Earnings Call Transcript
Agnico Eagle Mines Ltd (AEM)
Earnings Call Transcript - AEM Q4 2025
Operator, Operator
Good morning, ladies and gentlemen. My name is Vanessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited Q4 2025 Conference Call. Thank you. 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 Fourth Quarter and Year-end 2025 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. This morning, we're pleased to announce another strong quarter, capping off a remarkable year. In 2025, as gold prices hit new highs throughout the year, Agnico Eagle delivered on our production targets, we delivered on our costs, and we did it responsibly and reliably. While the price of gold went up $1,700 year-over-year, our cash costs went up $76 per ounce. This means we delivered over 95% of this gold price increase to the benefit of our shareholders, delivering on our core mandate of providing gold upside leverage to our owners. In 2025, we repaid almost $1 billion in debt. We built up almost $3 billion in cash, and we returned over $1.4 billion directly to our owners through dividends and share buybacks, all while continuing to invest heavily in our future through the largest exploration budget we've ever had and through continued strong investments into our 5 key growth projects. In an exceptional year for gold, Agnico Eagle delivered on our commitments to our owners, to our employees and to our communities. This strong momentum continues into 2026 and beyond, supported by a stable annual production profile of between 3.3 million to 3.5 million ounces over the next 3 years at peer-leading costs while reporting record reserves, record resources, record inferred ounces and an increase to our dividend. While 2026 cash costs are forecast to be up a little over $100 per ounce compared to last year, more than half of that increase is from the assumption of higher royalties and a stronger Canadian dollar. Excluding those assumptions, our cost increase is about 4% to 5%. This would be at or slightly below the inflation we saw in the industry last year. So good cost control on the factors that we can influence. Our reserves are at a record 55.4 million ounces, up 2%. Our resources are at a record 47.1 million ounces, up almost 10% and our inferred ounces are at a record 41.8 million ounces, up a remarkable 15.5%. 2025 was an exceptional year, and our near-term prospects look even better. But the real story this morning, the real excitement is not in looking back or even the next 3 years. The real excitement this morning is that Agnico Eagle is in the best position we've ever been in, and we're already aggressively advancing our next phase of growth and growth per share. This morning, we want to focus on our plan to increase production by up to 20% to 30% over the next decade with a path to over 4 million ounces of annual production by the early 2030s. This growth is from the highest quality projects in the best jurisdictions in the world. This growth is from projects we already own in jurisdictions we know well with existing teams and, in most cases, leveraging off existing infrastructure. This is important because our job isn't simply to grow but rather, it's to grow value for our owners on a per share basis. In our industry, growing in stable jurisdictions, leveraging existing infrastructure not only delivers to our owners the best return on capital, but also the best risk-adjusted return on capital. Next slide, please. These assets were over the past few years, we've been investing substantial time, energy and money and where our investments are accelerating. We're at a point where we see a step change in production per share starting in 2030, and we're eager to share our progress with you this morning. At Detour Lake, the largest gold mine in Canada, where we're executing a plan with the potential to deliver an additional 300,000 to 350,000 ounces per year through the development of an underground mine, we've added 4.3 million ounces of resources during the past year in the high-grade mineralized corridor that's amenable to this underground mining. And we're tripling our investment from $100 million to $300 million as we accelerate our work towards a go-ahead decision mid-2027 and potential to start underground production as early as 2028. At the Canadian Malartic complex, the second largest gold mine in Canada, where we see an opportunity to add a remarkable 400,000 to 500,000 ounces per year through our fill-the-mill strategy. We've added 9 million ounces of reserves since our last technical update. We're ahead of schedule on the ramp, expected first production from East Gouldie this quarter and ahead of schedule on the first shaft expected to commission in 2027. We're making excellent progress evaluating opportunities to fill-the-mill further via the Marban open pit, via Wasamac underground and via a second shaft, all 3 with targeted first production by 2033. At Upper Beaver, which is expected to produce over 200,000 ounces per year, we're ahead of schedule again on both the ramp and the shaft. We're increasing our investment from $200 million to $300 million to accelerate the development of the project with the goal of bringing production forward to 2030. At Hope Bay, where we're working on a study that supports a 400,000 to 425,000 ounce per year operation, we saw a 46% increase in inferred mineral resources, primarily from Patch 7. We expect a study update and potentially a project approval as soon as May of this year. We continue to make good progress at San Nicholas and hope to have permits to move forward shortly. These projects alone have the potential to add 1.3 million to 1.5 million ounces of highly profitable annual production. And in each case, we've made excellent progress, and we're moving forward aggressively. With that introduction, I will now turn over the presentation to our CFO, Jamie Porter, to review our third quarter and full year results.
