projects cumulatively represent about 1.3 million to 1.5 million ounces of potential production. All from assets we already own in regions we've been operating for decades and in most cases, leveraging existing infrastructure in place. At the same time, we are investing more than we ever have by a wide margin in our exploration program, and as Guy will illustrate at the end of this call, we continue to get truly exceptional results that will position Agnico Eagle well for decades to come. These 3 key messages are consistent with our story last quarter and are consistent with our focus over the past couple of years. But on this call, I've asked the team to spend some time on a fourth key message. I've asked the team to spend some time to talk about our continued focus on productivity. Dom and Natasha will go through a few examples to convey the message that even with gold at $4,000 an ounce, even with record financial results, our teams continue to be absolutely laser-focused on improving productivity at every opportunity at every mine. We are proud of our teams and how hard they continue to work to deliver not only great and consistent results, which, by the way, make my job a lot easier, but to also focus every day on pushing themselves to operate even better and even safer. With that introduction, I will now turn over the presentation to our CFO, Jamie Porter, to review our third quarter financial results.

James Porter, CFO

Thank you, Ammar, and good morning, everyone. Our operating teams delivered another excellent quarter with strong cost control, particularly on a per tonne basis. By delivering on our production targets and managing costs, our investors continue to benefit from margin expansion in a record gold price environment, a dramatically strengthened balance sheet, and increased direct shareholder returns. We are in the strongest financial position in the company's history. The strong operational performance and cost control, paired with higher gold prices, drive record financial results, including record revenue of $3.1 billion, record adjusted earnings of $1.1 billion or $2.16 per share and record adjusted EBITDA of $2.1 billion. These are excellent financial results, delivering the leverage to higher gold prices as you would expect. At current spot gold prices, key financial return metrics such as return on equity could be as high as 20% for the full 2025 year. Gold production in the third quarter was approximately 867,000 ounces with total cash costs of $994 per ounce and all-in sustaining costs of $1,373 per ounce. We have achieved 77% of our full year production guidance to the end of September. Though we have budgeted lower gold production in the fourth quarter, we are confident in achieving the midpoint of our full year production guidance range of 3.4 million ounces. We are benefiting from record gold prices. However, the higher gold prices do result in increased royalty expense. In the third quarter, cash costs were approximately $60 per ounce higher than what we had budgeted largely as a result of the increased royalty expense. Despite that, I'm pleased to report that our cash costs remained within our guidance range on a year-to-date basis, and we still expect to be at or near the top end of our cash cost guidance range of $965 per ounce for the full year. Our teams have done an excellent job managing costs, the costs that are within our control, and continue to work on ongoing optimization initiatives that Dom and Natasha will talk about later in this presentation. All-in sustaining cost per ounce was higher than the prior quarter, primarily due to the increase in cash costs and the timing of sustaining capital spending. We