Earnings Call Transcript - AEM Q4 2022

Operator, Operator

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Fourth Quarter Results 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi, CEO

Thank you very much, and good morning, everyone. It's a pleasure to be here and discuss 2022 and, more importantly, our excitement about 2023 and beyond, where we see exceptional opportunities that I hope all of you will recognize by the end of the call. Before we dive in, please keep in mind some forward-looking statements. Let’s start on page 5. We will cover both 2022 and 2023. The 2022 full year can be described by two key points: first, solid operational performance; and second, strategic consolidations that have created and will continue to create great opportunities that we will discuss. Operationally, we had a strong year regarding production, meeting our guidance, and impressively, our costs were at the upper end and slightly above our guidance, which we had communicated to the market. We all know that 2022 was challenging due to inflation and workforce issues, but the Company performed well overall. We made significant progress on key development projects like Odyssey and Detour Lake and achieved our best safety record in 66 years, which is remarkable. Additionally, we repaid $225 million of debt as it matured and maintained a quarterly dividend of $0.40 per share, which remains at a good level. We also increased our mineral reserves by 9% to nearly 50 million ounces, making it a robust year operationally. We will address the challenges of the fourth quarter, but I’m very proud of what our team accomplished this year. On the strategic consolidation front, the merger and integration between Agnico Eagle and Kirkland Lake was a success. I refer to it in the past tense because it’s complete. We achieved synergies faster and in greater volumes than anticipated, which is fantastic. The teams are collaborating exceptionally well, a trend that will continue into 2023 and beyond. We are also looking forward to acquiring Yamana's Canadian assets, most notably the remaining 50% of the world-class Malartic mine and its potential. These two strategic deals—the consolidation of Kirkland and Agnico and the acquisition of Yamana’s assets—are central to our strategy of consolidating the best operating regions for gold mining globally. Now, I want to highlight the significance of the Abitibi gold belt for us. This region spans about 160 by 200 kilometers and contains over 30 million ounces in mineral reserves and resources, with another 20 million ounces in inferred resources. These figures are comparable to those of the total Nevada Gold Mine JV, yet we own 100% of this area and have operated here for over 50 years. We believe this region holds substantial potential, and we anticipate producing over 2 million ounces at approximately $800 cash cost. This region is also vital for our operations in Nunavut, where we expect between 800,000 and 900,000 ounces of production. Thus, you can see the scale of our strategy in consolidating efforts over the past few years. When we merged with Kirkland, there was heavy focus on synergies. However, we were clear that we entered the merger due to the potential to consolidate this region while leveraging our competitive advantage in a highly promising environment. Moving forward, 2023 will focus on optimizing our resources. Although there are numerous initiatives underway, I'll highlight three key areas, which I think are vital to our presentation. First is Detour Lake, where we're experiencing exceptional exploration results both at depth and moving west. Our team, led by Natasha, is exploring options for mill expansion, aiming to increase capacity from 28 million tons to 30 million tons with minimal capital expense, while permitting allows up to 32 million tons. We are also on track to produce over 1 million ounces annually from this mine for decades to come. Next is the Canadian Malartic Complex. We're calling it a complex because that’s its future. We paid a fair price for the second half of Malartic based on its current life of mine. However, we believe there’s substantial untapped potential, and we intend to increase exploration as soon as the deal closes. We plan to initiate production in March, sinking the shaft, and evaluating the potential for additional ore sources. We see the Malartic complex becoming another producer of over 1 million ounces a year for decades. The third area to briefly mention is leveraging existing infrastructure throughout the region. This is crucial to realizing our full potential. We believe that from the assets we own near current mill capacity, we can achieve up to 500,000 ounces of additional production by 2030, starting slow in 2024 but ramping up significantly in 2028, 2029, and 2030 as mill capacity increases. This represents organic growth without the need for extensive new capital investment. If we can bring a mine into production without constructing a new mill or tailings facilities, we significantly reduce capital costs. This is truly the best form of organic growth, generating considerable returns for our shareholders while minimizing risk and environmental impact. Regarding 2024 and the fourth quarter, the first three quarters were exceptional from an operational standpoint, with production exceeding budget and strong cost control. I would categorize the fourth quarter as solid, despite some challenges, with the team still delivering commendably. We expect to exceed the middle of our production guidance of 3.2% to 3.4%, with the bottom threshold being 800,000 ounces, which is where we landed for the fourth quarter at a cost of $863 million. It's worth noting that costs were somewhat higher in the fourth quarter, attributed to full inflationary pressures and some operational challenges. At Kittila, we currently face a permitting restriction on mill throughput. We applied for a permit to increase from 1.6 million to 2 million tons a year, which was approved but is currently under appeal. Our budget assumes the 1.6 million tons. We are optimistic that this can be resolved soon, which would allow for an additional 30,000 to 40,000 ounces of production moving forward. At Fosterville, we have a noise restriction impacting about 25% of production. We are hopeful that this will be lifted, and if it is, it could add around 50,000 ounces a year. We aim for transparency with our shareholders about the challenges we face. LaRonde, which has been in production for 35 years, continues to yield remarkable grades. Sustainability is key for this asset, and we are advised to mine at a slower rate to ensure safety. As we explore laterally, we remain confident in locating additional operational phases to increase production rates in the future. Overall, it has been a strong year. I want to acknowledge Detour, Amaruq, and Goldex, all of which reported record years. Our operating margin for the quarter was about $720 million and approximately $3.1 billion for the year. We not only increased reserves by 9% but also boosted mineral resources by 12%. These resources serve as the foundation for future mineral reserves. We are enthusiastic about 2023 and beyond and will now turn it over to Natasha to discuss Detour, followed by Dominique on Malartic, and I will conclude with potential for additional production toward the decade's end.

