Agnico Eagle Mines - Q1 2023

Transcript

Operator (participant)

Good day. My name is Michelle, I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited First Quarter Results 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi (President and CEO)

Thank you and good morning, everyone. On this beautiful spring late April day, it's a pleasure to have the opportunity to talk about our first quarter results. Before I do that, I'm in a room with a lot of my colleagues who will be dealing a lot with this discussion. In particular, I'd like to talk briefly about two colleagues. On my right, Sean Boyd, who mentioned to me that at this AGM at 11:00 A.M. will be his 40th AGM with the company. You don't have many people in any business that committed for that long who've created as much value as Sean has. That's quite the milestone, Sean, and we'll make sure we point it out again on the 50th.

On my left, Dave Smith, CFO extraordinaire and a good personal friend who today is his last official day as CFO. He has agreed to work with Jamie Porter over the next month or two to transition, and then move, I think happily into retirement. Good for you, Dave. I just wanted to point that out. We're going to be summarizing the first quarter results. Really, though, the story is three parts. One, strong operational performance, strong production, good costs, good safety, good environmental performance. Two, very good progress on optimizing our assets. 2022 was a year of consolidation. 2023 is gonna be a year of optimization. There's a lot of work, a particular focus on the Abitibi belt, but huge potential.

Three, excellent exploration results, importantly excellent across a number of assets, and Guy will talk about that. I want to start with safety. Our greatest responsibility at Agnico, and I would say at any company, is for the safety of our people and the safety of our communities. In the third quarter last year, I had the pleasure to announce that it was the safest quarter in the company's 65-year history. The last call, the year-end call in February, I then had the pleasure to announce the safest year in the company's 65-year history. Now in the 1st quarter of 2023, I have once again the pleasure of saying another record safety quarter in the company's 65-year history. That's pretty fantastic.

Before we get started on the details, I would like to mention the forward-looking statements. There's a couple of pages there. It's important. A lot of what we talk about is gonna be looking forward in our best estimates, but clearly they're estimates. This is how the call will go today. We'll try to keep the presentation to a half hour, then open it up to questions. I will quickly go over the highlights on the operations, but really I want to focus us on the excellent things we're doing to create value long term, and I'm going to be asking the people in charge of that, to talk directly. One, growth at Detour, and Natasha will be talking about that. Two, growth at Malartic, and Dominique will be talking about that.

Again, Detour and Malartic, some of the biggest gold mines in the world, some of the longest life gold mines in the world, in the best jurisdictions with a lot of growth. Three, the consolidation work we're doing on the Abitibi belt, there is a lot of work there. It's still very early, but we're making good progress, and Jean Robitaille will talk about that. Four, as I mentioned, exploration, and Guy will talk about that. Jumping into the presentation, just hitting the highlights. Strong quarterly production and cost, record safety performance, production at 813,000 ounces, cash costs at $832, and all-in sustaining costs of $1,125. Particular shout-out to the operating team.

We've talked about inflation, we've talked about cost pressures. As we've said before, what really drives costs are efficient operations, and the team delivered that. Solid financial results with record quarterly cash flow, adjusted net income of $0.58, operating cash flow of $1.30 a share. There is a big accounting adjustment. I will let Dave talk about that later in the presentation. Gold production, capital, and cost guidance maintained for the year. Next page, please. We've had continued exploration success. That's impressive, more impressive, it's been across the board, at Meliadine, at Kittilä, at LaRonde, at Goldex, and of course, continued success at Detour and Malartic. We closed the Yamana transaction on March 30th.

We closed the joint venture with Teck on April 6th, both of those deals, key strategic deals that position us well in some of the best mining jurisdictions in the world. We released our 2022 sustainability report and a shout-out to our ESG team who won the Investor Relations Award for best ESG reporting in the industry. Congratulations on that. Improvement across a number of indicators, safety, water, Indigenous employment, things that are important to our business, and a quarterly dividend of $0.40 a share. Now, before I flip, I do wanna give a special congratulations to the team in Finland on the ESG side. The mine, the Kittilä mine is transitioning to 100% clean nuclear power, starting effectively now.