also expect to be close to the top end of our all-in sustaining cost guidance range of $1,300 per ounce on a full year basis. Our all-in sustaining costs continue to be hundreds of dollars per ounce below those of our peers. Again, this is the result of continued efforts by our teams to control costs and to continuously improve while maximizing the cost synergies and benefits resulting from our regional strategy. We move on to the next slide. We had another strong quarter of free cash flow generation that directly and indirectly benefited our shareholders through direct shareholder returns, the dividend and share buybacks, and indirectly through the strengthening of our balance sheet. We generated $1.2 billion of free cash flow this quarter and added another $400 million through the sale of equity investments, which allowed us to continue to strengthen our balance sheet. Our net cash balance more than doubled in the third quarter, increasing to $2.2 billion. Given our strong financial position, we decided to redeem an additional $350 million of long-term debt in addition to the $50 million of debt that matured during the quarter. Over the past 18 months, we have significantly delevered the balance sheet, reducing our gross debt in that period by over $1.6 billion. Reflecting this strength in credit profile and financial position, I'm also pleased to report that during the quarter, Moody's upgraded us from Baa1 to A3 with a stable outlook. We are again in the strongest financial position in the company's history, giving us the flexibility to take a balanced, disciplined approach to capital allocation. We move to the next slide. We continue to deliver record shareholder returns this quarter, totaling approximately $350 million in dividends and share buybacks and totaling $900 million on a year-to-date basis. This brings the cumulative shareholder returns in Agnico's history to over $5 billion, the majority of which has been returned in the last several years. Our capital allocation strategy remains unchanged, and we are well positioned in this gold price environment. We expect to continue to increase shareholder return through increased share buyback activity and potentially through higher dividends. We also expect to continue strengthening our financial flexibility by increasing our net cash position. Given our profitability, we are expecting a significantly higher cash tax payment relating to the 2025 fiscal year in the first quarter of 2026. This is estimated at approximately $1.2 billion, and we are allocating cash to fund that obligation. Lastly and importantly, we will continue to reinvest in our business in order to bring our high-return organic growth projects online. We have our 5 key value driver projects: Detour Underground, fill-in-the-mill at Canadian Malartic, Upper Beaver, Hope Bay, and San Nicolas, all of which generate solid returns at gold prices significantly below the current spot price. At current spot prices, these projects have the potential to generate phenomenal returns. Detour, for example, once ramped up to 1 million ounces of annual production, has the potential to generate over $2 billion of annual after-tax free cash flow at that mine alone at these gold prices. We will continue looking for opportunities to accelerate reinvestment in the business to drive long-term shareholder value. At current gold prices, we're generating a lot of cash, but we will remain disciplined and continue to take a measured approach to capital allocation with a focus on increasing returns to our shareholders over the long term. With that, I'll turn the call over to Dom, who will provide an overview of our Quebec and Nunavut and Finland operations.