Natasha Vaz, Vice President

Thank you, Ammar, and good morning, everyone. I'll provide a quick update on Detour and our vision to get to 1 million ounces per year, and I'll start with the mill expansion project. We continue to advance multiple initiatives to increase our mill throughput from 23 million to 28 million tons a year by 2025. The last major initiative in our plan to achieve 28 million tons was successfully completed in 2022 with the installation of our secondary crusher screens. The installation was completed in the second half of the year with the first line completed in Q3 and the second line completed in Q4. The initial results were very encouraging. We saw a daily average throughput equivalent to 28 million tons per year, but these rates are not sustained consistently over time yet. So now the focus at the mill has shifted to optimizing the mill processes, analyzing the wear and tear from the higher throughput to improve our maintenance practices and basically just improving the mill run time so that the higher throughput becomes more and more consistent over time. Based on the work that needs to be done, we see potential for a faster timeline than originally expected to be achieved in 2025. In addition to a faster timeline of getting to 28 million tons a year, as Ammar mentioned, we're also evaluating a pathway to increase the mill throughput beyond that with further optimization and fine-tuning of our mill processes and our maintenance strategy as we adapt them to higher milling rates. The mill optimization includes improved process controls. We're also implementing an expert system like we have at some of our other mills. So, these initiatives have the potential to achieve a range of somewhere between 29 million to 30 million tons a year with limited capital. Other ongoing initiatives include the screening and sorting of low-grade ore with the potential to bring the throughput even higher. The underground study is ongoing; an initial underground mineral resource associated with the mineralization outside of the planned final pit limits at depth and to the west is expected to be completed in the first half of 2023. This will be used as the basis for the potential underground mining scenarios that will be worked on in the second half of the year. We expect to complete an initial technical evaluation by year-end 2023. Moving to the next slide, I'll briefly touch on the exploration highlights at Detour in the last quarter, and I'll start with the infill drilling program. This was a program completed in the Saddle zone and just below the west portion of the pit, the area that you see that's highlighted in blue. The results shown on the right side of the slide continue to indicate a wide envelope of gold mineralization. Just west of the infill drilling, outside that mineral resource shell as part of the expansion drilling program, you'll see that we continue to show a similar trend where we had a hole that intersected a wide zone with pretty high-grade inclusions. This one included 10.2 grams per ton of gold over 28.9 meters. Finally, the regional drilling program also showed promise; this was a program that was conducted approximately 2.4 kilometers west of the West Pit mineral resource, and it showed signs that these pockets of gold mineralization along the Sunday Lake Deformation Zone still continue. So all in all, very encouraging results in the quarter for Detour. One other thing I wanted to mention is that the good exploration results discussed in prior quarters led to a significant increase in the mineral resource and mineral reserve update at year-end. The exploration highlights that I'm talking about today and in the news release only became available after the MRMR year-end update. So, it just shows the potential to continue the growth at Detour from both the open pit resources and advancing the understanding of the underground upside. With that, I'll pass the presentation on to Dominique Girard, our COO for Quebec, Nunavut, and Europe.