James Porter, CFO
Thank you, Ammar. As Ammar mentioned, we delivered record financial results in 2025, driven by a strong operating performance, disciplined cost control and a supportive gold price environment. We finished the year with a solid fourth quarter, producing approximately 841,000 ounces of gold at total cash cost of $1,089 and all-in sustaining costs of $1,517 per ounce. Costs increased quarter-over-quarter, primarily due to higher royalties, lower production volumes and higher costs at our Meadowbank mine associated with extending mine life. Despite higher costs, we delivered a number of financial records in the fourth quarter, including record adjusted earnings of approximately $1.4 billion or $2.70 per share and record free cash flow of over $1.3 billion or $2.62 per share. For the full 2025 year, we exceeded the midpoint of our guidance with gold production of 3.45 million ounces, underscoring our consistent track record of execution. Total cash costs and all-in sustaining costs were $979 and $1,339 per ounce, respectively. Both were slightly above the top end of our guidance ranges due to higher royalty costs driven by an average realized gold price of $3,454, nearly $1,000 per ounce above our guidance assumption. We exclude the impact of higher royalties; our total cash cost would have been $937 per ounce, $42 per ounce lower and below the midpoint of our guidance, again, reflecting strong cost discipline and execution by our operating teams. With this performance, we generated strong leverage to the gold price, capturing approximately 95% of the increase in gold price and margin expansion and delivered record financial results across the board, including approximately $4.4 billion in free cash flow for the year. Our record financial performance and continued margin expansion benefited our shareholders, both through increased direct returns and through a materially stronger balance sheet. In 2025, we repaid approximately $950 million of debt and increased our cash position by $1.9 billion, ending the year with $2.9 billion of cash. We delivered record shareholder returns through share buybacks and dividends, totaling approximately $500 million in the fourth quarter and a record $1.4 billion for the full 2025 year. We are in the strongest financial position in our company's history, and we believe we are exceptionally well positioned in the current gold price environment. We expect to continue to increase shareholder returns. We increased the quarterly dividend by 12.5% to $0.45 per share. And at current gold prices, we expect to be more active on share buybacks. To support this, we intend to renew our normal course issuer bid in May and increase the purchase limit up to $2 billion. In 2025, we returned approximately one-third of our free cash flow to shareholders, and we see the potential to increase that to 40% or higher this year with flexibility depending on the gold price and the needs of the business. At the same time, we remain focused on further strengthening our financial position. As a reminder, given our strong profitability, we are required to pay a significantly higher cash tax liability related to the 2025 fiscal year this February, which is approximately $1.3 billion, and we have the cash on hand to fund that obligation. Lastly and importantly, we continue to deploy capital in a disciplined manner to advance our highest return organic growth opportunities. While current gold prices are driving strong cash flow generation, we remain committed to disciplined capital allocation with a continued focus on enhancing long-term shareholder value. We have updated our guidance and continue to expect stable production levels over the next 3 years. We're especially proud of the work our team has done as we were able to provide an improved outlook for 2028 relative to consensus, supported by a life of mine extension at Meadowbank and higher levels of production from Canadian Malartic, Fosterville and Kittila. We turn to costs. The midpoint of our 2026 guidance ranges are $1,070 per ounce for cash costs and $1,475 per ounce for all-in sustaining costs. Approximately 60% of the increase in cash costs relative to 2025 reflects higher royalties, driven by a higher budgeted gold price of $4,500 per ounce and the impact of a stronger Canadian dollar. The remaining 40% of the increase reflects expected inflation of approximately 4% to 5% and the impact of lower grade mining sequences. Beginning in 2026, to enhance consistency and comparability across our Nunavut operations, we have adjusted the calculation of total cash costs and all-in sustaining costs to exclude certain payments at Amaruq that are made to the NTI, an organization representing the Inuit of Nunavut. These payments have similar characteristics to mining duties we pay under the Nunavut mining regulations, which are already excluded from the calculation of total cash costs and all-in sustaining costs. Our cash costs and all-in sustaining costs remain hundreds of dollars per ounce below those of our peers, reflecting the quality of our asset base and continued cost discipline. If we look at our capital expenditure guidance, it reflects our focus on reinvesting in the business to lay the groundwork for our next phase of growth. We are accelerating capital at Detour Underground and Upper Beaver through mid-2027. In addition, Hope Bay represents an attractive growth opportunity. If approved, we expect additional capital of approximately $300 million beyond what is currently reflected in the guidance for 2026. Together, these projects represent compelling opportunities that deliver strong returns with significant upside and the potential to create value for decades to come. Overall, our updated guidance reflects a consistent and reliable business at peer-leading costs as we continue to advance our pipeline of growth projects and remain well positioned to deliver meaningful leverage to higher gold prices. With that, I'll turn the call over to Dom.
