CA - Agnico Eagle Mines Limited (AEM) Gold Forum Americas 2023 (Transcript)

2023-09-20 16:40:06 ET

Agnico Eagle Mines Limited (AEM)

Gold Forum Americas 2023 Call

September 19, 2023, 12:30 PM ET

Company Participants

Ammar Al-Joundi - President and Chief Executive Officer

Conference Call Participants

Jackie Przybylowski - BMO Capital Markets

Presentation

Jackie Przybylowski

Ammar was appointed President and Chief Executive Officer of Agnico in February 2022. Prior to this he was President of Agnico Eagle from 2015 to 2022, and also served as the company's Senior Vice President and Chief Financial Officer. Mr. Al-Joundi has over 20 years of experience in finance and business strategy, and has extensive experience in mining, capital markets, and banking. Welcome, Ammar.

Ammar Al-Joundi

Thank you, Jackie, and good morning, everyone. It is such a lovely place here. It's a real treat to come every year to a lovely place and be with people who we've gotten to know well over the years.

Just some forward-looking statements as we go through this. What I will try to do is be fairly brief. It's only four or five pages, and I'd like to spend some time with Jackie taking questions and just talking.

So, I'll start by saying something you might not expect me to say, which is Agnico Eagle is not a global gold mining company. Rather, we are a regional gold mining company. And let me explain a little bit about what I mean by that and why it works for us and continues to work.

A lot of our peers are very good global mining companies. They will go anywhere in the world to build a mine and they're perfectly good at that and that's a perfectly good strategy. But Agnico Eagle, we are a regional miner and we mine only in regions that meet two very specific criteria, simple but important. One, there has to be the geologic potential for multiple mines over multiple decades. We don't believe it makes a lot of sense to go somewhere for just one mine, and I'll get into that in a second. The second criteria, while it might seem self-evident as equally and maybe even more important in the long run, you have to have the political stability to actually operate multiple mines for multiple decades.

And our view on this regional approach is quite simple. We want to be the best miner in the regions we operate. Now everybody will tell you they're great miners and they have great engineers, et cetera, et cetera. But if you assume everybody is equally smart, equally hard-working, what makes a good miner? Ask the CEOs that, and I can tell you that in the regions we operate, and anywhere, what makes a good miner is, do you know the ground better? Do you know the suppliers better? Are you the employee of choice? Do you know the contractors? Do you know the government? Do you know the community? Are you good at permitting? This comes from experience, and it comes not just from experience in mining, but experience in the region. And that's what we focus on.

In the world, our view is based on the geologic potential for gold for multiple mines in multiple decades and the political stability to be able to operate multiple mines for multiple decades. They are -- in our opinion, the three best regions are probably: Nevada, and Barrick and Newmont have done a good job consolidating that; Western Australia, which hasn't been consolidated but has fantastic potential; but we think the best in the world is the Abitibi region of Ontario and Quebec, which has been mining gold for over a hundred years, which has extracted more gold than the other regions and where if you think about it, probably most of the big gold discoveries in the last five years have been.

If you look at re-emerging regions, you look at Mexico and Northern Europe, places with a long history that are sort of re-emerging in their mining strength. And finally, probably the best emerging region in the world based on geologic potential and political stability is Nunavut, 3.5 times the size of France, a population of 35,000 to 40,000 people, wide open, and we have a huge competitive advantage there. We -- one company alone, we are a third of the entire economy. Not the mining economy, the entire economy.

Has this strategy worked? Yes. Since 2005, just some quick numbers, Agnico Eagle has gone from one mine to 11 mines. We've gone from one country to four countries. We've gone from 0.25 million ounces of production to 3.5 million ounces of production. All of that is impressive, but I'll tell you the really hard numbers are the next two numbers. We've increased gold production per share by 2.5 times. That's not easy, doing it on a per share basis, and that's all you investors should care about. And we've increased our dividend from $0.03 to $1.60.

And while these numbers are good, I will tell you, and while the history is good, we've never been in a stronger position than we are today. In the last two years, and again looking at this map, we've really focused on consolidating some of these best regions. We've acquired an 80-kilometer greenstone belt at Hope Bay where we're having tremendous exploration results. We've merged two companies, a merger of equals, Kirkland Lake and Agnico, merged to consolidate the Abitibi belt, which I'll talk about in a minute, and it's gone extremely well. When we did the deal, we identified $2 billion of synergies. We're almost double the run rate of where we thought we were. But what we said at the time is we're not doing it for $2 billion of synergies, we're doing it because we're going to create billions of dollars of additional value, and you're going to see that in a moment. We did a transaction in Zacatecas, the best region for mining in Mexico, with a project that has -- it's a copper-zinc project that has 4 times the grade of the average new copper mine in the best region to operate in Mexico with an excellent partner in tech. And then, finally, we consolidated the Canadian Malartic mine in Wasamac, acquiring Yamana's Canadian assets, surgically extracting what we wanted out of a bigger deal.

