Agnico Eagle Mines - Q1 2024

Transcript

Operator (participant)

Good morning. My name is Ludi and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Q1 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi (President & CEO)

Thank you and good morning, everyone. Thank you for joining us. I have the great pleasure, along with my colleagues, to report on another strong quarter for Agnico Eagle. But before we get into that, I'd like to acknowledge that the reason we're having another strong quarter is because of all the hard work of all of our employees. Our people at the rock face work every day, sometimes in tough conditions. Our geologists who are away from their families, sometimes for weeks at a time. Our engineers and professionals who do the studies. I want to thank all of you for delivering. Again, it makes our job easier here at corporate. We'll have a number of executives talking about a good quarter. But again, it's thanks to all of you. Please keep yourself safe, keep the community safe, and the environment safe.

Before we jump into the presentation, I'd ask you to turn your attention to the forward-looking notes. We will be talking about some expected good results going forward. But again, please take a look at the forward-looking notes and statements. And if I could ask operator if we could start, I see on page six. That's great. We're going to cover a lot this morning. But there's really three key takeaways. One, we've had a very good start to the year. Two, we continue to make excellent progress on some of our key value drivers and the catalysts that will really move this company forward over the next 12-36 months. And three, we've had some tremendous drill results that we are excited to share with you today.

On the strong start to the year, solid operating results, approximately 880,000 ounces of production, good cost control, reiterating guidance, both production guidance and cost guidance. Those strong operating results, along with an excellent gold price, have delivered strong financial results, as you would expect. Jamie will review these. But some of the highlights include our second consecutive quarter of record operating margins and our second consecutive quarter of record free cash flow. On the key projects and the value drivers, Detour to 1 million ounces. We said a couple of years ago that we thought Detour had the potential to get to 1 million ounces a year. The team has been working very hard on that since, systematically, professionally, and we're making good progress. And we remain on target to talk about this mid-year.

In fact, we expect at this point to have a technical session in June, followed by a site visit, at which point we will talk about the project parameters as we see them at this point. We will talk about the next step. We've hinted about what that next step will be. It will be, likely, an exploration ramp that will allow us to get into the ore body, take some bulk samples, confirm continuity, put in an exploration platform, and really the first step of what we think will be an exciting project. Clearly, that exploration ramp will become an important part of a future production ramp. At Upper Beaver, also very good progress, also on target, also confirming that we expect to provide an update towards the middle of the year.

With Upper Beaver, it'll likely be with our second quarter results, at which point we will be outlining the parameters of the project as we see it and, again, the next step. And the next step, as we've already discussed in February, is what you would expect, the logical next step, an exploration shaft and an exploration ramp that will allow us to take a couple of bulk samples, again, confirm continuity, again, put in exploration platforms. At Malartic we continue to make excellent progress. The shaft is continuing well. And the underground development, as I think most of you know, is ahead of schedule. And the initial scopes are generating positive reconciliation. With Malartic, however, there's also been some excellent drill results. And that leads us to our third key takeaway today.

Guy will be discussing some frankly, pretty amazing drill results at Malartic, at Detour, and at Hope Bay. Big assets in good parts of the world that really just continue to deliver. We think that these are potentially big enough to move the needle and causing us to rethink in a positive way some of our growth options going forward. And because of that, we've added a little extra time at the end of today for Guy to talk about it. At $2,300 gold, you should fully have expected us to report strong results. And we are. We continue to be very constructive on the gold price. You know, I came into this business in 1999. Gold was $290. People have hated the gold price since. And it's now $2,350. And we think that we are just starting a long-term secular move.

That said, and important we want to emphasize this, we do not take this higher gold price for granted. We remain absolutely focused on cost control. We remain focused on per-share metrics and we remain focused on capital discipline. We are absolutely determined at Agnico that increases in gold price go to our owners and these increases are not going to be eaten away with higher costs. In fact, when Dominique and Natasha go through their sections, and they'll go through it briefly, but the overriding theme you will hear over and over again is a theme of continued focus on business improvement at every mine and every opportunity.