Dominique Girard, Senior Vice President

Thank you, Jamie, and good morning, everyone. Our third quarter results for Quebec, Nunavut, and Finland have demonstrated strong and consistent operational performance, much like in the first and second quarters. We're on track to meet our guidance and have established a solid foundation for 2026. Our production costs are well managed, and we are experiencing record profit margins due to the gold price. I am very pleased with our team's leadership and their approach. Even with higher gold prices, our focus remains on improving efficiency and productivity. This quarter, our mills at Meadowbank, Meliadine, and Goldex all set quarterly records. For the next two slides, Ammar has asked Natasha and me to provide more details and examples of our cost control measures and business management at both the site and regional levels. What you will hear will focus on productivity improvements, technology integration, and leveraging our workforce, rather than cuts. The first example will be Kittila, where the team celebrated reaching 3 million ounces of ore. The second will be about new technology in underground operations. At Kittila, after commissioning the new shaft and ramping up production, the team encountered challenges in meeting operational targets. I want to acknowledge the leadership of Jani, Mikko, and their team for taking action by applying lessons learned from similar efforts at Meliadine in 2023 to effect meaningful change. In June 2024, they launched an underground productivity improvement program inspired by their experience at Meliadine, focusing on ownership of key issues and problem-solving. They collaborated closely with employees and benchmarked to define what an ideal shift looks like to enhance productivity. Ultimately, they worked with operators to identify ways to enhance efficiency. Examples include transporting equipment more quickly than before, which may seem simple but contributes to greater efficiency. The results have been impressive; in the graphs on the left, you can see that tonnes mined per day improved by 13% year-over-year for the first nine months of 2024 compared to the same period in 2025, moving more tonnes from underground with the same equipment, fleet, and personnel. This also enabled them to handle more tasks internally and rely less on contractors, which contributed to cost reductions. On the cost side, the top graph on the left shows that the cost per tonne mined in euros decreased by 4%, despite inflation and higher royalties. Kudos to the Kittila team for a job well done. Moving to the second example about implementing remote technology, the advancements from these operations are not only helping us control costs and manage our business effectively but also paving the way for future growth projects. If we can enhance our studies regarding tonnes moved and mined, as well as ramp development speeds at Odyssey, that would represent a significant advantage. Starting with LZ5 in 2016, the world's first underground LTE system was implemented, which has since led to tremendous progress. Currently, over 20% of tonnes are processed through remote operations. In areas where equipment was previously inactive due to ventilation needs, we've leveraged the same skill set and approach for the Odyssey ramp. This year, we introduced remote mucking and drilling at Odyssey, improving productivity by 20%. This was achieved with the same team, simply by adopting technology. Operators can now manage multiple pieces of equipment from a central location, and we are working closely with Sandvik and Epiroc to enhance these technologies. This not only aids in cost control but also sets the stage for future projects. Concerning the workforce, Natasha will discuss initiatives and opportunities related to our employees. In Quebec, we are experiencing a commendable 5% turnover rate, and such initiatives are enhancing retention and recruitment, stabilizing our operations. Looking ahead, we are implementing a fleet management system underground, which will be a first-of-its-kind advanced software solution. Regarding the project pipeline, both projects are progressing well, as Ammar mentioned. Guy will provide further details, but drilling results are continuously adding value to the projects. At Canadian Malartic, shaft sinking began in Q3 and is ahead of schedule, setting a record for speed and being about two months ahead of our initial timeline from the 2023 study update. Additionally, our construction team accomplished an impressive triple zero achievement over 70,000 hours, meaning no lost time, modified work, or medical aid required, equivalent to one person working for 30 years. Congratulations to the team for this remarkable accomplishment. In Canadian Malartic, the study is advancing towards the goal of producing 1 million ounces with a second shaft for Marban and Wasamac, and the construction team remains focused on delivering what is needed, such as the administration building, which will be ready in Q1, helping the team prepare better. At Hope Bay, we are forecasting potential annual production of 400,000 ounces based on favorable drilling results. We aim to further advance our engineering efforts, currently about 25% complete, progressing by 3% to 4% per month to reach the desired 40% to 50% before greenlighting the project next year. Our construction team is actively preparing the field for a heavy construction phase. In the image, you can see two new wings that accommodate approximately 133 individuals each, allowing us to build capacity, with plans for six of them ready for construction, operations, and continued exploration. Now, I'll pass it over to Natasha.