Dominique Girard, COO

Good morning. Thank you, Natasha. In the next few slides, I will update you on the Odyssey project and the status of our exploration and infill drilling, as well as our plans for developing the complex to support our mill. We are on track with our development ramp-up and expect to conduct our first blast in March, which is on schedule. This year, we anticipate approximately 50,000 ounces from Odyssey South. The construction project is progressing well, despite challenges related to logistics and workforce. Our onsite team has made significant advancements, although we faced some difficulties with wind and crane operations last quarter. This quarter, we are back on track with the steel installation in the shaft and aim to begin shaft sinking by the end of this quarter. By mid-year, we expect 80% of the surface construction to be completed, including the electrical line, head frame, garage, warehouse, and Phase 1 of the paste plant. All costs and schedules are secure, and we will soon have a clearer picture of our mining rate at Odyssey South and our shaft sinking rate. We will provide updates throughout the year for enhanced visibility into the project's progress. Overall, the outlook is positive. Additionally, the results from our infill drilling are encouraging. We achieved a 100% conversion rate in the first phase at Odyssey South, amounting to nearly 200,000 ounces, and we are also seeing favorable results in the East Gouldie area. Looking at the next slide, we can see some holes in the East Gouldie Zone, which used to show more patchiness but now demonstrates improved infill results. We plan to convert that zone by year-end. Notably, there are interesting ore grades approximately one kilometer below the surface, with 7.6 grams over 43 meters, and at 300 meters down, we have 4.2 grams per ton over 61 meters, with 93 meters at 2.6 grams per ton further down. The infill drilling is reaffirming our study findings, and we're also observing an increase in the reddish zone with inferred resources included in our updated PEA. This area, measuring 5.6 kilometers long, 1.5 kilometers wide, and 2 kilometers deep, is a prime candidate for increasing our mill feed. We will continue to focus on drilling and better understanding this zone. Zooming out to the next slide, page 15, we see other potential satellite deposits, such as Camflo and the LTA property, where we will focus our drilling efforts and studies to potentially feed our Canadian Malartic mill. The LTA property has seen processing of 2 million ounces from 10 million tons at 6 grams per ton, yet only the initial 800 meters have been explored. This year, we are emphasizing the Camflo deposit, where drilling is already underway, as we assess the possibility of mining an open pit crown pillar. This encapsulates our vision for the Odyssey project. Lastly, I want to commend our construction team for completing an entire year without any combined frequency incidents, which is a remarkable achievement and reflects the dedication and quality of our team in the region. Now, I will hand it back to Ammar.