Our focus on costs of $2,300 is as strong as ever and our key projects, Detour, Upper Beaver, Malartic, Wasamac, Amalgamated Kirkland, et cetera, those are the same projects at $2,300 as they were at $1,800. We're remaining focused. A very good start to the year. At Agnico Eagle, we believe strongly that it's not only what you do, but how you do it. With that, our next speaker is Carol Plummer, our EVP, Sustainability, People and Culture, who will discuss our 15th annual sustainability report.

Carol Plummer (EVP for Sustainability, People and Culture)

Thank you, Ammar. Good morning, everybody. We're certainly happy to release this 15th annual sustainability report, which is titled "Global Approach, Regional Focus." This report highlights how we are deeply rooted in and committed to the regions in which we operate, even as we grow and evolve as an organization. While our vision and goals are global, our strategies are tailored to each region, taking into account their environmental, social, and economic context, and adapting to their specific needs, priorities, and challenges. We're proud of our people who are working every day, not only to complete the work of a global miner, but doing it safely and respecting our commitments to the environment and our communities. ESG is central to our strategy.

It's through the stories of our people, the partnerships they have created, the relationships that they maintain, and the challenges that they face that you can see how it is integrated into the very fabric of our company. We prioritize close collaboration with local communities and Indigenous peoples, valuing their perspectives as integral components of our operational approach. This is how we make mining work for everyone. Working together, we can reduce our environmental impact, increase social benefits, and positively contribute to local economies. You can see on this slide some of the highlights from 2023. I'm particularly happy to point out the safety record and a 34% improvement in safety frequency year on year.

We continue to work on our decarbonization plans. We invested in our communities. We worked with our employees to make sure that we can maintain our commitment to mine responsibly. The full report can be found on our website or by clicking on the link in the press release. I will now pass on to Jamie to discuss the Q1 results.

Jamie Porter (EVP and CFO)

Thank you, Carol. Excuse me. As Ammar mentioned in his opening remarks, we had a great start to the year with stable, consistent operating results and excellent cost performance, pairing with higher gold prices to drive record cash flows and financial results. First quarter gold production totaled 879,000 ounces, a total cash cost of $901 per ounce, and all-in sustaining costs of $1,191 per ounce. With this strong start to the year, we are very well positioned to achieve our full-year production and cost guidance. Our all-in sustaining costs for the first quarter were actually below the low end of our guidance range at $1,191 per ounce.

This resulted from the deferral of certain sustaining capital expenditures at Detour Lake to later in the year. As a result, we do expect higher all-in sustaining costs in subsequent quarters, but still expect all-in sustaining costs per ounce to be within our guidance range of $1,200-$1,250 for the full 2024 year. The higher gold price in the first quarter, combined with our strong operating and cost performance, led to significant margin expansion. We had record operating margins in the first quarter at over $1 billion, led by our two largest mines, Detour Lake and Canadian Malartic.

We will maintain our focus on costs and ensure that the benefit of higher gold prices is allocated to strengthening our balance sheet, providing financial flexibility, and continuing to return capital to our shareholders. We move on to slide nine. Have a look at our financial highlights. Our revenues increased 21% over the first quarter of 2023 to over $1.8 billion. Importantly, our cash provided by operating activities increased by the same percentage. Our free cash flow actually increased by over 50% to a record of $396 million for the quarter. We are seeing the benefit of higher gold prices, with margin expansion helping to strengthen our financial position, adding approximately $190 million of cash to our balance sheet in the quarter.

On an adjusted basis, net income per share was $0.76 in the first quarter, approximately a 30% increase relative to the prior year period. We continue to pay a strong quarterly dividend of $0.40 per share, which is at a healthy level and represents approximately half of the free cash flow we generate in the quarter. We also repurchased 375,000 common shares for approximately $20 million through our normal course issuer bid in the first quarter. While we expect the majority of our capital returns to shareholders will continue to be through the dividend, we do have the financial flexibility to be opportunistic with respect to additional share buybacks.

At current gold prices, we would expect to generate substantial free cash flow in subsequent quarters. We will remain disciplined with our capital allocation, with excess cash being directed to further strengthening our balance sheet, paying down debt, reinvesting and improving our business, and continuing to return capital to shareholders. We move on to slide 10. I'm very proud of the work our team has done this quarter to further strengthen our financial position and flexibility. Strong quarterly operational and financial results added cash to our balance sheet and reduced our net debt position to $1.3 billion. During the quarter, we upsized our revolving credit facility to $2 billion.