Dominique Girard, CRO
Thank you, Jimmy. Good morning, everyone. I will discuss the operational and key project highlights for Quebec, Nunavut, and Finland. The fourth quarter has been stable and consistent, contributing to a strong outlook for 2025 in terms of production and costs. I appreciate all employees and management teams for their commitment, engagement, and especially for their collaboration in improving the business. A good example of this collaboration is our enhanced use of data, which is highlighted in our outlook. At LaRonde, over the past six months, the team has worked on telemetry to analyze data regarding equipment and operator behavior to better understand performance. As a result, they have improved the operational hours on transmissions and motors from 3,000 hours to now 6,000, 7,000, and 8,000 hours. This success stems from developing in-house expertise in data analysis and identifying trends, which in turn allows us to provide better feedback to operators and trainers. This approach not only increases efficiency but is also applicable to other operations and projects we are currently developing. Through our collaboration, we are now transferring knowledge to Goldex and other divisions. We are currently piloting a fleet management system at LZ5. This will include a dispatch system for our ramps, which can sometimes be chaotic when underground. We aim to improve that situation. The insights gained will also be implemented at Odyssey and Amaruq later this year. Additionally, we have positive news about the Meadowbank mine, with its life extended to 2030. Meadowbank has significantly contributed to achieving our production goals for 2026 and 2030 by adding more ounces. Although these ounces come with higher costs, they are low risk given our current infrastructure. This is encouraging, and we appreciate the team for continuing to explore options for further extending operations beyond 2030, which is still being evaluated. Next page. Malartic fill-the-mill strategy. So back in 2023, when we released our first updated study on that, we had 9 million ounces. The mine life was going to 2042. With the good drilling done, we've been able to potentially extend by double that mine life. So with the first shaft, which is illustrated on the first line here at the bottom and the ramp, we're still very in good position to deliver that on time, on budget. But since we are adding more ounces, that could bring us up to 2056, 2057. So this is why the second line is now into play. How could we bring those ounces faster into the time? The team is working on that to potentially have a second shaft in operation in 2033. That's one part of the vision of the 1 million ounces. Again, back to the 2023, we, at the time, set a vision, okay, how could we bring that to 1 million ounces using just 1/3 of the mill. The first second shaft is a good example. And in the last 3 years, we have worked to bring also Marban and Wasamac satellite ore body that's going to be transported to Malartic, and that also could bring more ounces. If you do the sum of that, we're at the 1 million ounces. We are progressing well into the studies, and we're targeting to give you more information on that potentially end of Q3, early Q4 next year that you're going to be able to have a better view on all of them. So very positive news. The fill-the-mill strategy is taking place, and there's still room also at the mill. If you do the sum, all of that, you're going to be at 46,000 ounces per year. So there's still over 25 drills running into the region around Canadian Malartic, and who knows where we're going to be in 3 years from now. Next slide. At Hope Bay, following the acquisition of TMA in 2021, we set a target to increase production to over 350,000 ounces per year to ensure the project's profitability. The positive news is that we are now approaching that target, and we plan to provide more details in May this year. The study indicates a capacity of 6,000 tonnes per day, exceeding 400,000 ounces per year. We are prepared to initiate a 10-year life of mine, and if everything proceeds as planned, we are ready to invest an additional $300 million beyond our current guidance. This is encouraging. The study is founded on solid data from Meliadine and Amaruq mine benchmarks, giving us confidence in the anticipated costs and operational plans, supported by historical information regarding operational and capital expenditures. Secondly, we will exceed 50% of engineering, which was a clear target that we are achieving. Our execution on this project is well-established, and we have the experience needed. The same team and some of the same contractors will be involved, and we are confident it will be a success. Now, I will hand it over to my excellent teammate, Natasha.
Natasha Nella Vaz, COO
Thanks, Dom, and good morning, everyone. I'll cover the operational highlights for Ontario, Australia and Mexico. The regions delivered full year production as planned and demonstrated balanced execution across the portfolio. And at the same time, they continue to advance initiatives to further optimize our performance. At Macassa, we're very proud of the team as we've achieved record gold production. And in 2025, anticipating declining reserve grades in the coming years, the team proactively initiated work to increase mill throughput. And now in 2026, we continue to advance these initiatives with a target to increase throughput to 2,150 tonnes per day by the end of 2027. At Fosterville, we're taking a very similar approach to managing declining reserve grades. We now have a plan to increase the milling and mining rate to 3,300 tonnes per day by 2028 through various optimization efforts. And this plan is expected to support annual production of somewhere around 160,000 to 190,000 ounces starting in 2028 and into the early 2030s. And we continue to see significant upside at Fosterville through exploration to support mine life extension. At Detour, despite the pit delays this year, the mill achieved record annual throughput of 28 million tonnes. That represents a 35% increase since the mill expansion began 6 years ago. I just want to take a moment to commend the site team for this achievement. It was a lot of hard work to get there. So I just wanted to say a quick thank you to the team. The team is now focused on further optimization with a revised timeline to support a more measured ramp-up to 29 million tonnes, giving the team a little bit more flexibility and to optimize processes and embed sustainable operating practices. Now moving to the next slide. The mill optimization that I just spoke about to 29 million tonnes is part of Detour's next phase of growth, which also includes the development of an underground operation. We're advancing on both fronts, and we have a clear line of sight to achieving 1 million ounces of annual gold production in the early 2030s. In 2025, we made good progress in advancing permitting in exploration, in high-intensity drilling, in establishing the key infrastructure on surface and, of course, developing the exploration ramp. So given our increasing confidence in the underground project, we've decided to accelerate approximately $200 million of capital through to mid-2027. This acceleration of capital is expected to derisk project construction and ramp-up and also could accelerate the development towards the main ore zone. At the same time, we're also assessing to begin incremental underground production from a shallower Western extension zone as early as 2028. So since our last project update in June 2024, the mineral resources have increased significantly. As a reminder, only 4 million ounces were included in the underground study update in June 2024, while our year-end mineral resources are now roughly at 6 million ounces in measured and indicated and another 6 million ounces in inferred. And considering the continued exploration success, we feel that there is an opportunity for a larger underground mine than the one we first envisioned. The combination of exploration success and this higher gold price environment has given us a lot of optionality at Detour that we're in the early stages of evaluating. This could include a higher milling capacity, a larger underground scenario or a larger open pit. We said when the study was completed in 2024 that this was just a snapshot in time, and we continue to believe that. So stay tuned. We feel that further opportunity is still ahead at Detour. Now moving to Upper Beaver. The project continues to advance very well there. The exploration ramp is ahead of schedule. And in the fourth quarter, we began shaft sinking and by year-end, the shaft reached a depth of 155 meters. The team has done an excellent job. And given their strong execution, we're now planning to spend an additional $100 million from now until project sanction that's expected in mid-2027. Again, like the Detour underground project, this acceleration of capital is expected to derisk the construction and ramp-up and also accelerate initial production to 2030. Now I've said this before, but the Upper Beaver project could unlock significant long-term value across the company's wider Kirkland Lake camp. In addition to the potential extension of the mineralization at depth at Upper Beaver, the project could also support a centralized mill strategy for satellite deposits that are nearby, like Upper Canada or Anoki-McBean . All in all, the Upper Beaver project is progressing very well. I would like to end by just thanking the teams for their passion, their persistence, their incredible efforts in 2025. It's very much appreciated, and I look forward to continuing to advance the optimization efforts with you and the key projects. With that, I'll pass the call over to Guy.