Ammar Al-Joundi, CEO

Thank you, Dominique, and thank you, Natasha. If we move to the next slide and take a closer look, Dominique discussed additional ore near the mill. This slide provides a broader perspective on our potential. We're focusing on consolidating and optimizing the mill, with efforts in procurement and central control centers among other initiatives. For 2023, we're emphasizing actions that can quickly drive results. The red and black lines represent the road and railway that have historically followed the Cadillac fault, indicating economic growth in this part of Quebec and Ontario. Our land positions, shown in purple, reflect not only extensive holdings but also significant land along the Cadillac fault, near strong transportation infrastructure. Looking at three existing properties: Macassa, the AK Zone, Upper Beaver, the Kirkland Lake satellite deposits, and Wasamac, we estimate around 11,000 tons of ore which could be processed at the Malartic or Lapa mill. This amount represents only a quarter of the excess capacity we anticipate, equating to approximately 500,000 ounces annually. When asked about our focus, I want to emphasize that our aim is not merely to fill the mill but to optimize our return on investment. With reduced capital expenditures, our returns on capital effectively increase. This isn't just organic growth; it's about achieving the best returns with minimal risk and environmental impacts. As we transition, we should highlight our excellent exploration results at multiple sites including Hope Bay, Malartic, Kittila, Goldex, Fosterville, and LaRonde. We are performing well, focusing on immediate priorities. The merger of Kirkland and Agnico was driven by the value we can generate from our unique land positions. Looking ahead, we project moderate production growth of about 7% by 2025 based on 2022 production. We're anticipating a midpoint of around 3.3 million ounces in 2023, increasing to approximately 3.5 million by 2025. This projection accounts for constraints at Kittila and Fosterville; if we address those, we could add an additional 30,000 to 80,000 ounces. Furthermore, the incremental production from filling the mill, while expected to start slowly in 2024, could potentially enhance our figures. Moving forward, our approach emphasizes responsible operations. We aim to build lasting relationships within the communities where we operate while demonstrating environmental responsibility because our goal is to develop multiple mines, not just one. We are committed to achieving zero carbon emissions by 2050 and a 30% reduction by 2030. We have a strong financial position with approximately $660 million in cash and a $1.2 billion undrawn credit facility. In 2022, we successfully paid off $225 million of debt and plan to continue reducing our debt as it comes due. Our commitment to paying dividends for 39 years is something we are proud of, and we will maintain competitive yields. In conclusion, while 2022 presented challenges for the industry and for us, we successfully integrated two strong companies and positioned ourselves to acquire additional world-class assets. The integration process has gone smoothly due to the quality of our people and cultures. While 2022 was difficult, it also brought significant accomplishments. For 2023, our focus is on optimization, as we believe there’s much more potential ahead. The reason for our merger wasn't just synergies, although we've achieved that; it was about recognizing the vast opportunities available to us. Our strategy remains rooted in being a straightforward, disciplined company focused on asset consolidation in prime jurisdictions, generating substantial cash flow, and enhancing per-share value. We have proven leadership and a strong financial position to ensure strategic flexibility. ESG considerations are vital for us as we strive to be respected and valued community members. The consolidation of the Abitibi gold belt offers considerable potential for high-quality growth with high returns and low risks, and we intend to continue honoring our commitment to return capital to our shareholders. Thank you for your time. I appreciate your attention, and now I welcome your questions.

Operator, Operator

Thank you. Our first question comes from Fahad Tariq from Credit Suisse. Please go ahead.

Fahad Tariq, Analyst

Hi. Good morning. Thanks for taking my two questions. Ammar, maybe just first on 2023 costs, which I think maybe surprised some people. It looks like it's about 14% higher than the previous 2023 guidance, about 5% higher year-over-year, about 9% higher than, I think, what consensus expectations were. What is the market missing here when it comes to the underlying inflation? What part of the story are we not seeing that's impacting the costs?

Ammar Al-Joundi, CEO

Yes, that's a great question, Fahad. What you might not be seeing is that costs are influenced by two main factors: inflation and throughput. For example, at Meadowbank in 2023, the stripping ratio is 16:1; in 2024, it's expected to be around 4 or 5:1. This change in the stripping ratio affects the entire company by approximately $37 per ounce in costs based on that one aspect. I know it’s not easy to grasp, and I appreciate your inquiry. Additionally, the restrictions, like the 80,000 ounces of limitations, will lead to reduced costs as they are lifted. While there is indeed inflation, there are also factors that may not be obvious. We aim to exceed our current guidance, but we had to provide cost estimates as they are because we cannot be certain if the restrictions will be removed. We believe they will, but it would be irresponsible to assume that and potentially surprise you at the end of the year.

Fahad Tariq, Analyst

Okay. Fair enough. And then just a quick follow-up. The synergy number that's being baked into the guidance, it looks like it's $12 an ounce. I think the number that was previously communicated the range was quite a bit higher, like $30, $40 an ounce. Did something change there when it comes to synergies, and what's being included in the 2023 cost guidance? Thanks.

Ammar Al-Joundi, CEO

Yes. So, the synergies get a little more complicated because of inflation. What I would say is we are still ahead of schedule on the synergies. The administrative synergies are easy to track, I think, and I had these numbers, I apologize, but the procurement synergies are on track. I'd have to go through Fahad and compare the number you just gave me to our numbers.