Natasha Nella Vaz, Senior Vice President

Thanks, Dom, and good morning, everyone. I'll cover the operational highlights for Ontario, Mexico, and Australia. The regions delivered good safety operating and cost performance this quarter. Along with the higher gold price, this led to record operating margins at both Macassa and at Detour. Now at Detour, as we continue to stabilize the mill at the higher throughput, the team achieved another quarterly record mill throughput. The open pit mining rate in the quarter, however, was affected by slower progress around the historical underground workings. But grade is still expected to improve in the fourth quarter as we move into the higher grade domain in the pit. Over at Macassa, we had a really good quarter there too. The team continued to see some overperformance with higher-than-expected grades in localized areas. At Fosterville, production this quarter was on target, following a very strong first half of the year. Now in terms of business improvement, similar to what Dom discussed, the teams continue to push hard to optimize our business. There is a constant effort to keep all of our operations at a state of optimal performance; it's just part of their DNA. The optimization of the ore haulage system at Detour is a really good example of that. It’s a good example of the many initiatives that are going on. It’s a good example of how the team is looking at ways to sustainably lower cost and improve efficiency. This particular journey started 10 years ago with incremental slow enhancements made over time and significant progress made, as you can see from the utilization and payload improvements noted on the graph. The team continues to look for ways to optimize our unit costs by involving external experts to review their performance and help identify possible efficiency gains, similar to what Dom was talking about at Kittila, not just as it relates to haul optimization, but really the entire mining cycle. Another hot topic, and Dom touched on this, is related to the skilled labor shortage that the entire industry faces. Labor is a large portion of our overall cost, and our focus is to not just maintain our operational needs, but also secure the workforce to grow our business and at the same time manage the costs. So we're taking a very proactive approach to workforce planning as we grow in Ontario by leveraging our regional strategy and our competitive advantage, specifically when it comes to people. Our strategy to address the short and long-term workforce needs is multi-layered. The first layer is to ensure we continue to be a Great Place to Work for our employees by continuously investing in our people and leveraging the culture that Agnico has built. We have increased the engagement levels of our teams. Macassa is a great example of how powerful this combination can be. Since 2022, we have significantly increased production at Macassa, while at the same time, we have also significantly improved safety performance. They say that a safe mine is a productive mine. In our experience, it is also a highly engaged mine. In addition to that, we're investing in local workforce training. This quarter, we started the underground school of Mines for Macassa. Our plan is to, over a period of time, train local candidates to meet the increased demand for Macassa, Upper Beaver, and Detour underground. While we remain focused on hiring First Nations and local employees, we're also seeing success in filling roles through our immigration program for skills that are generally hard to recruit for in Canada. I'm very proud of the team because even at these gold prices, like Ammar was saying, their foot is still on the gas. They continue to safely and responsibly make our mines more efficient and productive, ultimately to reduce our costs. Now moving to the next slide. I'll give you a quick update on the 3 projects for Ontario and Mexico. As you are aware, the Detour Underground project plays a big part in the plan for the complex to be a 1 million-ounce producer annually. It's still early days, but as Ammar mentioned, this quarter, we commenced the exploration ramp and have advanced just over 250 meters laterally. We're also continuing with the infill and expansion drilling and continuing to see positive results, and Guy will talk about that later on in the presentation. As for Upper Beaver, during the quarter, there's been a lot of progress made in a short period of time. We had the pleasure of hosting our Board and our senior management team this week at Upper Beaver, but also Macassa. They were complementary, not just about the progress, but also the strong teams that we have on the ground, and I completely agree. In terms of the project with respect to the shaft head frame, the structural steel, and the cladding is completed; the winches have been roped up and the service hoist is ready for commissioning. Shaft sinking is still expected to commence in the fourth quarter. Over at the portal, the excavation of the exploration ramp began at the end of July, and has advanced over 250 meters. Finally, with respect to San Nicolas, we continue to engage with government and authorities and our stakeholders related to the key permits that are needed. In the meantime, we're continuing to advance the engineering of some critical infrastructures which will just help us further derisk and build confidence in the execution strategy. So all in all, good progress is being made on the projects. And I just wanted to end by thanking our operations team and the project team for another solid quarter. And so with that, I'll pass it over to Guy.