Guy Gosselin, Head of Exploration
Thank you, Natasha, and good morning, everyone. First of all, I would like to take a moment to thank all of the exploration team at the different mine sites and regional exploration offices across the company for an excellent year for safety, productivity and cost control. We had more than 120 drill rigs in action through the year in 2025 and safely completed nearly 1.4 million meters of core drilling while controlling our unit costs that were slightly lower than the previous year. Our commitment to innovation led by our drilling excellence team continues to pay off and will be an important part of our success moving forward as we are undertaking 2026 with an objective to exceed 1.5 million meters of drilling. On Slide 14, the 2025 exploration drill program across our operation and key pipeline project, combined with the acquisition of the Marban project next to the Canadian Malartic complex led to a very strong mineral reserve and mineral resources total at year-end 2025. Year-over-year, our mineral reserves are up 2.1% to 55.4 million ounces. Our measure and indicated mineral resources are up by almost 10% to 47 million ounces. And our inferred mineral resources are up by an impressive 15.5% to 42 million ounces, demonstrating the strong exploration upside of our asset. And as we can see on the graph on the right-hand side of that slide, if we look globally since the merger in early 2022, despite the fact that we've mined approximately 15 million ounces over that period of time, we'll still manage to significantly grow our mineral reserves net of mining depletion to a record of 55.4 million ounces through successful exploration, conversion, delivery of studies and smart acquisition over the last 4 years. From a results standpoint, I would like to comment on 3 projects. On Slide 15, in Malartic, the great result produced throughout the year at East Gouldie, Odyssey and the parallel Eclipse zone led to an addition year-over-year of about 470,000 ounces in underground proven and probable reserves and of 2.9 million ounces in inferred mineral resources, including 600,000 ounces from the newly discovered Eclipse zone parallel to the East Gouldie close to our planned mining infrastructure. And on the adjacent Marban project, 128 drill holes were completed totaling in excess of 39 kilometers of drilling in 2025. An initial mineral reserve declaration of 1.58 million ounces was made from 52 million tonnes at 0.95 grams per tonne as part of our fill-the-mill strategy. The initial mineral reserve was calculated from the existing drill hole database at the time of the acquisition and did not incorporate any of the 2025 drilling. We plan to deliver an updated study of the Marban project at the end of '26, incorporating new drilling as well as additional opportunities for synergy with the Canadian Malartic complex relating to workforce, equipment and facilities to optimize Marban as part of our fill-the-mill strategy. Now on Slide 16, at Detour, drilling has continued extremely well in the year with 215 kilometers of drilling completed, mostly focused on the infilling and expansion of the mineral resources towards the west to advance the underground project. Two areas were specifically targeted, one below and around the center point of the current reserve open pit illustrated here in orange on this graphic. The results in this area continue to support the two mining approach with several wide intervals with combined width exceeding 200 meters locally between 1 and 2 grams per tonne, including narrower high-grade intercepts reaching up to 10 grams over 10 meters that could be mined sooner from underground while keeping the option to mine a much wider, lower grade surrounding mineralized envelope in a future larger open pit scenario. The other area being targeted is located 3 kilometers to the west and outside of the current ultimate open pit scenario, close to the underground exploration ramp currently being developed. This area also returned strong results up to 10 grams over 10 meters and remains open at depth into the west. At year-end 2025, the resources amenable for the underground mine project now stands at 5.5 million ounces in measured and indicated and 5.8 million ounces in inferred. This will provide a much larger mineral resources base for the upcoming update of the Detour underground project compared to the 2024 initial study that incorporated only 4.6 million ounces in the first iteration of the mine plan. And last but not least, at O3, we had 6 drill rigs operating through the year, completing an excellent total of 131,000 meters of drilling in 2025. We continue to see strong results in the Patch 7 area, both at depth and in the southern extension. The excellent results throughout the year resulted in the addition of 1 million ounces year-over-year in inferred resources, primarily from the Patch 7 area. The substantial growth in mineral resources since acquiring the project in 2021 has provided us with a much larger resource base to support the project redevelopment plan previously discussed. In 2026, exploration will continue to aim at growing and converting resources to reserves, supporting project development and delivering an updated reserve estimate by the end of 2026. Overall, it has been an excellent year in exploration, significantly increasing reserves to support our short- to medium-term production growth vision. More importantly, there has been a substantial 15% increase in inferred resources, boosting our confidence in a promising future. This outcome highlights the impressive exploration potential of our project portfolio and the exceptional efforts of our exploration, technical services, and operations team across various operations and key value-driving projects. And on that, I will return the microphone to Ammar for some closing remarks.