Operator, Operator

Your next question comes from Emily Chieng from Goldman Sachs. Please go ahead.

Emily Chieng, Analyst

My first is a follow-up on the cost pace and maybe looking ahead beyond '23 into '24 and '25, where you're expecting some cost declines there. Perhaps could you bridge some of the items that you think about that would allow you to achieve this? I know you mentioned the Meadowbank stripping, but perhaps can you talk to maybe your diesel procurement strategy, labor, fuel and consumables there as well? Thanks.

Ammar Al-Joundi, CEO

Yes. Good question, Emily, nice to hear your voice. Really, it's just the operations. The operations, as we're going to have more production as we get into different areas in the mine sequence, the costs are anticipated to go down. We have not really assumed any relief on consumables or labor or that sort of thing. We will work hard to get there. But mostly, it is increased throughput and mine sequencing.

David Smith, CFO

I'd just add to that, Emily, that as we said in the press release, there is no assumption of hedging success on any of these inputs like currency or fuel included in our guidance because there's no guarantee those things will work out. We'll continue to attempt to add to those hedging programs during the year if it's beneficial.

Ammar Al-Joundi, CEO

There's no assumption on either production or costs of some of the optimization we're working on, which would further reduce costs. We can give a fair level of confidence absent unusual market moves that costs should go down because we see what the life of mine is, and we know what the cost per ton is and we know what the throughput is, and that's all going to improve. But we haven't included some of the optimization that we're working on. Clearly, as you produce more ounces with the same infrastructure, your cost per ounce goes down.

Emily Chieng, Analyst

Understood. That's very clear. And maybe my second question, just around the progress and your Abitibi Gold Belt strategy there and how you're optimizing mill throughput. How do you think about prioritizing the cadence of when each of those nearby resources start to fill in and when they should start to contribute the initial ounces that you're talking about?

Ammar Al-Joundi, CEO

That's an excellent question, and we've really been focused a lot on that over the last few months. The best way to answer that, Emily, is we are doing this at two levels. We're doing this at the most senior level, and Jean Robitaille is working on this with Guy and Natasha and Dominique. But also importantly, and this is the key thing, each of these projects has a project leader and a team and a timeframe with milestones. It's one thing to talk about a vision, but what you really actually have to have is a plan. We have the teams in place. We have the resources in place. The cadence, to your point, will be driven by those specific opportunities, both when these projects can come on stream and when the mill capacity comes on stream.

Operator, Operator

Your next question comes from Greg Barnes from TD. Please go ahead.

Greg Barnes, Analyst

Ammar, you're forecasting CapEx of around $1.4 billion to $1.6 billion in '24 and '25. With all of the optimization programs and plans you have for the Abitibi, does that number come down beyond 2025, or is it going to stay in that range as we go forward to the end of the decade?

Ammar Al-Joundi, CEO

Hello Greg, we have completed several significant projects related to capital expenditures in 2022, such as the filter-press at LaRonde, which will enable us to implement dry stack tailings for environmental reasons. The capital expenditure forecast beyond 2024 and 2025 is projected to decrease based on the current life of mine. Our ongoing responsibility is to seek profitable investment opportunities for our shareholders. I am optimistic that we will continue to discover valuable opportunities to enhance value on a per-share basis. To address your specific question, yes, according to our current life of mine models, capital expenditures are expected to decline after 2024 and 2025.

Greg Barnes, Analyst

Just at Macassa, it seems like you've taken a bit of a reset there in terms of production profile going forward. I think there was talk at one point, it would be 350,000 to 400,000 ounces a year, but we're not seeing that in the three-year forward look anyway. What's the view on Macassa now?

Ammar Al-Joundi, CEO

Well, I'll start, and then maybe Natasha can comment a little bit. This time last year, and I remember the call very well because it was my first call. We hit Macassa head-on. We said, look, the previous guidance was 350,000, 400,000 a year. We think it's a great ore body. There's a lot of potential, but it’s not going to get to 350,000 to 400,000 in the time frame that was outlined. We said this based on the due diligence we did, and it's a great orebody. But as I said then, this is a mine that Kirkland was taking from the 1930s to the 2020s, and they were making good progress. We've made very good progress this year at Macassa. The team is energized, and Natasha can talk about a lot of the accomplishments. What I would say, Greg, is Macassa is probably a 300,000 to 350,000, not 350,000 to 400,000 ounce mine.