Guy Gosselin, Senior Vice President of Exploration

Thank you, Natasha, and good morning, everyone. First of all, I would like to start by taking a moment to thank the team at all sites for another excellent quarter; both safety and productivity and cost control went extremely well with an excess of 120 drill rigs in action. We've completed north of 370,000 meters of drilling in the quarter, now exceeding 1 million meters year-to-date. That is ahead of our schedule by about 9%, year-to-date in terms of meter and our unit costs are approximately 8% below budget year-to-date as a result of our strong involvement in controlling costs. Our Journey Excellence program continues to deliver. We're improving safety by introducing features such as robotic arm technology to reduce weightlifting and repetitive motion, and we are ramping up our unattended drilling capacity that allows for drilling between shifts, which is very beneficial for our underground mining sites. Ending towards year-end, we continue to focus on key value drivers by expanding the drill program on several sites, such as Marban, Detour Underground, Hope Bay, and Canadian Malartic, Odyssey, where we have good exploration results that continue to blaze the trail to support studies that will deliver on our vision of growth for these assets. From a results standpoint, I would like to comment on a few projects, starting on Slide 15 with Canadian Malartic. We currently have 29 drill rigs in action at Malartic, both underground and on the surface at Odyssey in the extension of the deposit around the mine, including the recently acquired Marban project. Once again, this quarter has seen some very exciting results in the upper eastern portion of East Gouldie, with results showing 4.8 grams over 25 meters at an 800-meter depth in the area, where we anticipate we can add to mineral reserves by year-end that could provide additional flexibility to accelerate the ramp-up of production in the upper portion of the East Gouldie deposit. Then also in the lower extension of East Gouldie, we're showing results of 2.3 grams over 30 meters, down to 2,000 meters below surface, which aligns with our decision to extend the depth of the first shaft down to 1,870 meters, and the deposit remains open at depth and laterally. On the adjacent Marban project, we've so far completed 96 drill holes on the property for an excess of 30,000 meters since drilling started in May following the acquisition, mostly to test the eastern extension of the deposit on ground that belonged to Agnico prior to the consolidation. The results have the potential to increase our ultimate design, with results showing 3.3 grams over 11 meters and 4.6 grams over 10 meters, approximately 2,200 meters east of the current open pit being considered. Now on Slide 16, at Detour, as mentioned by Natasha, the exploration ramp is now progressing well with just over 250 meters developed in the quarter, reaching a depth of 43 meters below surface. Sixty-two kilometers of drilling were safely completed in the quarter with 9 drill rigs and continue to infill and extend the deposits from surface in areas that are targeted for the underground mine project, below the saddle portion of the deposit with results up to 3 grams over 40 meters and 2.7 grams over 55 meters, and to the west of the pit, where the planned exploration ramp could achieve significant results of up to 7.4 grams over 27 meters. The results so far should lead to growth in the underground mineral resources system. Based on these results, we've added an additional 55,000 meters of drilling in the fourth quarter, and we're expecting to achieve almost 220,000 meters by the end of the year. Now on Slide 17, as discussed by Dominique, we continue to see some very good results in exploration. We have 6 drill rigs in operation. We've completed in excess of 100,000 meters year-to-date, expecting to achieve north of 120,000 meters by year-end. We continue to see very strong results in the Patch 7 area. First of all, in the southern extension of Patch, with a result up to 6.7 grams over 10 meters, 10.7 grams over 3.8 meters at shallow depth 350 meters below surface, showing that the deposit remains open to the south on the right-hand side of that graph. And at depth in Patch 7, with very strong results, up to 12.7 grams over 9.3 meters and 16.9 grams over 4.6 meters, both at around 880 meters depth in the strong new discovery at Patch 7, that shows that the deposit remains open at depth and laterally. We anticipate that all of the good results we've seen at Hope Bay this year will have a very positive impact on our mineral resources by year-end, and as mentioned by Dominique, all that will be integrated into our potential project development scenario to be communicated in 2026. Finally, at Slide 18, I would like to add a bit more color around Meadowbank. As you are aware, we're currently assessing the opportunity to continue to operate Meadowbank in this gold price environment. So we've been since 2024 validating some options for a pit pushback in the IVR area, but also continuing to derisk the underground extension of the deposit that is known to be still open at depth. All of those good results will be integrated into our scenario analysis to evaluate the pushback scenario and eventually to continue to mine from underground only while maintaining mill operation at a lower throughput once the open pits are fully depleted. Finally, at Slide 19, at Fosterville, not mentioned in our press release because it came out right after, we are pleased to announce that we've reached an agreement with two resource entities to acquire their 39,000 hectares exploration license that surrounds our mining leads at Fosterville. This will consolidate into a total of more than 250,000 hectares stretching over more than 100 kilometers along the great at Fosterville to allow the continuation of the full investigation of those structures without any property boundary constraint, and the transaction is subject to the Victorian government's approval and is expected to close within about 2 months. So on that, I will return the microphone to Ammar for some closing remarks.