That reduces our greenhouse gas emissions for the entire operation by about a third. Our target across the company is a 30% reduction by 2030. Kittilä has effectively done that now. It's also an opportunity to point out again that getting to the targets we need to get to are not just company-specific initiatives. They're not just industry-specific initiatives, but they have to include broader industry and governments. This is a perfect example of how much progress you can make when you have access to clean electricity, which by the way, to repeat, virtually all of our electricity on Ontario and Quebec is clean as well. Looking at just some highlights of the sustainability report. Again, 65 years, the best safety performance. I can't say that enough.

I wanna take a second to talk about the Dr. Leanne Baker scholarship. I think a lot of you remember Leanne Baker, an exceptional individual. She was on our board for a long time, really an inspiration to young women as a very successful person, on the financial world, on the technical world. In that scholarship, we have 14 young ladies at Agnico, with strong technical and financial backgrounds, very capable, and we are mentoring them as future leaders of the company. An increase in Indigenous employment, always important. A reduction in freshwater usage. I'm very proud of this, $1.5 billion in local procurement in 2022. That really does make a difference on the ground. Next slide, please.

The rest of this presentation primarily is going to be focused on the key value drivers that are gonna move this company forward for years to come, and I'm gonna have the individuals talk about them. Again, Natasha will be talking about Detour Lake, where we've had record throughput through the mill as Natasha and her excellent team continue to make progress there. She will also talk about our long-term objective to get to 1 million ounces a year. Dominique will talk about the Canadian Malartic complex, the shaft sinking, the ramp construction, and some of the opportunities we see there. Jean will be talking about some of the initiatives to consolidate the Abitibi Belt that we've talked about, including Amalgamated Kirkland, Upper Beaver, and Wasamac.

With that, I will pass it over to Natasha.

Natasha Vaz (EVP and COO)

Thank you, Ammar, Good morning, everyone. As Ammar said, I'll provide an update on Detour and our vision to get to 1 million ounces per year. I'm on slide nine. I'll start with the mill expansion. This has been a journey, as you can see from the top graph on this slide. The team has progressed quite a bit over the last few years in increasing throughput at the mill, and have had tremendous success in achieving their objectives. In my opinion anyway, since the merger, we've actually seen an acceleration of that because of the technical bench strength that came with the merger and the ability for us to leverage the sharing of best practices between Canadian Malartic and Detour. There's a lot of lessons learned here.

We continue to advance on multiple initiatives to increase and stabilize the mill throughput to 28 million tons a year by 2025, if not sooner. As mentioned in February, the last major initiative in our plan to achieve 28 million tons a year was successfully completed towards the end of 2022 with the installation of the secondary crusher screens. This quarter, as well as going forward in the year, the focus at the mill will now shift to optimizing the mill processes, to analyzing the wear and tear from the higher throughput to optimize maintenance practices, and as I mentioned before, basically improving the overall mill runtime so that the higher throughput becomes simply more and more consistent over time.

Basically, what we're doing is tweaking the system now and aiming to improve the runtime, which is normal at this phase of the expansion process. Some examples of what I mean by tweaking the system is that we're looking at small changes to extend the liner life. We're tweaking the re-feed system so that it operates more efficiently in the winter, we're relocating some of the pipelines in the mill, just to maximize efficiency of pipe replacement during shutdowns. Those are just a few examples from a list of things that the team is working on very hard. Also while doing this, we're also evaluating a pathway to increase the mill throughput beyond 28 million tons a year. The second graph below on the slide shows that.