This new facility reflects Agnico's size, scale, and investment-grade status and significantly increased our available liquidity. We do have approximately $800 million of debt maturities over the next 15 months. We will look to either repay those from cash on hand or refinance at the appropriate time. We were also pleased that Moody's upgraded our credit rating during the quarter to Baa1 with a stable outlook, which reflects our strong and strengthening credit profile. Overall, the balance sheet's in great shape. We're always looking for opportunities to strengthen it, improve our liquidity, and overall financial flexibility. I'll now turn the call over to Dominique, who will provide an overview of our Quebec and Nunavut operations.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Thank you, Jaime. I'm at slide 11. Good quarter, all-time record at Canadian Malartic Complex. So, with the addition of the higher grade from underground at Odyssey, Canadian Malartic is breaking new record after 12 years of operation. We also did a strong quarter on the project development with the shaft sorry, the ramp, the shaft sinking, and the surface construction. And also, Guy's going to talk about potential extending of the East Gouldie Zone, which is feeding the Fill-The-Mill strategy. So, we're very excited with that. On the automation side, Agnico is recognized as a worldwide leader in remote operation. And this leadership can be seen at LZ5. As an example, during the quarter, the Friday night shift, which traditionally was from, let's say, manual operation, now has been transitioned to fully automated operation.

So, this is not just only improving productivity, but it is also improving the life quality of our workers by not having to work anymore on the Friday night shift. So, from now on, the Friday night, Saturday night, and the Sunday night shift are fully operated remotely. I'm also happy to highlight that at 40 km of LZ5 in LaRonde Mine, the Odyssey team executed the first fully automated truck load during a shift change. So, I wrap up the Quebec session section by saying a big thank you to the teams to keep pushing automation boundaries and leveraging off-regional synergy. Moving to slide 12, Nunavut delivered an outstanding first quarter, both on cost control and gold production.

Both Malartic and Meadowbank achieved better performances than budgeted, especially at the underground operation, where mucking, hauling, and development activities beat the budget. This is the result of a team effort to improve the business. Following last year's cost pressure, the Nunavut management team heads down and initiated bold action plans. But why did they succeed? Let me explain why. I stole four important points from Jean-Claude Blais' presentation. Jean-Claude is the General Manager at Malartic. And here's what he said. First, focus on what matters. Second, empower and staff a dedicated team to succeed.

Third, be open-minded to challenge the status quo. Fourth, last but not least, execute like hell. So, here's why they succeed and we're very proud of that one. I would like to conclude by congratulating the Nunavut team for their leadership and this outstanding quarter. All those improvements are not only building flexibility for 2024 and the coming years, but Hope Bay will be able to build upon those important improvements. On that, I will pass the call to Natasha.

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Thanks, Dom. Good morning, everyone. I'll start with the operations in Ontario. Here, we had another strong quarter and solid performance. Combined, the sites generated around $300 million in operating margins, as you can see on this table, with industry-leading costs. At both operations, Macassa and at Detour, we're continuing to steadily ramp up production. Just coming back to Ammar's point earlier on, we remain laser-focused on optimizing and continuously improving on our assets. I'll give you a few examples.

We'll start with Macassa. First off, we have seen improved productivity throughout the mine and the mill this quarter. The site, they hit records. They hit records in underground development. They hit a record in skipped tons. They hit a record in milled tons. Really incredible work by the team and they keep going. They keep their heads down. They're working on other initiatives, such as improvements in energy management and workforce availability or productivities, and also fleet availability, just to name a few. Then, in keeping with our regional strategy, we're continuing to integrate the AK deposit into the production profile this year.

We're still tracking well to complete a bulk sample extraction of the AK later in Q4. And just as a reminder, this is the ore that will be sent to the LaRonde Mill. Moving to Detour, we set a record, a quarterly record, for total tonnage mined. But we also delivered mill throughput that was the highest for our first quarter period. The team already knows this. I've mentioned this to them a couple of times. But I'm particularly proud of them and our results this quarter, especially considering we faced some challenges with abnormal breakage of our grinding media.