Ammar Al-Joundi, CEO

Thank you, Guy. As you can see, we continue to work hard for all our stakeholders, and we'll continue to build off the same foundational strategic pillars that have served us well over the past 68 years. We will focus on the best mining jurisdictions based on geologic potential and political stability. We will be disciplined with our owners' money, making investment decisions based on technical and regional knowledge, creating value through the drill bit and through smart, disciplined acquisitions when it makes sense. We are uniquely well positioned with a quality project pipeline leveraging existing assets in the best regions in the world where we believe we have a strong competitive advantage. We will continue to be focused on creating value on a per share basis and being leaders in our industry in returning capital to shareholders, as evidenced by over 42 years of consecutive dividend payments and increasing share buybacks. And finally, before we open up for questions, I'd like to comment briefly on the current exciting gold environment, both the gold price and the sector more broadly, including our recent investment in Perpetua. On the gold price, of course, nobody has a crystal ball and nobody can predict near-term moves. But it is very common that when a market moves up quickly, there is often a measured retracement in a period of consolidation before the next leg up. I think that is where we are on the gold price. Long-term, we remain very constructive on gold as all the factors that have pushed gold to outperform over the last 25 years remain in place and, in many cases, have become more prevalent. On the M&A front, while we do have the best organic growth in our history, while we continue to have great success in our exploration programs, and while we feel absolutely no pressure to do anything, of course, we will continue to look at opportunities to create more value for our owners through smart and disciplined opportunities on the M&A side. Our owners want us to look at these opportunities; our owners expect us to look at these opportunities, it is frankly part of our job. Our investment in Perpetua is a good example of this. Perpetua is one of the largest, highest-grade undeveloped open-pit gold mines in the United States, and to paraphrase one of our senior exploration people, it is the most exciting U.S.-based gold exploration project she has seen in many, many years. Perpetua is also an investment in gold. Yes, there are valuable byproducts that will reduce cash costs, but that's a good thing. This is what we do. We focus on geologic potential in safe jurisdictions, and we try to get in early to gain a knowledge advantage. Thank you again for joining us on this call. Operator, may I ask now that we open up the call for questions.

Operator, Operator

Your first question comes from Fahad Tariq of Jefferies.

Fahad Tariq, Analyst

Ammar, can you talk a little bit about the noncore investments in critical minerals? It sounds like it's a new subsidiary. I'm just trying to understand what type of investments will be vended in or spun out in there? It sounds like it would be things like Canada Nickel and maybe some other equity investments. And what is the future strategy of that subsidiary? Would it invest in equity investments or actual project development?

Ammar Al-Joundi, CEO

Thank you for your question, Fahad. You're correct. Canada Nickel is part of that subsidiary. As many of you are aware, there has been significant global interest in critical metals. While we are primarily a gold company, I believe we are also the leading miners in the regions where we operate, and we are the largest mining company in Canada by a considerable margin. We frequently get inquiries about critical metals, but we want to maintain our focus as a gold company. Therefore, our approach has been disciplined and aligned with our capital allocation philosophy, which is based on informed decisions. For the past three years, we have had a small team exploring opportunities in critical metals. With the strong pipeline we have and our ongoing dedication to gold, we've decided it is the right moment to grant that small group more autonomy to pursue opportunities independently. We have made some minor non-gold, non-copper investments in that subsidiary and provided initial funding. Ultimately, it is their responsibility to identify opportunities. While we are not required to invest additional funds, we will offer support and have the first opportunity to review their activities.

Fahad Tariq, Analyst

Got it. And then maybe switching gears, can you talk a little bit about how just government relations are going with the new federal government in Canada? Have you noticed changes in terms of the level of access to the government dialogue? And any opportunities in particular for Nunavut infrastructure?

Ammar Al-Joundi, CEO

That's again an excellent question. We have been very pleased with the new government. I'll give you an example. While we are the biggest mining company in Canada, we really didn't get a lot of attention from the previous government. The weekend after the election, I got a text from Tim Hodgson, I've never met Tim Hodgson. He went out of his way to find out who I was, and I guess who other and I know he's talked to a lot of other mining executives, so you've got to give a government credit when the minister in the very first weekend reaches out to people on their cell phone via text. We know the teams there well. We've probably had more discussion with the new government on the importance of mining and the opportunity of mining to contribute to Canada than we had with the previous government over several years. So we're very pleased. They are very smart. They're very engaged, and they really are interested in leveraging mining, for example, to contribute to the average Canadian.

Anita Soni, Analyst

First question is with respect to Hope Bay. What are you expecting to deliver by year-end in terms of a resource update? And then what are you targeting for the 2027 study?