It shows our current thinking of how we envision going beyond 28 million tons a year. I'll just take a minute to explain that. First off, we feel that the infrastructure that we currently have in place has the potential to deliver more once we optimize our mill processes and our maintenance strategy. With that logic, we think that there's opportunity to gain somewhere in the order of maybe 500,000 to 1,000,000 tons per year just from that. The next is implementing an expert system like we have in some of our other mills. We think that there's opportunity to gain some tonnage there too. Finally, we're testing the ability of increasing the percentage of pre-crushed material to feed some more feed through the re-feed system. We're also testing the ore sorting capabilities.

This is just a vision of where we see the potential to achieve higher tonnage beyond 28 million tons a year. Importantly, these initiatives that I just talked about come with limited capital expenditures. It's still early, though, but we do have an experienced team on site working on this. Moving on to the second part of our vision to get to 1 million ounces at Detour, that's the evaluation of the potential of the underground mine. The first portion of this study would be to complete an initial underground mineral resource associated with the mineralization that sits just outside of the final pit limits. To that end, we are carrying out an aggressive drilling program, and Guy will expand on this shortly.

We do have more drilling to do, and once that underground resource is ready, this will be used as the basis for the underground mining scenarios that we'll be working on. Finally, to end, I just wanted to say that the team at Detour has done an incredible job so far, and I just wanna take the opportunity to thank them for their hard work, but also for their passion at continuing to look at ways of maximizing the value of such an incredible asset. Also to echo Ammar's words, I just wanna thank the rest of the sites for performing so well as you did this quarter. It's just truly a testament to the caliber of the people that we have here at Agnico. Thank you.

With that, I'll pass the call over to Dominique Girard.

Dominique Girard (EVP and COO)

Thank you, Natasha. For Canadian Malartic, maybe before updating on the project and opportunities, following the acquisition, we had many positive and happy meeting with the Canadian Malartic complex team and contractor to celebrate that good news. That was very interesting to get back with them. It is another important step to consolidate the strong teams and great assets in one of the best place in the world for mining operations. For the Odyssey project, you could see on the map at slide 10, we've reached the first good milestone was the first production blast on March 20th, the Odyssey South ore body at level 31st. So far so good. We saw a positive reconciliation on tons on grade for that first tote.

It is currently under mocking and processing at the mill, and there's no. Everything is fine. There's no problem. We are aligned to do the 50,000 ton, 50,000 ounces in 2023. At the main, the main ramp reached the 54th level, which is the bottom of the Odyssey South ore body, as well as the first access where the shaft is gonna arrive. In the first quarter, the team will focus. Not in the first quarter.

In the coming quarter, the team is gonna focus on two things, to continue the infill drilling of the Odyssey South, as well as the internal zone to understand, better understand those upside, and to push the ramp, the main ramp faster, as we can to be in the, at the middle station earlier than we think, to be able to. That's gonna be the first place where we're gonna have the loading station for the East Gouldie deposit. This is the two focus. On the surface, everything is built to support the shaft sinking. The headframe is ready, the waste silo, the galloways functional, and shaft sinking activities are on the way. It is still early stage.

We need drilling and to do study, but teams are also working on the conceptual second shaft. We're gonna need a couple of year to develop that, and we are also evaluating other near surface opportunities on the Canadian Malartic property like Camflo and LTA. Before transferring the mic to Jean, I would like to thank and congratulate the Canadian Malartic complex team for their strong health and safety performance in Q1. More specifically, the Odyssey team, which is, let's say, construction and operation teams. We're talking about 250 Agnico employees, 500 contractors. They've reached a triple zero, which is no lost time, no medical treatment, no modified work in a quarter. It's quite a good achievement for a site in development, in construction. Congratulation to all. Thank you for your time.

We're looking forward to show you our great progress, at the June investor, you're welcome to join us. Thank you.

Jean Robitaille (EVP, Chief Strategy and Technology Officer)

Thank you, Dominique. Next slide, please. Good morning, everyone.