In terms of continuous improvement efforts at Detour, we have many. But of course, as you know, our main focus is to continue advancing the mill optimization efforts. We still expect to reach the mill throughput of about 76,000 tons per day, roughly around 28 million tons a year, late in the second half of 2024. Now, moving on to slide 14. I'll touch on our other assets, starting in Finland. At Kittilä, the team had an inaugural celebration for the commissioning of the new shaft in March. And based on the performance in the quarter, they are tracking pretty well to meet guidance.

They're also continuing to see positive exploration results, demonstrating the expansion potential at the Main Zone, the Sisar Zone, and in the Roura area. Then, over in Australia, Fosterville, they continue to generate strong cash flows with costs among the lowest in the industry, despite decreasing grades. This is a testament to not just the team's ability, but their continued focus on improving productivity and controlling their costs. Finally, in Mexico, at Pinos Altos, we continue to operate with consistent, stable production. Here also, we've focused our efforts over the past year on improving productivity and controlling our costs.

All-in-all, our operations are continuing to exhibit a stable and a consistent approach to safely delivering on our objectives. Our site teams are continuing to work hard. They're continuing to work hard on improvement initiatives while also advancing on our pipeline projects. With that, I'll now pass it over to Guy, who will provide us with an update on exploration.

Guy Gosselin (EVP for Exploration)

Thank you, Natasha. Good morning, everybody online. This quarter, we continue our exploration efforts to build on last year's record mineral reserves momentum, focusing on opportunities near mine and key value driver projects in our portfolio. Our strategy remains the same. One, extend life of mine. Two, maximize available milling capacity at our key operations. And three, advance some specific high-potential projects by increasing mineral resources and mineral reserves, both in quantity and quality. Today, I would like to discuss three projects in particular where we see strong opportunities.

First of all, Malartic and Odyssey. We've seen some excellent results in the eastern extension of the East Gouldie that could significantly contribute to our Fill-The-Mill strategy. Second, at Detour, we continue to see broad mineralized intercepts in the upper part of the underground extension of the deposit to the west of the open pit that continue to support our vision of an underground project at Detour. And third, Hope, where we got what I would qualify as some very spectacular exploration results in the gap between Suluk and Patch 7 at the Madrid deposit that could move the needle because of the high-grade nature of those intercepts that could significantly improve the scenario for future project development.

So, starting with Malartic on slide 15, we saw that the zone is getting thicker again in the eastern extension, with some very solid intercepts returning 3 grams over 32 meters and 4.5 grams over 33 meters, respectively, at 400 and 1,000 meters away from the current mineral reserve. And that, you know, at a depth between 1.1 and 1.6 km depth. This could lead to the development of another thick mining area along the East Gouldie horizon, demonstrating that the zone remains open for additional significant discovery and future potential reserve addition that could help in our long-term Fill-The-Mill strategy.

Moving on to Detour on slide 16, exploration efforts continue to focus on the western extension of the deposit, completing 58,000 meters in the first quarter, focusing in particular into the shallow portion of the potential underground project, where we continue to see broad mineral interval of good-grade mineralization, with example of 5.4 over 16, 3.9 over 25, and 3.4 grams over 29 meters in a large area located at shallow depth of the west of the potential underground project, close to the conceptual exploration ramp that we are envisioning at Detour.

These results show potential for mineralization having both grade and width characteristics that are likely amenable for underground mining, supporting our vision to bring the Detour Lake Mine to 1 million ounces of gold a year production from a combined open pit and underground operation in the future. And last but not least, on slide 17, I'm particularly proud. You know, we complete 30,000 meters of drilling at Hope Bay this quarter, which is almost 50% than last year, safely. We focused this year's winter drilling campaign for ice-based drilling at the Madrid deposit in a previously unexplored gap between Suluk and Patch 7 to follow up on some of the exciting results that were communicated in February.