Dominique Girard, Senior Vice President

I could start maybe with the study, and I will let Guy answer about the resource update. On the study, we're expecting a PEA study with the engineering at over 40% to be delivered in the first half of next year. Again, as we did that mediating to really have a good view on the schedule and costs. We like to give the information when we have enough engineering done. I'm very happy to see the progress with the team, and before midyear next year, we're going to give you more detail on all those KPIs, Anita. And with that, I will pass it to Guy.

Guy Gosselin, Senior Vice President of Exploration

Yes, so as a follow-up, for year-end, I would say reserves will remain as last year. We're going to be updating indicated and inferred resources, integrating all of the new results we've been getting and expanding Patch 7 driven. Along with what Dominique described, our study in 2026 will include new development scenarios. Our desire would be to update with a brand-new PFS supported by reserves and resource filing by the end of 2026.

Anita Soni, Analyst

Okay. I have a question about costs. You mentioned tariffs, and it sounded like the usual cautionary language. I'm trying to understand your inflation expectations for next year. Are we looking at the usual 3% to 5% range? You also mentioned optimizations to manage some of that inflation. This year, you've managed to keep costs within the original range despite a significant gold price increase of over $1,000. What should we expect as we look toward 2026, considering other factors like changes in grades?

James Porter, CFO

Yes, Anita, it's Jamie here. We're obviously working through the budgeting process now. I think 3% to 5% is where we've seen labor inflation over the past several years, but across all of our costs, it's been closer to 6% to 7%. And if you go back over the last 3 years, the average cost of inflation we've seen has been 6% to 7%. Our guidance has been up on average by about 3%. So we've been able to do a bit better than the rate of inflation over the last few years. Going into 2026, I think we're seeing a similar level of inflation around 6% to 7% across all of our various cost components, and obviously, we're seeing pressure on royalty costs as a result of the higher gold price. So we would expect costs will be higher next year just based on the impact of higher gold prices. But as we've talked about through the call today, we're always looking at opportunities to do better than inflation.

John Tumazos, Analyst

Could you review the rigs operating across the company? I think I heard there were 29 rigs at Malartic and the meters were being increased by 55,000 to 220,000 for the year. Could you give us that review across the portfolio, please?

Ammar Al-Joundi, CEO

Thank you for the question, John. I'm going to ask Guy to comment on that.

Guy Gosselin, Senior Vice President of Exploration

Yes. The 120 rigs we reported are distributed across operating mines and advanced projects. I can provide more details later if you're interested, but we currently have 29 rigs in operation. The 220,000 meters you mentioned relate to Detour, where we also have 9 rigs active. Quarter-over-quarter, we've maintained the same number of rigs, but productivity has increased, and we aim to continue drilling at the same pace in the fourth quarter, especially where we've seen positive results, particularly in the pipeline. As a result, we expect to reach around 1.25 million to 1.3 million meters by year-end without significantly increasing expenses, thanks to reduced unit costs from our productivity enhancements, such as unattended drilling. Essentially, this means that when the driller finishes his shift and prepares for blasting and gas clearance, he can just press a button, and the drill will keep working between shifts. Being able to drill an additional 3 meters at the end of each shift can be quite impactful for an underground mine. With our current fleet of rigs, we're able to accomplish more, and we'll maintain our drilling rate due to the favorable results. Overall, we anticipate our global exploration budget for the year will remain around $525 million, according to our latest forecasts.

John Tumazos, Analyst

Could you just run through several sites where the most rigs are running? I don't remember how many rigs were at each site.

Guy Gosselin, Senior Vice President of Exploration

Yes. Well, maybe I can provide you with those details offline, but we have those 29 in Malartic, we have 9 at Detour. We have 12 in Macassa. We have 6 at Hope Bay, so maybe I can provide you with the detailed list of the spread of our rigs offline, John.

Tanya Jakusconek, Analyst

I want to discuss the reserve and resource replacement for the end of this year and into 2025. It seems that we will see an increase in reserves at East Gouldie, which was the main focus I noted, along with resource growth at Detour and Hope Bay. Is that accurate?