If you look what we did in the last two years with the consolidation of our land position, with the merger with Kirkland and the acquisition of Yamana's Canadian asset, this provide us with opportunity to leverage our existing asset. You see on the map presently what we own currently between Macassa and Goldex. Considering our upcoming excess processing capacity at LaRonde Complex and Canadian Malartic, we have initiated multiple study to identify the optimal approach. More than 10 studies are ongoing to be in position to integrate the best alternatives into our future production plan. We have identified a potential to add up to 500,000 ounces by the end of this decade. Currently, we are focusing on the near surface and AK.

On this specific one, we have identified at this point, for the second half of 2024, up to 400 tons per day. Metallurgical test work are completed, the milling option are already defined. They will be integrated in the mine plant of the different operation. We are working on Upper Beaver, Wasamac, Satellite deposit, for sure, everything around Canadian Malartic. We perceive substantial opportunity with the land position we have with the road, the railway, and we will keep you posted as it go. It's a dedicated effort to advance and optimize our asset. On this, I will pass to Guy for the exploration path.

Guy Gosselin (EVP of Exploration)

Thank you, Jean. Good morning, everybody. 2023, again, we have a large exploration program with over than 310,000 meter of drilling that was completed, I would say safely completed in Q1 by the 1,000 employees and contractor that are working into the various exploration site, where we've seen a tremendous improvement into the safety performance. I would like to congratulate each of the site for their excellent performance in the first quarter. That has been one of our first best quarter ever in the exploration for as long as we can track. We expect those good performance and exploration on a various site to lead to some positive result in terms of addition to resources and reserve towards year-end.

To go through a few of them, for start, at LaRonde Zone Five, drilling continued to expand the mineralization at depth, now extending the mineralization down to 950 meters with highlight result up to 3 grams over 30 meters and 3.7 grams over 10 meters, which are above the current, you know, reserve and resources grade at LZ5. Quite encouraging result, and we expect those results to lead to an addition of inferred resources below the current limit of 770 meters depth towards 950 meters depth by the end of year-end 2023.

At Goldex, infill result in the South Zone continued to deliver extremely good result, much higher grade than the overall grade at the Goldex deposit, including result up to 9.8 grams over 15 meters, 6 grams over 12 meters, which are quite positive on the overall benefit on the head grade at the Goldex facility. Also some initial drilling in the W Zone, which is located approximately 200 meters to the west of the main Goldex deposit at shaft No. 1, where it was a mystical result. Recently, we've resumed drilling through our level 27 exploration drift, where we got an intercept of 1.8 grams over 35 meters in some mineralization that is similar to the typical Goldex GZ and Deep Zone. Quite encouraging results for the Goldex future.

At Hope Bay, we have nine rigs operating, split between Doris and Madrid. Highlight into Q1 continued to return good results in the Doris deposit with, in the BCO fold hinge, 15 grams over 6 meters, and also extending the BCO fold hinge to the south, 200 meters, with 17 grams over 4.8 meters. Continue to demonstrate our ability to grow the Doris deposit. Also an increase of activity at the Madrid deposit, where we are shifting towards larger step-out along the mineral strand of the North Suluk-Patch 7 trend. We're starting to see some primary results with 6.8 over 3 points. More importantly, recently, some nice visual intercept with nice mineralization and visible gold along the trend with results that are pending.

In more detail, at slide number 13, for Meliadine. I would say Meliadine now quite exciting. We now have access to our exploration ramp in the central portion of the deposit, which allow much better access to test the deep extension of the deposit. During, you know, the first quarter in the central part of the Tiriganiaq-Wesmeg, from that new exploration ramp, having access to drill a deep portion, some pretty encouraging intercept in the Tiriganiaq deposit, 17 grams over 4.9, and also another deeper intercept, 7.5 over 8 meters at 890 meters, which is the deepest intercept reported to date at the Tiriganiaq property, demonstrating that the deposit remains open at depth and to the east. Quite positive result for Meliadine.