The most recent follow-up drilling returned exceptional results: 12 grams over 19 meters, 20 grams over 18 meters, 14 grams over 16 meters. And those are high-grade and estimated true width. You know, the corridor intercept on those were just spectacular, solid from wall to wall, demonstrating the potential for a significant new thick mineralized area that could potentially host up to 1 million ounces between 10 and 20 gram that could have a very positive impact on the future project redevelopment scenario, considering the high-grade nature compared to the rest of the deposit and the apparent simple geometry of this new zone.

I would like to thank all our exploration team in the various jurisdictions that put a lot of good thinking and hard work into these large exploration programs to deliver them safely and in the most cost-efficient manner. Our focus in exploration remains to focus on opportunity by advancing key value driver projects to accelerate their integration into mine development scenarios. With those excellent results, we can anticipate that additional exploration budget could be added in the second half of the year. On that, I would like to return the mic to Ammar for some closing remarks.

Ammar Al-Joundi (President & CEO)

Well, thank you very much, Guy. We probably should have started with that. Well, good work. And thank you, Carol, Dom, Natasha, and Jamie. Before we jump into questions and next slide, if we could, please. Thank you. Just really to summarize, we had a strong quarter, operationally strong quarter, financially. We're all proud of our team for delivering results, but also for continuing focus on business improvement and our commitment to capturing gold price increases for the benefits of our shareholders. We made good progress on our key value drivers. And we have had, as you just heard, some excellent exploration results. We are delivering on 2024. But we're also building the company for the future.

Our strategy remains the same as it's been for the last 67 years: focus on the best regions based on geologic potential and political stability, try to build the highest quality business that we can for our shareholders, for our communities, and for our employees, continue to focus on the bottom line, continue to focus on per-share metrics, continue to focus on return on capital. We think we are uniquely positioned with a competitive advantage in some of the best places in the world to mine for gold. With that, I want to thank my colleagues for their presentations. Thank all of you for being patient operator, if we can now open it up for questions, please.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question during this time, simply press a star followed by one on your telephone keypad. If you would like to withdraw your question, please press the star followed by two. One moment, please, for your first question. Your first question comes from the line of Ralph Profiti from Eight Capital. Your line is open.

Ralph Profiti (Senior Equity Research Analyst)

Good morning, Ammar. Thanks for taking my questions. Two of them, please, on Odyssey. Maybe for Dom, you can chime in. I'm just wondering about matching hoisting capacity and the mining rates at Odyssey in that sort of 2025 to 2027. It seems like we're getting there a little bit earlier. Just wondering, is there some production perhaps being brought forward because of that temp loader being repositioned higher in the strata? When you combine that with some of the development ahead of schedule, there's some sort of back envelope that you can get an extra sort of maybe 15,000, maybe 20,000 ounces of gold production in 2025. Just wondering if you can comment on that a little bit.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yeah, Dominique. The teams are working on all the different scenarios to integrate new drill hole, to integrate modification to the shaft by, let's say, we just change a loading station, and also adjusting with the sinking rate that we're doing. Those plans are going to come up more later during the year with optimization. But as you mentioned, there is place of improvement. The team are working on that.

Ralph Profiti (Senior Equity Research Analyst)

Okay. Okay. And is there any mining deeper in the deeper levels of the ore body, perhaps Odyssey North, that was going to happen ahead of shaft completion, where perhaps if we move up the temporary loader, there's perhaps a partly offsetting cost impact of moving that up in the schedule?

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yeah. Yeah. Maybe on the loading, the positive impact is it's going to be a shorter run. So we're going to be able to do more tonnage. So that's going to help to bring out the waste or the ore. But really, the focus is on accessing the East Gouldie deposit. So now we're at the level of the East Gouldie deposit with the ramp. We're still not touching the ore. That's going to be more coming into 2026. But again, the focus is to be able to really unlock by having the shaft being able to skip that out of the mine in 2027. And this is where the heart of the ore body is.

Ralph Profiti (Senior Equity Research Analyst)

Yeah. Got you. That's helpful. Thank you.

Operator (participant)

Your next question comes from the line of Mike Parkin from National Bank Financial. Your line is open.