Natasha Vaz, Vice President

That's correct. Thank you, Ammar. In terms of the current guidance, it reflects two main things: the slower ramp-up of mining activities and a lower gold grade when compared to the previous guidance. The lower forecasted grade is largely a result of adjustments to our resource model based on additional definition drilling. The slower ramp-up in 2024 is partly due to the reevaluation of the development rate and the mining sequence following the completion of Shaft 4 and the new ventilation system. We're always looking at opportunities to improve on our productivities. But for now, we feel that these are rates that are achievable. The site has done a lot of work in terms of optimization efforts, whether it's compliance to the plan or maintenance program initiatives. But there's always opportunity, and I feel like there is opportunity with number 4 Shaft and the ventilation upgrade coming on to improve on that. Looking at it in the long run, like Ammar said, I envision the same thing at 300,000 to 350,000; the deeper mine, the South Mine Complex and the Main Break; we envision it to still be approximately around 300,000 to 310,000. We foresee an additional, say, 20,000 to 40,000 ounces coming from the near surface deposits, the AK deposits that could potentially be trucked to another mill.

Ammar Al-Joundi, CEO

Yes, we're very proud of Macassa's performance this year. To be honest, it was quite challenging last year, but operations have significantly improved now, and we have strong confidence in its future.

Operator, Operator

Thank you, Anita. Your next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead.

John Tumazos, Analyst

Thank you. Moving away from the details of today's press release sort of for the long-term strategy, Ammar, is there a level of depletion that might be too big for annual reserve replacement or threshold you don't want to go to, 4 million, 5 million, 6 million, 7 million ounces a year? Is there a level of capital spending $2 billion, $3 billion, $4 billion a year that's too much? Clearly, you had a couple of issues this quarter, and it's hard to run a company with such moving pieces, even if they're all in the same neighborhood in Eastern Canada. There are 5 or 10 companies lined up wishing they're going to sell out to you, and maybe that's too many projects for you to build at once.

Ammar Al-Joundi, CEO

John, I completely agree with you on all points. There is certainly a level that can become impractical, even within our operational areas. You're right to mention that many companies are hoping for a buyout. There is a size that could become excessive and unmanageable. However, you know us well—we've never prioritized size as a metric. What matters to us are the per share metrics. I hope the mergers we've executed, like the one with Kirkland and the acquisition of Malartic, demonstrate that our goal isn't simply to grow bigger; paying full price for something doesn’t enhance per share value. We aim to show that this combination will generate significant value by leveraging our competitive edge in this region. We recognize the importance of not expanding too much. Our teams are already quite busy, and in response to Emily's question about pacing, we are diligently allocating resources to ensure these projects succeed, and we're fully committed to our efforts.

John Tumazos, Analyst

If we could be numerical, Ammar, for our planning, should we assume that we stay at 4 million or less ounces and the CapEx doesn't get bigger than $2 billion in a year? Even though you own 10% or 20% of 4 companies and another 14 wish they’re going to sell to you, maybe you need to wait 10 years to worry about building all those mines.

Ammar Al-Joundi, CEO

Yes. Yes.

Operator, Operator

Your next question comes from Carey MacRury from Canaccord Genuity, Inc. Please go ahead.

Carey MacRury, Analyst

I thought I saw in the press release that you're evaluating increasing capacity at Malartic to 60,000 tons a year. Obviously, with the open pit ending and excess capacity there, just wondering what's driving that?

Dominique Girard, COO

Good morning. This is Dominique. The mill capacity is 60,000 tons per year. We expect to start having some capacity available beginning in 2028. This is where we aim to bring more ore to the mill, which is already in place.

Carey MacRury, Analyst

Okay. And then on Macassa, mentioned some higher dilution. Has that been factored into the updated reserve model there?

Natasha Vaz, Vice President

Yes, it has.

Carey MacRury, Analyst

Great. And then maybe one last one for Ammar. You really emphasized the regional strategy that you guys have. Just wondering how Kittila and Fosterville fit into that compared to the other regions that you have?