Shifting to Kittilä. I would see the highlight this quarter would be, in the main zone, in the Rimpi area, which is in the north part of the deposit, where we continue to see that the deposit remains open at depth with the typical kind of grade and width for that area with 5 gram over 9.2 meter. The deposit at the Rimpee and North Roura area continue to remains open to the west. Expected to continue to add on. It is outside of the currently known resources area, so very positive.

Last but not least, as introduced by Natasha, obviously lots of drilling happening at Detour, where we currently have 10 rigs operating on the property, that completed in excess of 65,000 meter in the first quarter, with a primary focus at testing in the Saddle and West Pit, below the reserve pit, and also continue to extend the deposit towards the west. Within the West Pit and Saddle area, some quite nice grade, you know, over good thicknesses, 2.9 grams over 30 meters, 3 gram over 26 meters, 2.6. This is exactly the kind of intercept we're looking to incorporate it into our vision for the underground scenarios or interpretation of, those higher grade intercept within the deposit.

Exploration also continue to test the deep western plunge of the deposit that, as mentioned in the previous quarter, remains open with gold mineralization that extend up to 2.4 km to the west of the current resources pit. A number of positive results at Detour. On that, I will hand back over to you, Amar.

Ammar Al-Joundi (President and CEO)

Thank you, Guy. Good job. I'm gonna ask Dave to talk about the financials.

Dave Smith (CFO)

Just looking at the pie graph on the right of the next slide, you can see that Agnico remains very well diversified operationally. To the left at the top, we've got the breakdown asset by asset, very strong operating performance, as we've discussed. Of course, when you have a good gold price and good operating performance on the cost side, that results in good cash flows. In fact, this quarter was a record. In fact, we expect another record next quarter because we'll have additional production from the other 50% of Malartic as well. From a production perspective, Q1 should in fact be the lowest gold production quarter for the year. I also expect a good gold price this year, certainly even higher by the end of the year, is my opinion.

I think we're in a great position from a cash generating ability. On that note, I would just point out that Agnico is currently trading at about 10x cash flow, which is a fairly low multiple. In fact, if you told me that you'd be in a good gold market, gold would be $2,000 an ounce, you know, I would think that Agnico would probably be trading at least 15x cash flow. I've seen us trade north of 20x cash flow for long periods of time in good gold markets. And I think maybe by the end of the year, we'll have that benefit of a stronger gold price and maybe multiple expansion as well. Pretty excited about that. Just flipping to the next page. Just a couple of comments on our liquidity position.

In the first quarter, we drew $1 billion on our credit lines to pay the cash component of the Malartic acquisition. Since then, subsequent to quarter end, we've actually entered into a term loan for $600 million with Desjardins and EDC. Very happy with that deal, as I know our partners at Desjardins and EDC are as well. That's a two-year agreement. Additionally, we've paid from cash another $200 million down on the line. Of that $1 billion that was drawn on the deal, there's only $200 million remaining drawn on the lines now. We're heading into the remainder of the year in a very strong financial position and a great outlook, I think.

Ammar Al-Joundi (President and CEO)

Thank you, Dave, and thank you everyone. Next slide, please. Just to summarize, everybody on the line here knows who we are and what our strategy is, and it's been a consistent strategy. We are not a go everywhere in the world to build a mine. We are very much a regional miner. We focus on the best places in the world to mine based on geologic potential and based on political stability. We are absolutely focused on per share metrics. We don't care about the total size of the company, we care about share price. We are an important part of the community. If you want to be in a place for 50, 60 years, you can't just be a good miner, you have to be part of the community. That's important to us.

It'll always be important to us and drives our ESG philosophy. We have a long history of capital returns, almost 40 years of consecutive dividend payments. Last year, I think we returned almost $800 million to shareholders. I will finish on one important thought, which is this regional focus in stable jurisdictions has always worked well for us. I would suggest that it is more important now than ever. With what's happening in Ukraine, the East-West split is bigger than it's been since I was a little kid, and I'm 58 years old. To be sure China is flexing its muscles with a focus on minerals. That positions, I think, for the next several years, an increased focus not just on what you're mining, but where you're mining.