So, is this continuing to work? Absolutely. If you take a look very quickly, look at this chart. At Odyssey, over the last six or seven years, we've added 16 million ounces to the project, and it remains wide open. This is a mine that was initially discovered in 1923. A hundred years later, 16 million ounces. That's why you want to be in the best regions in the world. Take a look at Detour right beside it. Over the last five years, almost 20 million ounces of additional gold has been discovered. And these aren't ounces discovered in the middle of nowhere in a country we've never been to at the top of a mountain range, these are existing assets with existing people, with existing permits, with existing infrastructure in the safest jurisdictions in the world. This strategy continues to work.

Very quickly, while the last couple of years have been about consolidating, the last eight months and the next 18 months is going to be about optimization. And we are going to create the billions of dollars of additional value, and we're going to do it, I think, faster than people thought we were. At Detour, we're looking to increase production from 700 million -- sorry, from 700,000 ounces a year to over 1 million ounces a year. And we've got a very specific plan to do it that most of our owners are well aware of. At the Canadian Malartic project, we are already extracting ore from underground. We're expanding the ore body, and we are going to be freeing up 40,000 tons a day of mill capacity in about 2027, 40,000 tons a day. A big mill is somewhere between 5,000 and 10,000 tons a day. So, we will have 40,000 tons a day of mill capacity in arguably the best region in the world to find and produce gold.

And this is important because even if you just take a look at the third point, as we consolidate on that 40,000 ounces between Upper Beaver and Wasamac, if we bring the ore there, they're each about 5,000 tons a day. By using a quarter of that 40,000 tons a day, that's another 400,000 ounces a year of production. That's 400,000 ounces a year of production without having to build a mill, without having to build tailings facility. So, you've cut your CapEx probably by about 30%, where return on capital is paramount. But you've also done it with a smaller environmental footprint, easier permitting, better community relations, and a lot less risk. So, better return on capital, but a much better risk-adjusted return on capital.

So, the strategy we have to being a regional gold miner, picking the parts in the world that meet our criteria and working hard to be the best miner in those regions, we're going to continue to do that. We think that strategy makes sense for us. We think that strategy continues to make sense and we have never been in a better position than we are now. We're going to stay in low-risk mining jurisdictions. We want to be the highest quality of the senior gold producers in the best regions with the least risk, with the best per share growth metrics going forward. We think we are uniquely positioned, certainly in the Abitibi, certainly in Nunavut, and we are looking at continuing to strengthen our position in the other areas we operate and we are -- always have and always will continue to focus on having strong financial returns, per share returns, paying some of the highest dividends in the business and growing our per share metrics.

And with that, I would -- I'm quite looking forward, Jackie, to sitting down and talking a little bit.

Question-and-Answer Session

Q - Jackie Przybylowski

So, I do have a few questions prepared, but hopefully we'll have some time at the end in case there's any in the audience as well. So, Ammar, thanks very much for the presentation. And I just wanted to talk a little bit about your strategy overall. The gold industry really isn't an interesting place right now. Some of your peers are pursuing growth in size, maybe for inclusion into an index or for more interest from generalists. How does Agnico see that trend? Or how do you fit into that trend? Are you looking to compete on size?

Ammar Al-Joundi

We do acknowledge there's a minimum size you want to have to be able to access a broader investment base. But that number is somewhere in our view, $5 billion, $10 billion, maybe $12 billion. We're well past that. So, we're not worried about growing to get bigger. We are simply going to continue to focus on making money on a per share basis.

Our growth, I'm going to tell you -- I'm going to have a different approach on growth. Our growth isn't to get to X or Y or Z. Our growth is going to be based solely on the opportunity for us to invest our shareholders' money into highly-profitable projects. That will define our growth. And if you want to do that, in our business, again, it's simple, you position yourself in the best regions, you build a competitive advantage, you get to know the junior mining companies there, you get experience on the ground, and that's how you have the opportunity to grow profitably.

Jackie Przybylowski

So, you did highlight some of those growth projects in your presentation, and I guess a few of them will be coming online at the end of this decade or maybe a bit earlier. But maybe in the meantime, when the Canadian Malartic Open Pit operation is winding down, you might have a little bit of a dip in your production. Do you have any concern about that? Are you looking to fill that dip? Or are you just looking through that into the future?