Ammar Al-Joundi, CEO
Thank you, Guy. At Agnico Eagle, we are proud of our record of growing value per share for our owners over decades, not only by providing full leverage to gold prices, but also importantly, by growing gold production per share. As we look forward, we're excited that even as the second largest producer of gold in the world, we see a clear path to a decade of continued and meaningful increases in production per share at peer-leading costs with exceptional risk-adjusted returns. And we're already working on additional projects that have the potential to add even more growth, including early work on Hammond Reef, Timmins East and Northern Territory. As you can see, we continue to work hard for all of our stakeholders, and we will continue to build off the same foundational strategic pillars that have served us well over the past 68 years. We're going to continue to focus on the best mining jurisdictions based on geologic potential and political stability. We'll continue to be disciplined with our owners' money, making investment decisions based on technical and regional knowledge, creating value through the drill bit and through smart acquisitions where and when it makes sense. We are uniquely well positioned with a quality project pipeline, leveraging existing assets in the best regions in the world and where we believe we have a strong competitive advantage. And we will continue to be focused on creating value on a per share basis and on being leaders in our industry in returning capital to shareholders as evidenced by over 42 years of consecutive and growing dividend payments and increasing share buybacks. In summary, 2025 was a great year for the gold market. 2026 is off to an even stronger, albeit volatile start. And while we don't have a crystal ball to predict prices next week or next month, we do remain constructive and positive on the long-term gold price going forward due to global structural financial and political currents that are not easily changed. Our goal is not only to give our owners full upside leverage to gold prices, but to give them more gold per share over time. We've done that for decades, and we have a solid plan in place to continue to do that over the next decade, all while having the highest quality assets in the best jurisdictions in the world at peer-leading costs. At Agnico Eagle, our business is going well, and we're in the strongest position in our almost 70-year history. Thank you again for joining us on this call. Operator, may I ask that we now open up the call for questions.
Operator, Operator
And we have our first question from Lawson Winder with Bank of America.
Lawson Winder, Analyst
If I could just tackle the subject of M&A right off the block, and I understand that it's probably a little bit sensitive right now, but any color you could provide would be helpful. But has Agnico decided if they would tender their shares to the offer currently out on Foran.
Ammar Al-Joundi, CEO
Well, thanks, Lawson. Look, like any M&A activity, the decisions are up to the various shareholders, and there's a lot more shareholders than us. So that's not really something I would be comfortable discussing.
Lawson Winder, Analyst
Okay. I thought I would try anyway, but I completely understand. And then maybe just sticking with that theme, there has been an acceleration in M&A activity in the gold space in recent years, but even in recent quarters. What is the current view from Agnico in terms of M&A? And of course, I mean, I acknowledge that you have tremendous growth potential in the existing portfolio. But I mean, opportunities do emerge from time to time. What is the thinking on that, particularly with respect to jurisdiction, but also just respect to your thoughts on potential urgency around M&A.
Ammar Al-Joundi, CEO
Well, it's an excellent question. And I'll start M&A, like exploration, like project investment is a capital allocation decision. And it's our owners' money, and we take that seriously. And everything we invest in is designed to create value for our owners on a per share basis. What does that mean for M&A? That means a couple of things. The first part is, are you positioned to be able to identify and assess good opportunities to invest your owners' money, including in M&A. And I think we're very well positioned. You know us. We know everybody in the communities and the regions we work with. We have good relationships. We have, in many cases, a very good understanding of the various assets out there. So we are well positioned, and this is important, like it's easy to buy stuff. It's hard to buy stuff that makes money for your owners. So the first thing is, are you positioned to have a knowledge advantage? And I think we are well positioned there. But what I would say, Lawson, is we are willing to move and we have moved when we see an opportunity on the M&A side that actually creates value per share. We're not interested in just getting bigger.
Operator, Operator
We have our next question from Fahad Tariq with Jefferies.
Fahad Tariq, Analyst
Maybe just to clarify, there were a few cost productivity initiatives mentioned in this presentation. I remember there were a lot more also mentioned in the last quarter presentation. Is this already incorporated in the 2026 ASIC guidance? Or is this further improvement from the guidance that's provided?
Dominique Girard, CRO
I would say it's partially included, but not entirely. It's Natasha's and my responsibility to set the appropriate expectations for budget and guidance, while maintaining some flexibility in that.
Fahad Tariq, Analyst
Okay. And then just regarding the underlying inflation, I believe it was mentioned in the press release that there is around 4% underlying cost inflation. Can you remind us or provide any additional information on consumables compared to labor? Fuel is likely a positive factor at this time. Are there any significant labor agreements approaching renewal in 2026?
James Porter, CFO
Yes. So Fahad, it's Jamie. I can comment on that. I would say our largest expense, aside from taxes, is labor, which constitutes about 45% of our total cost structure. We have experienced labor inflation of around 4%. Regarding other consumables like chemicals, reagents, equipment, parts, and supplies, there are some fluctuations, but overall, the inflation rate across the industry last year was approximately 5%. Therefore, we are seeing 4% inflation on labor and around 5.5% to 6% on other expenses.
Ammar Al-Joundi, CEO
When you look at what has driven costs up in the past, it's not typically about labor costs increasing from 4% to 6%. The real issue arises when there is a shortage of labor or parts. With gold prices at $5,000, we expect more pressure on the workforce. However, one of Agnico's strengths is our industry-leading low turnover rate. We have been the top employer in our operational regions for decades and have built strong relationships with our employees. More critical than whether labor costs rise to 5% or 6% is the ability to maintain low turnover and ensure productivity from our best workers. We believe we are well-positioned in the market for this.