Certainly the strategy of being in good geologic regions with good political stability and frankly, being the strongest miner in those regions is a strategy that will do well for everyone, our communities, our employees, and certainly for our shareholders. With that, operator, we'll open it up for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the Q&A session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request. If you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. The first question comes from Fahad Tariq of Credit Suisse. Please go ahead.

Fahad Tariq (Director of Equity Research)

Hi. Good morning. Thanks for taking my question. Maybe for Dave. You talked a little bit about the balance sheet. I just wanted to get a sense of target leverage. I know there's some moving parts with. There was the drawdown from the revolver, but then it sounds like there was a repayment subsequent to the quarter. Just trying to get a sense of what is the target net debt to EBITDA that you're comfortable with. Considering there's a few projects potentially in the pipeline that require some CapEx, what would be, you know, like a high level leverage that you're comfortable with? Thanks.

Dave Smith (CFO)

Yeah. From a very broad basis, because of course it always depends on market conditions as well and what is going on at the company at any given moment. The way I've described it to the board is, you know, all else being equal, let's not touch 2 times net debt to EBITDA, and we haven't in a very, very long time. We'd like to operate at less than 1 times net debt to EBITDA. Our current forecasts at spot pricing, indicate that we would end this year at about 0.24 times net debt to EBITDA. Very, very conservative balance sheet, and we intend for it to stay that way.

To, to quote Sean Boyd, who's been here for apparently 40 AGMs, one of the reasons that we've been around for more than 60 years is because we've never taken on too much financial risk. We're gonna keep that very conservative balance sheet and lots of liquidity to make sure that we can do all those big projects in the future.

Fahad Tariq (Director of Equity Research)

That's very clear. Thank you.

Operator (participant)

Thank you. The next question comes from Anita Soni of CIBC. Please go ahead.

Anita Soni (Managing Director)

Good morning, everyone. Firstly, Dave, congratulations on your well-deserved retirement. Congratulations on the quarter, everyone. My question is with respect to the cost guidance as we look at it over the course of the year. You came in below the low end of your cost guidance for this quarter. Can you talk about some of the moving parts over the course of, you know, the rest of the year, Q2 and then to Q4, that may see you trend upwards? Can you also talk about the inflationary pressures that you've seen abating?

Ammar Al-Joundi (President and CEO)

Hi, Anita. It's nice to hear from you. The team did a great job on cost control. First and foremost, it's always the operations. When the operations do a great job, the costs are naturally in line. We are seeing some relief, frankly, on the inflationary side. We were talking to our procurement team the other day, we are starting to see frankly from the merger with Kirkland Lake, we said it would take a while for some of this to come through. Some of that is starting to come through with some of the new procurement contracts. The team has been working exceptionally hard on that. We had some currency tailwinds that help us.

I think we're very comfortable with the guidance that we have with costs. It's clearly given the volatility we've had over the last couple of years. You know, it would be probably irresponsible to change it at this point, but it certainly is a good start, and most of the benefit goes to the operating team and the procurement team.

Anita Soni (Managing Director)

Okay. I'll leave it there and let the next person ask. Thank you.

Operator (participant)

Thank you. The next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.

Tanya Jakusconek (Managing Director)

Hi. Good morning, everyone, and congrats on a good quarter and congrats, Dave, on the retirement. It's good to be back on the call after being restricted for a while as well. Okay, a couple of questions. Can I just start on the Anita started on the cost side. I just wanted to get an idea. As I look at 2023, can you provide some guidance for the remainder of the quarters, in terms of, you know, how do you see production, any assets that are back-end weighted and where you have maintenance downtime so I can get those correct in my forecast? Let me start with that first.