Ammar Al-Joundi

We've been in business for 65 years, 66 actually. And throughout our 66 years, you go up, you go down, but we've grown consistently. And we've grown consistently on a per share basis, and we're going to continue to do that. Right now it looks like we're going to have a little bit of a dip in '26 and '27, and we'll probably fill some of that, and I don't know how much, we'll give our guidance shortly.

But importantly, part of the reason of the dip is as Malartic goes from Canada's largest open pit to Canada's largest underground, that's when we get the dip, but that's also when we spare up all of that spare mill capacity. So, it's normal in our business but -- to have dips and ups and downs. What matters are two things. Do you have a long-term growth trajectory? And importantly, because this has been a sin in our business, don't do anything stupid just to fill in a dip, because you can destroy a lot of value that way.

Jackie Przybylowski

So, we've talked a lot about growth, but I'd like to flip that conversation over a little bit and talk maybe about opportunities for divestments. So, you've done some acquisitions recently. You've maybe had some time to think about the assets that you've acquired. Do you have any thoughts about divesting any of those assets in general or specifically?

Ammar Al-Joundi

We always look at our portfolio as a portfolio, and we always look at not just acquisitions but divestments as well. The obvious candidates that we get asked about all the time are Pinos Altos and La India in Mexico. Those are assets that have been great to Agnico, great to our shareholders. They're getting smaller. We have looked at what other people would pay and we've concluded we can generate a lot more money ourselves.

Of course, people ask us about Fosterville. Fosterville is a great asset with a good team in a good country. It generates almost $1 million a day. And as you all know, the history at Fosterville having found the Swan Zone, it's probably one of the best gold exploration options in the world. So, we do look at it, of course, but right now we're happy with what we've got.

Jackie Przybylowski

I'm going to take a pause for a second and just see if there are any audience questions, and I apologize if I can't see you. Oh, there's one at the -- on the back there, on the side.

Unidentified Analyst

Maybe, could you just speak to the transformation when you did acquire Osisko without the understanding of the underground potential, but was that an inflection point for Agnico in your view?

Ammar Al-Joundi

I like that question because we did actually have a pretty good feel for the underground and that's only a result of having been operating around there for 50 years. Our team, quite simply we had a knowledge advantage. A lot of you are in the business of investing other people's capital, and most of what makes you good is you have to have the knowledge. So, at Osisko, we had a very strong view of the underground potential even back then when we acquired it. And over the years we continued and continued to prove out that underground potential.

So, you're right it was an inflection point for the company in that it was an opportunity for us to use that knowledge advantage where no one else could. And again, I'm telling all of you the only reason we had that knowledge advantage isn't because we were geniuses or anything like that, it's because we've been there for a long time. We knew the ground, we knew what was there, and we also frankly knew how to mine it because of our underground mining experience in the region.

Jackie Przybylowski

There's one in the center here. The microphone is just on its way.

Unidentified Analyst

Hi, [indiscernible]. I have a question. You mentioned that you focus on safe jurisdictions, which is pretty -- I mean, clearly it's a pretty smart strategy. But in view of that, how do you -- would characterize the Mexican jurisdiction? How safe is it in comparison to the other trade that you mentioned?

Ammar Al-Joundi

We get a lot of questions on that and, obviously, we watch everything all the time and you have to look five, 10, 15 years out to the extent you can. I will tell you, I personally read a lot of the changes in the regulations, as you would expect me to have done. And I have no reason to say this, except me trying to be objective, a lot of the changes they put in place made sense.

You have to remember people have been mining in Mexico for 300 or 400 years. And some of the changes are, and I'm going to summarize and maybe I'm not going to get them exactly right because it was a few months ago, but it doesn't make sense to be able to acquire mining rights that you can hold for 300 years. It doesn't make sense that when you acquire the mining rights you automatically get all the water rights. It doesn't make sense that when you have these mining concessions that you can hand down to your kids and their kids and their kids that you don't actually have to pay anything for them.

So, a lot of these changes are frankly logical changes. I mean, in Canada, you don't automatically get the water rights. You can't stop other people from economic activity. You can't just hand it down generation to generation without paying anything.

So, look, the world is a dynamic place, but what I would say is Mexico has a long history of mining. It's in their culture. They're very good at it. And yes, the government is going to come back and forth. But I'll finish by saying the government has come to the mining community and asked for our input, and they are listening.

Jackie Przybylowski

So unfortunately, that's the end of our time, but thank you very much.

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