Operator, Operator
We have our next question from Josh Wolfson with RBC Capital Markets.
Joshua Wolfson, Analyst
If everything goes according to plan with the project portfolio, I'm wondering if we should expect CapEx to increase in future years? Or should we think about the current run rate as more of a plateau going forward?
James Porter, CFO
Yes, Josh, it's Jamie here. That's a good question. With the anticipated 20% to 30% production growth starting in 2030 and continuing throughout the decade, we are starting to see the advantages of that capital investment. If we proceed with the Hope Bay project and approve its construction this May, it will add approximately $300 million to $350 million in capital. Considering our guidance of $2.1 billion and the $300 million for Hope Bay, we are looking at about $2.4 billion to $2.5 billion in capital this year, along with an additional $400 million allocated for exploration. I believe this range is appropriate for the next few years. We expect capital to remain at an elevated level, and once we begin to notice an increase in production in 2030, we should see a reduction in capital expenditures.
Ammar Al-Joundi, CEO
It's important to highlight that we are voluntarily speeding up these investments. These aren't cost overruns, nor are they reasons to accelerate due to current pricing. These projects genuinely yield remarkable returns in the 30% to 60% IRR range. Our goal is to generate profits for our shareholders, and achieving an IRR of 30% to 60% is beneficial. Therefore, I want to reiterate that these decisions to expedite what we believe are the best projects globally are made voluntarily.
Joshua Wolfson, Analyst
I hear you. I look forward to these project updates and the IRRs at $5,000 gold. Just on the capital allocation side of things, at current gold prices, even with the new dividend and assuming completion of the $2 billion upcoming NCIB, by our forecast, you're still building pretty meaningful cash at these levels. So when you think about our projections outlined potentially excess of $5 billion in the back half of this year of net cash, how do you think about allocating that in the event gold prices stay at these levels or potentially go higher?
James Porter, CFO
Yes. Thanks, Josh. I mean, obviously, we want to have as much financial flexibility and financial strength as possible because it just creates optionality in terms of how best to grow value in the business. to Ammar's point, I mean, we've identified the 5 key value drivers and how we think we can expand those. But based on the success that we've had through the drill bit, the projects keep evolving, and there could be the potential for further growth and further accelerations in capital spending. So we do want to make sure that we've got the balance sheet to be able to support that. If we end up between 3% to 5% of our market cap in cash on the balance sheet, I don't think that's a bad place to be. Again, it just gives us that financial foundation to be able to have the capacity to invest in further growth in the business.
Joshua Wolfson, Analyst
Got it. And maybe just to tie in that sort of train of thought and maybe Lawson's questions on M&A. I'm wondering on the M&A side, you sort of outlined, Ammar, the opportunity to create value per share, but there are a lot of projects the company has that look outstanding at current gold prices. So when you think about measuring external opportunities against the internal portfolio, what would make an M&A opportunity really look compelling beyond just per share upside?
Ammar Al-Joundi, CEO
That's a great question, and I appreciate you framing it in terms of competition with internal projects because, like anything else, the goal is to choose the best investment for our shareholders. On one side, with internal projects, there is always more knowledge available, so naturally, if I had two options with the same returns—one internal and one external—I would likely lean towards the internal option, since it's something I have more confidence in. However, what truly excites us and has driven our interest in external mergers and acquisitions is the potential for exploration upside. In this industry, when you acquire a high-quality asset, it might seem expensive, but the true value lies in your confidence in its exploration potential. This mindset has really shaped our approach to M&A. The actual returns for our shareholders have come from significantly enhancing what was initially perceived in these opportunities.
Operator, Operator
We have our next question from Daniel Major with UBS.
Daniel Major, Analyst
Can you hear me okay?
Ammar Al-Joundi, CEO
Yes.
Daniel Major, Analyst
Great. A few questions. First one, can you give us an approximate cost estimate of the ounces coming from the life extension at Meadowbank like out to 2030?
Ammar Al-Joundi, CEO
Well, I probably should have said to Dom because he's got more updated numbers. I think the last number I saw was sort of in the $2,200 to $2,300.
Dominique Girard, CRO
Yes, right there.
Ammar Al-Joundi, CEO
Okay, good. I just wanted to point out that those are additional ounces. So it's not like the costs went up. These are just additional ounces that make an awful lot of money at current spot prices. Something that's interesting, I'll just throw this out there. Meadowbank is on our books for, I think, $866 million. In 2025, Meadowbank made $870 million in cash flow. So it's been really quite a remarkable asset.
Daniel Major, Analyst
Okay. Yes. And sorry, just to be clear, that 2,200, 2,300 is that's an ASIC, not a total cash cost is correct?
Dominique Girard, CRO
Yes.
Daniel Major, Analyst
Yes. Okay. Yes, the second one, just to perhaps follow on from the capital allocation question in terms of returning excess cash to Josh's question, yes, I mean, would you consider the combination of buybacks and special dividends in a continued high price scenario? Or would you just extend the EUR 2 billion buyback facility?
James Porter, CFO
Yes. Thanks. I think we could really do either. I think there's no reason for us to rule out ever paying a special dividend. That would certainly be a consideration in, as you say, a continually rising gold price environment. If we achieve that cap of $2 billion, and we're still generating excess cash beyond what we need or anticipate needing to run the business, then that would certainly be a consideration.