Ammar Al-Joundi (President and CEO)

Okay. Well, I will start with the big picture on the remainder of the quarters and then maybe Dominique and Natasha, you can hit some of the specifics. Welcome back, Tanya. It's nice to have you back online now that you're not restricted. The first quarter is gonna be our lightest quarter with regards to production. That is simply because it doesn't include 100% of Malartic, which our numbers will going forward. We don't see any particular problems with any of our production. We remain very confident. I would say that it is probably normal to have glitches, but, you know, that's one of the benefits to have a diversified and multiple mines. Our team are as good as anyone in the business with dealing with these things.

Maybe Natasha and Dom, if there are any specific items.

Natasha Vaz (EVP and COO)

Just to add to that, if on my side anyway, I see it remains pretty steady over the course of the next three quarters. We might have some changes in mining sequence here and there, but overall, quarter-over-quarter should be okay. Maintenance downtime is, you know, it's planned maintenance downtime, so we would expect to have one every quarter or so. In Macassa, I would say that since we commissioned #4 Shaft, we should see starting to see higher productivities in development, et cetera. We should see costs coming slightly down from that perspective, Tanya.

Tanya Jakusconek (Managing Director)

Okay. Maybe if I think about any downtime at Kittilä for autoclave, should I? Is there anything specific I should think there?

Dominique Girard (EVP and COO)

Hi, Anita. Yeah. Q2 is gonna be the lowest quarter because of the shutdown, our 8-month shutdown.

Tanya Jakusconek (Managing Director)

Okay. Thanks, Dominique. Just on, as I look at the year, is it safe to assume that all of Q2, Q3, Q4 are generally even production-wise?

Dominique Girard (EVP and COO)

Yeah, roughly.

Tanya Jakusconek (Managing Director)

Effective.

Dominique Girard (EVP and COO)

Yeah.

Tanya Jakusconek (Managing Director)

That's helpful. Thank you. Can I just ask about the inflationary pressures that you saw some easing, maybe some examples of where you are seeing it. I understand productivity, you know, has been helping. Can you talk a little bit about where you're seeing when you look at your cost structure and you look at the labor, the consumables, fuel, other, can you just talk to us about where you're seeing the easing and sort of a bit more examples as to what you're seeing?

Ammar Al-Joundi (President and CEO)

Well, I'll go first. I mean, we are seeing easing, so for example, in Finland on electricity prices. You know, they're not back to where they were, but they're probably half of what they were at the peak. You know, the prognosis looks good going forward. You know, steel prices are down, fuel prices are down, some of the consumable prices are down, and we are getting through the worst of, and we've talked a lot about this, the worst of the lack of human capital. You know, we're able to operate more effectively. Maybe Natasha and Dom.

Natasha Vaz (EVP and COO)

Sure. I can start. Maybe I'll just give you an example, Tanya. At, for Detour, for example, in the quarter, we saw diesel remaining flat in the 1st month or 2, and then starting to decline in March and definitely in April as well. Electricity for the quarter at diesel was down in comparison to where we assumed for budgeted levels. In other areas like cyanide and grinding media, on my end anyway, the unit rates remain flat.

Dominique Girard (EVP and COO)

Maybe the one which we still see pressure is mainly maintenance parts from the supplier. Those costs remain high, and especially the electrical material. We don't see decrease yet, in those one. As Ammar mentioned, workforce remains on the, let's say, didn't decrease. We say stabilize, but didn't decrease. Maybe what is very important, too, is on the supply and the logistic. In the last year challenge that we had, even though you would like to pay, if you don't have the parts, you're done. This year, this is going away. The supply chain is back on track. This is very positive and contributing to do a good production, which at the end of the day, helping the cost.

I see more and more contracts now from the procurement team, which are Canada or bigger contract, where we have them merged together. From that, there is, of course, opportunity by the volume, higher volume.