Guy Gosselin, Senior Vice President of Exploration

Yes, I can take it. We are in a good position to fully replace what we mine at Kittila, Macassa, and several of our sites will see some partial replacement. We will also have Marban that will come into play with the first iteration. Overall, we expect to see net growth, factoring in mining depletion by year-end of around 0.25 million to 0.5 million ounces year-over-year, despite having mined and extracted 3.8 million and expecting to produce 3.45 million this year. In summary, the drilling has replaced what we've mined while showing slight growth year-over-year.

Tanya Jakusconek, Analyst

Okay. And should I be thinking as you have done historically that you take your reserve and resource pricing and you look at inflation and adjust accordingly? So I know your reserves are at about $1,450 and resources at $1,750. If I factor in that 5% to 6% inflation, I guess, $1,550 and $1,850, respectively, should I be thinking that's how you're going to approach your pricing for your reserves and resources at year-end?

Guy Gosselin, Senior Vice President of Exploration

Well, that's a very good question. Obviously, with the current gold price environment, we are assessing that question, and we're working on it. But our care remains to deliver the margin ounces upfront. Therefore, we don't want to lower the cutoff grade that will change our mining sequence in the upcoming couple of years. So we are looking at it on a mine-by-mine basis; if there is some excess milling capacity. We might flex our gold price assumption on some projects, whether it's a life-of-mine extension scenario or where there's additional milling capacity. But our firm intention remains to keep the cut-off rate stable while, as you described, offsetting inflation by moving the gold price up in line with that inflation we see overall in the market.

Tanya Jakusconek, Analyst

So then it's really what you talk about is real actual replacement of ounces rather than any movement in gold price for what you're seeing for year-end?

Guy Gosselin, Senior Vice President of Exploration

Yes.

Tanya Jakusconek, Analyst

Yes, could you share your strategy regarding the overall portfolio, especially from an investment equity perspective? I'm also curious about your assets, as there are some smaller ones included. Specifically, when considering your equity portfolio, would it be accurate to view your investment in Perpetua as a single investment? Should I consider that any sales or gains from this investment will be reinvested into other equities, rather than being allocated for shareholder returns?

Ammar Al-Joundi, CEO

Thank you for the question. No, the money belongs to our owners. We make strategic investments in opportunities that we believe can create value for them. Our approach is not to treat these as trading positions but rather to align with our philosophy of being disciplined with capital. It's a chance to make an early investment and learn about projects we may be interested in. For instance, with Orla, there's a long history, and eventually, Orla excelled, meaning they no longer needed our support. There was significant capital tied up, so we liquidated that position. However, the proceeds do not go into a pool for equity distribution; they are our owners' funds and have to compete with other investments. Any spending on our mines, technology, or other projects must justify its business case. Therefore, we don't simply reallocate those gains to future equity investments; they are treated as part of our owners' money.

Tanya Jakusconek, Analyst

Okay. So it just goes part of your cash flow and then gets allocated accordingly.

Ammar Al-Joundi, CEO

Correct.

Tanya Jakusconek, Analyst

Okay. And then in the portfolio itself, as you hire gold prices, everyone is looking at their portfolio and some you have a lot of big assets that you're focusing on coming up with these top 5 assets that you talk about. Anything that you see as anything within the portfolio for noncore?

Ammar Al-Joundi, CEO

Yes. I just looked at it this morning, John and I talk about this all the time. You're right, Tanya. There are some things that transition well, and we continue to be interested in. And as you would expect, and as has been the history of our company, there are some projects that while we invest in early, we end up concluding don't meet the criteria for our owners, and we will be disposing of them. And frankly, again, you're right at these current gold prices, it's not a bad time to in some cases, sell those assets.

Operator, Operator

There are no further questions at this time. I will now turn the call back over to Mr. Ammar Al-Joundi. Please continue.

Ammar Al-Joundi, CEO

Well, thank you, everyone, once again for joining us this morning. More importantly, thank you for being our friends and supporters over many decades in many cases. Have a nice weekend.

Operator, Operator

Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.