Daniel Major, Analyst
Okay. And then one more, if I could, and it sort of incorporates your current project pipeline and other options. You obviously accelerating capital spend and adding more projects to the pipeline. Do you feel that any point in the organization is reaching a limit in terms of technical and kind of human capital? And if that is the case, in terms of other options like Hammond Reef, Taylor, Holt, etc., what could they be worth to somebody else? And would it ever be a consideration to recycle those projects?
Ammar Al-Joundi, CEO
Again, excellent question. So we always look at how do we get the most money for anything for our owners. So I would say that we are at a point with what we've got on the table very comfortable, but we are using a lot of our people. And so to the extent that we would look at, say, Hammond Reef or some of the others, they would be scheduled to take that into account, the manpower availability. And a lot of these jobs are very highly skilled, highly specific jobs. But your point is a good point. If it makes sense for someone else to own one of those assets, and they view that they can pay our owners more money than we see in it, we would always be open to that.
Operator, Operator
Our next question is from Anita Soni with CIBC.
Anita Soni, Analyst
I think we've discussed capital allocation extensively, but I would like to understand your approach to potential downsides on dividends. I recognize that you are conservative and have indicated that you never want to reduce your dividend. However, how did you arrive at the 12.5% figure instead of 25%? Are you using a specific pricing scenario as a baseline for determining dividends?
James Porter, CFO
Yes, it's Jamie. There isn't a specific gold price scenario we're relying on to establish our dividend in a downside situation. The truth is, even if the gold price were to drop significantly, we would still be able to maintain our dividend level. I'm very confident about an increase. We're raising it by $100 million, moving from $800 million to $900 million a year, which is a modest percentage of our total free cash flow. So, I feel comfortable making this increase. Additionally, we'll adjust our share buyback program based on our profitability and cash flow generation.
Anita Soni, Analyst
I wanted to discuss the projects a bit more. I appreciate the details you provided, which will help us understand how to leverage some of these reserves and resources in our models. Specifically regarding Hope Bay, I understand an updated study is set for release in May. Could you share any preliminary insights on the capital expenditures and figures we might expect?
Dominique Girard, CRO
Yes, Anita, it's Dominique. CapEx will likely be around $2 billion. We are still finalizing the details, but that's our target. The project is progressing well; we are preparing the site to accommodate over 400 new rooms for construction and are currently working on the landfill. We have about 100 employees focused on engineering to ensure we are ready for a budget of 50 to 60. This preparation is essential for determining the CapEx spending. When you have a solid amount of detail, it's straightforward to proceed to tender and collaborate with contractors and suppliers to confirm your figures. We did this successfully at Meliadine, completing six months ahead of schedule and on budget. We aim to replicate that success.
Ammar Al-Joundi, CEO
And as Dom mentioned, I think he used the expression, not our first barbecue in Nunavut. But in Nunavut, because of the logistics if you make a mistake, it's a lot more expensive. And so the team has done a great job on engineering and a great job on preparing the site. I'll add upgrades to the port facility, upgrades to the laydown facility. We've emptied already the previous no building. I mentioned the camp, like all the things between preparation and engineering to make sure that you're in the best possible position for execution, which is important in any project and particularly important in projects that have sort of those kind of logistical challenges.
Anita Soni, Analyst
I want to extend my congratulations on the impressive growth. It's a remarkable achievement for the senior group. Regarding Hope Bay, I recall there were some criticisms about that acquisition 4 or 5 years ago, but it appears to be shaping up well. Based on my rough calculations, your total all-in acquisition and build costs are approximately under $300 million. So, congratulations on that success.
Operator, Operator
Our next question comes from Tanya Jakusconek with Scotiabank.
Tanya Jakusconek, Analyst
Can you hear me?
Ammar Al-Joundi, CEO
Yes, we can, Tanya.
Tanya Jakusconek, Analyst
Okay, great. I wanted to follow up on Hope Bay in response to Anita's question. Dominique, could you remind me what you mentioned about receiving the go-ahead in May? If we do have a mine tour, it really should be in May or we might miss the barbecue. Can you clarify what exactly has been permitted for that $300 million budgeted for 2026, and specifically, what that amount will be used for?
Dominique Girard, CRO
Yes. We have all the permits to spend that $300 million. It's not an issue. There's some element to do before, let's say, getting into production, but there is no red flag on that. What we're going to spend, it's mainly procurement. It's mainly putting steel, concrete and everything we need. Again, we work with barge season. It's always what we need to spend from mid or let's say, the first barge in September '26, getting to the September '27, we need to put everything on the boat. So it is approximately 8 boats that we need to fill up and to deliver to site and to start some more work. This is one part of the spending. The other part is to do ramp development. So keep preparing the field to be ready for full production in 2030. So that's going to be the other part where we're going to spend money.
Tanya Jakusconek, Analyst
Okay. Okay. Look forward to that study in May. And then I have a second question, which comes back to this capital allocation. again. I wanted to understand, Ammar, from you. First of all, as I look at all of these projects and think about the time frame of 2031 for some of these to come in and '23, should I be thinking that there's about $5 billion of capital to support this growth? Is that somehow how I should be thinking about it? Or maybe Jamie can help me out on that as well.
James Porter, CFO
Yes, sure. I mean, at a really high level, if you walk through each of the projects, the Detour underground, potentially, if you round up $1 billion, Upper Beaver is $1 billion. Hope Bay is $2 billion. Beyond that, we'll be providing an update on San Nicholas likely later this year. But yes, $5 billion to $6 billion of growth spending over the course of '26 through 2030, I think is about the right estimate, Tanya.