Ammar Al-Joundi, CEO

Thanks, Carey. So I'll start with Fosterville. Fosterville is a great asset with great people; it doesn't make sense to be in a place like Australia for just one mine. We're looking at that, and we're looking at Australia broadly. Australia already has a lot of good miners, but there's a lot of opportunities. With Fosterville, it's a great asset, but we need to make a long-term decision on whether we can create value for our shareholders in Australia better than other people can. We're working on that assessment as we speak. I would say it's the same as Kittila; we are producing close to 3 million ounces now out of Canada. We're going to be going to 2.1 million in the Abitibi. We're going to 900,000 in Nunavut. So that's a fair question. It's a fair question in Mexico as well. Also, I have to say we are very positive on the work we're doing with Teck at San Nicolás.

Operator, Operator

Your next question comes from Mike Parkin from National Bank. Please go ahead.

Mike Parkin, Analyst

I noticed you mentioned the significant increase in power costs at Kittila in 2022. I believe there was a nuclear power plant that was commissioned towards the end of the year. Is that operational? Are you beginning to see any energy cost benefits from it yet?

Dominique Girard, COO

Yes, we experienced a price increase in December, reaching $500 to $600 per megawatt due to the circumstances. In response, we have been operating our generators more to save costs and have scaled back some activities at the site. Looking ahead, we are optimistic because a nuclear plant is nearing its commissioning phase, which we expect will lead to improved conditions next year.

Ammar Al-Joundi, CEO

Yes, Mike, I think that's what you're referring to, right? Is the plant online and commissioned? My last update on that, Mike, was they were commissioning it. They had a couple of problems with water pumps of all things. You think water pumps aren't complicated. My understanding is it is back online now or will be shortly. We are seeing a material reduction in power costs at Kittila. I'll just say, in the budget, we've assumed higher power costs than we're seeing now. So, there is upside there for us.

Mike Parkin, Analyst

Okay. That was kind of what I was getting at, where the guidance is kind of based on. Then, in terms of the Canadian Malartic mill, in the past, you talked about potentially needing to tweak the front end of it, the grinding segment of it to better balance the lower tonnage eventually coming through with Odyssey. With this potential to fill the mill or get closer to a build mill with regional upside, is that something you could potentially avoid having to do?

Dominique Girard, COO

Yes, Mike, we currently have an opportunity with our PEA study and funding available to decommission part of the mill. We see this as a chance to keep it operational. Referring back to Carey’s earlier question about mill capacity, we are currently mining at a rate of 55,000 tons per day from an open pit, which we are depleting. The Canadian Malartic operation will finish this quarter, and we will transition everything to the Barnat pit. As a result, the tonnage from the pit will decrease, while the underground tonnage will increase. By 2029, our throughput will drop significantly to 19,000 tons per day, but the ore grade will be 2.5 to 3 times higher than our current levels, which will yield equivalent ounces.

Mike Parkin, Analyst

Okay. Moving to Kittila, with the recent decision on the greater tonnage permit, you mentioned that if the outcome is not favorable, there would be a new permit application submitted this year. Assuming that's the worst-case scenario and can be avoided, do you have an idea of the timeline for obtaining a new permit if necessary?

Ammar Al-Joundi, CEO

Yes. We're quite hopeful that we received the permit and the support from all the regulatory bodies. There was an appeal, and during that process, the court asked us to revert to 1.6. We're optimistic about this outcome. Just to clarify, the guidance we provided is based on being conservative at the 1.6 level. In the unlikely event that we are denied or there is a reversal of our existing permit, we will need to resubmit, which could take a few years.

Operator, Operator

Your next question comes from Ralph Profiti from Eight Capital. Please go ahead.

Ralph Profiti, Analyst

Thanks for taking my two questions, Ammar. Firstly, on LaRonde, you talked about moving to a slower mining rate. Would the same virtue be extended to development rates, meaning that if you do slow down the mining rates, do you have an opportunity to enhance productivity with perhaps reduced dilution? So, does the slower mining rate affect development rates as well? Can you touch a bit upon the lateral exploration prospectivity as opposed to at depth?