Tanya Jakusconek (Managing Director)

If I was to think back to next year, I think on your call, you had mentioned inflationary pressures up to 10%, would it be safe to assume that, you know, from that 10%, we've seen a couple of percent of ease or is it just still relatively flat? I'm just trying to get a magnitude of easing.

Ammar Al-Joundi (President and CEO)

Well, I mean, you know, if I give a forecast, the only thing I know is I'm gonna be wrong. It's probably not unreasonable, Tanya. Yeah, maybe, you know, maybe, I don't know, maybe 8% is better than 10. You know, there's so much volatility, take that with a grain of salt.

Tanya Jakusconek (Managing Director)

I appreciate that. It's just to see if, you know, if we've started to see it come off or just it's stabilized. It seems as though you're saying it's come off somewhat.

Ammar Al-Joundi (President and CEO)

A little bit, yes. Absolutely.

Tanya Jakusconek (Managing Director)

Okay. If I could get one more in for Guy, just on the exploration news and the reserves and resources. I know, Guy, it's very early days, but as I think of Agnico, and I think of, you know, getting to year-end 2023, I know that's still far away, you know, are we still on, is your target to replace reserves at operating mines? You know, do you think, with what you have going, we can get there this year?

Guy Gosselin (EVP of Exploration)

It's always an excellent question, Tanya.

Tanya Jakusconek (Managing Director)

I always ask it.

Guy Gosselin (EVP of Exploration)

You had to. No, I think we see positive indication at several of the mines. We see that some of them are in a good position to completely replace. As you mentioned, it's very early days, although we're planning, you know, to deliver a couple of study on key project like East Gouldie eventually, which when some of that may turn to reserve by year-end, this is what we're aiming for. From a mixture of project, key value driver project update and a good result at existing mine, we anticipate to be overall exceeding, you know, what we're gonna be depleting this year from mining.

Tanya Jakusconek (Managing Director)

That's good to hear. I'll leave it for someone else to ask. Thank you very much for taking my questions.

Operator (participant)

Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Mike Parkin of National Bank. Please go ahead.

Mike Parkin (Head of Mining Research)

Hi, guys. Yeah, just one kind of question that hasn't been asked is around depreciation. With the accounting change on Canadian Malartic, do you still see your guidance of about just shy of $1.4 billion depreciation? Is that still valid or kind of, up for review?

Dave Smith (CFO)

Yeah, it's exactly that, Mike. It's, let's call it up for review because the purchase price allocation is absolutely preliminary at this point. We'll be working on it until at least the end of the year. A lot of moving parts. That being said, I think you are probably correct that as of right now, with no other changes, all else being equal, we probably will have increased DD&A going forward here from the write-up. Again, subject to change.

Ammar Al-Joundi (President and CEO)

That's an important point, and I'm glad, Dave, you brought that up. There is gonna be bounce. That $1.5 billion is preliminary, and there may or may not be noise associated with it during the year. Just it's not a big deal, it's accounting, but, you know, just a heads up on that.

Mike Parkin (Head of Mining Research)

Would that impact your expected tax rate for the year?

Dave Smith (CFO)

Yeah, I guess if you have less net income, you have less, you know, more taxes, less, less earnings. Again, it is too early to say where this is going to go, let's review it quarter by quarter to see where we are on the PPA and see if we change our guidance. We're very careful quarterly about making sure we update any of the guided numbers, and obviously DD&A is one of those. We'll get you next quarter if there's any change.

Mike Parkin (Head of Mining Research)

All right. Appreciate that. Dave, congrats on retirement.

Dave Smith (CFO)

Thanks, Mike.

Operator (participant)

Thank you. There are no further questions at this time. Please proceed with closing remarks.

Ammar Al-Joundi (President and CEO)

Well, thank you everyone. It is a pleasure. As I've said before, when the operating team does a great job, my job is easy. We'll end it with that, and thank you very much.

Operator (participant)

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.