Ammar Al-Joundi, CEO
And I would point out, it's sort of subtle, but the team has done a great job in pretty much keeping the sustaining CapEx steady.
Tanya Jakusconek, Analyst
Okay. And if I can squeeze one more in, I know. But maybe for yourself, Ammar, as you think about this capital allocation and as you think about M&A and as you look at obviously returns to shareholders, one thing is how important is it to own 100% of your assets? And the reason I ask is if Teck was to sell their 50% interest in San Nicholas, would that be something you would consider for your capital allocation?
Ammar Al-Joundi, CEO
If it made money for our owners on a per share basis, absolutely, we would consider it.
Operator, Operator
Our next question is from John Tumazos with John Tumazos Independent Research.
John Tumazos, Analyst
We increased the underground resources at Malartic this year, 7.5 million ounces. Should we expect 7.5 million more in the coming year? Or are we getting done with it first. Then second, in terms of converting the inferred resources eventually to reserves, is it more efficient to wait until after 2030 when the first and second shafts might be done, significant development has been completed and the zones can be either visually inspected or channel sampled or close space drilled from underground without the substantial cost of 0.5 mile or 1 mile holes from surface.
Guy Gosselin, Head of Exploration
John, this is Guy. So your first question, this year, we made a big push at converting the outskirt when you look at the pale green mineral inventory in the outskirt of East Gouldie to bring it to the inferred. So this is where you saw the big addition. There's still some mineral inventory in the outskirt, but much less than we were used to have. And it was by design because we wanted to tight fill that mineralized envelope to bring it to infer. And to your second question, we are already kind of doing some with the current infrastructure, with the ramp in the upper part of East Gouldie. We're going to be doing more and more of that conversion to reserve because you're right, achieving kind of the drill spacing to classify it to indicated or reserve is much more cost efficient from underground. So we're going to be doing having access from the current linkage ramp that goes all the way to the East Gouldie and from the upper part of East Gouldie, trying to do as much of the reserve conversion from underground. But there will be also a continuation of drilling from surface. But we've seen over the total number of drill rigs that Dominique was mentioning, there is a progressive shift towards much more drilling from underground compared to the drilling from surface. So we were really aiming to bring it to infer from surface, and we're going to be doing a lot more of the conversion towards reserve from underground. But I think that there will be a continuation of surface drilling as well.
John Tumazos, Analyst
Is it sort of the maximum capacity to add 2.5 million ounces a year to reserve? Or could it be faster?
Guy Gosselin, Head of Exploration
From inferred to reserve, this year, for example, we've added 470,000 ounces and our pace is about that to convert about 0.5 million ounces from resources to reserves moving forward. I think that's the achievable pace we're targeting.
John Tumazos, Analyst
So you got 20 years' worth of that in front of you? I'm kidding you, Guy.
Operator, Operator
We have our next question from Bennett Moore with JPMorgan Chase.
Unknown Analyst, Analyst
Congrats on a record year. Could you unpack the slowing of the mill ramp and change of sequencing at Detour Lake a bit further and implications on cost and CapEx for the next few years ahead of that growth trajectory into the next decade?
Natasha Nella Vaz, COO
Sure. You're talking about the timeline, Bennett, for the mill ramp?
Unknown Analyst, Analyst
Yes. And any implications, I guess, also including incremental stripping and things like that.
Natasha Nella Vaz, COO
Okay. Sounds good. So I'll start with the mill. So in terms of the mill, we did reach 28 million tonnes this year. It's a remarkable achievement for the team. The mill has been in expansion mode for the last 6 years, Bennett. And so the team was looking to just take a bit of time to stabilize the throughput and ensure that we have the sustainable operating practices in place. And this just gives the team a little bit of flexibility. So with respect to the timeline, we're looking at still getting the mill up and running to 29 million tonnes by 2030. And at the same time, when we reran our life of mine plan, we're looking at reaching the 1 million ounces in the early 2030s. So not much of a change on that end yet.
Ammar Al-Joundi, CEO
Yes. It's not only about throughput; it's also important to avoid recovery and reliability issues. Natasha has made a valid point—they have done an excellent job. I believe we have some of the best experts in the field, and we always consider their advice on how to achieve the best outcomes.
Unknown Analyst, Analyst
And then coming to Meadowbank, the mine life, it's nice to see extended to 2030, even if it's incrementally higher cost ounces. But wondering if you could give a better understanding of the opportunity beyond 2030 as it relates to an underground-only mine. I mean could this be of similar size and scale as we've seen over recent years?
Dominique Girard, CRO
The team is exploring the possibility of extending the Meadowbank mine, looking at areas below where we've previously mined at both Goose and Vault. We're hopeful about continuing our drilling efforts, especially with gold prices at 5,000 USD per ounce, which is beneficial for Nunavut and Meadowbank. Although the costs are higher, we're leveraging existing infrastructure with minimal capital expenditure, and progress is ongoing. I anticipate that we’ll have more detailed information around 2027, depending on the team's developments.
Operator, Operator
There are no further questions at this time. I will now turn the call over to Mr. Ammar Al-Joundi for closing remarks.
Ammar Al-Joundi, CEO
Thank you, operator, and thank you, everyone, for joining us. Please have a, for those of you who get the long weekend, please enjoy it with your families. Thank you.
Operator, Operator
And thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation. You may now disconnect.