Dominique Girard, COO

Yes, this is Dominique speaking. We will be adjusting the development rate in mining. This change is also necessary because we need to increase our paid backfill and rehandle operations since we cannot utilize the waste as backfill. Currently, these cuts are balanced. We will collaborate with the team to refine this adjustment. Additionally, we will determine the actual mining pace at LaRonde this year. In total, the LaRonde deposit is expected to yield 200,000 ounces annually, with 75,000 ounces from LZ5. In the second half of this year, we anticipate receiving 30,000 ounces from Zone 113, which we are examining to increase ore production from new areas.

Guy Gosselin, Vice President

Ralph, on the lateral prospectivity, we've already materialized some of that. LZ5 is an example of what we are moving forward and trying to replicate. On the adjacent property, the former Bousquet property that holds the LZ5, historically mining stopped at about 1.6 kilometers below surface. Those zones were still open at depth. In between the current Penna shaft and the LZ5, there are known zones of mineralization, namely Zone 3 1, Zone 3 4 that remain open at dip. We see also good potential below the LZ5. This is exactly why we're putting a lot of emphasis at developing that exploration drift on Level 215, which will advance for another kilometer towards the west to be in a better position. We are full steam ahead at getting that platform, exploration platform in place to target those known zones that were identified in the past and continue to investigate their expansion at depth.

Ammar Al-Joundi, CEO

It's a good question. I'm a glass half-full guy. I see this in the long run as a good thing. It's natural for any mining company to follow the highest grade in the ore development. But at some point, we really did need to go laterally because there's a lot of opportunity around there laterally. This is something that we should do. As I said, it might take a couple of years, but we're confident that we will find additional ore faces for the LaRonde complex and hopefully recover back to where we were last year.

Ralph Profiti, Analyst

Okay. Thanks. On Fosterville, does the current technology allow you to get into that 16 to 20-hertz threshold to be within specs on that low-level noise? Is the current technology available? Is this really just an engineering solution that needs to be figured out?

Ammar Al-Joundi, CEO

Yes, we have invested significant effort and utilized top-tier technology to address this issue. I visited the site, and it was quiet. We have spent a considerable amount of money and engaged experts from across the globe. Sound can be quite complex, as you can imagine. While we can't eliminate it entirely, it's a challenge we are discussing with the regulators. What is crucial is our commitment to comply with the requirements set by the appropriate legal authorities. We value people's viewpoints and remain optimistic that this will be resolved soon.

Operator, Operator

Your next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead.

John Tumazos, Analyst

Thank you. Continuing the discussion about Fosterville, I want to share a personal experience from about six years ago when I got lost after a trip to Fortescue. I ended up circling around Bendigo, and it struck me that there aren't many houses near the mine. Are there other mining areas in Australia like Kalgoorlie, where the town is right next door and has a large population? I'm curious why noise abatement is such a significant concern at Fosterville. Is there some environmental issue affecting the numerous green parakeets near the core shoot?

Ammar Al-Joundi, CEO

We're glad we still have you after the left-hand driving. This stuff is not uncommon in our business. It might be a specific individual utilizing this as a way to achieve something else. I don't really want to get into it, but what's important is we will always do what we are asked to do by the relevant legal authority. We respect people's perspectives. We are hopeful this gets resolved fairly soon.

Operator, Operator

Presenters, there are no further questions at this time. Please proceed with your closing remarks.

Ammar Al-Joundi, CEO

Thank you, operator, and thank you, everyone. I know there have been some initial questions about production and adjustments. I want to remind everyone that three years ago, we had some rehabilitation and ramp-up at LaRonde, there was an apron feeder that failed, and we had to pump out water from the bottom of a pit at Meadowbank. All these issues were resolved in the same quarter. In the fourth quarter, the team did a good job producing 800,000 ounces. Yes, there were a few operational challenges, but that’s the nature of our business. Overall, we are a much stronger company than we were a year ago, and I believe we are just beginning to deliver exceptional value. Much of this progress has required minimal capital. Remember, our goal is not just to produce ounces but to produce profitable ounces and achieve a good return on capital, and we think we are on the right track. Thank you again for your time and your support. We’ll be marketing over the next few days and will be happy to take more questions then. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.