Mike Parkin (Metals and Mining Research Analyst)

Thanks, guys. Thanks for taking my question. Congrats on the good quarter. Question is just on Canadian Malartic. The throughput this quarter and actually last quarter has been a significant step up from where we were ever since really the start of 2022. Is that more of a blend of Barnat or being a bit softer, allowing you to push the mill a little harder? Just trying to understand the roughly 7%+ improvement in the last couple of quarters versus that last couple of year run rate. What's driving that? Is it sustainable? Any color would be awesome.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yes, Mike, this is true. The Barnat ore is more softer and we're able to process more than initially planned. But right now, we're still also processing underground ore and also a stockpile, which came from the Canadian Malartic pit at the time. We need to time also the processing plant with the tailings facilities. So this is where the team are also looking to optimize. But we're going to turn into in-pit deposition in the second half of the year. So we need to match this, let's say, tailings and also milling capacity. But we have flexibility within the plant.

Mike Parkin (Metals and Mining Research Analyst)

Okay. And for in-pit tailings, given the underground is not directly underneath it, there isn't really any need to add a solidifying agent like cement to it. Can you just dump it in without any additives?

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yeah. We don't need to do a specific plug because we're not, as you mentioned, on the top of where we're going to mine. We did, let's say, many studies, including external expertise, to make sure that everything was fine. There's no issue with going into the Canadian Malartic pit.

Mike Parkin (Metals and Mining Research Analyst)

Okay. Sounds good. Thanks very much, guys.

Operator (participant)

Your next question comes from the line of Greg Barnes from TD Securities. Your line is open.

Greg Barnes (Head of Mining Equity Research)

Yes, thank you. Just returning to Hope Bay and some of the drilling success you've had there in that gap zone, I think you mentioned a couple of times in the presentation the MD&A is changing your thinking in terms of how you expect the Hope Bay development to proceed. Just wondering what that means.

Guy Gosselin (EVP for Exploration)

Well, Greg, so that means that obviously, if we have an area in that gap with 1 million ounces at 10-20 gram, obviously, if we bring that sooner but that was not known currently in any kind of previous scenario we've had. So now we're looking potentially we should, in the most likely scenario, try to go there first, which is just kind of maybe could we add another mining area to Hope Bay? Can we just reshuffle the proportion that could come from North to Suluk visit this new area? So obviously, from a return perspective, if we could access that higher-grade ore earlier, that's going to help.

So it means that, yeah, we may have to fast-track our thinking about establishing another mining area into that new zone and reshuffle what proportion could come from the different portion of the deposit. All of that is kind of fresh out of press from an exploration results standpoint. We're trying to be live with our study to integrate all of that into design the best project eventually with that.

Ammar Al-Joundi (President & CEO)

It's just Ammar here. I'll jump in. You know us. We don't want to get too far ahead of things. There's a lot of work. It all goes to capital discipline. But Hope Bay, we don't see Hope Bay as a small thing. We've said from the beginning, if we go ahead with Hope Bay, it's going to be between 300,000 and 400,000 ounces a year. So these are important drill results. Take it with the appropriate amount of caution. But they do look pretty good.

Greg Barnes (Head of Mining Equity Research)

Ammar, with a second mining front, higher grades, I would assume you'd be pushing towards the higher end of that production range now in terms of your thinking on this?

Ammar Al-Joundi (President & CEO)

Yes.

Greg Barnes (Head of Mining Equity Research)

Okay. Okay. Good enough. On slide 15, the Odyssey Mine, just thinking about the second shaft and looking at the cross-section, where do you think that second shaft is going to go? And obviously, jumping ahead, timing.

Ammar Al-Joundi (President & CEO)

Well, it is not clear yet. We're going to see more soon, some proposition on that. And again, just the new East Gouldie, which is getting back wider, that's going to also bring, let's say, new ideas. But the team are looking to different options for the second and maybe eventually a third shaft. Who knows?

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

As you see, we have both good results in the western extension and in the eastern extension. So obviously, it opens up some process of thinking where could be a center of gravity and where should we do things. So there's the deposit being open on both sides of the first shaft. And now you can pick up the scenario that you prefer.

Greg Barnes (Head of Mining Equity Research)

That's very helpful. Thanks, guys.

Operator (participant)

Your next question comes from the line of Anita Soni from CIBC. Your line is open.

Anita Soni (Analyst)

Hi. Good morning, everyone. Congrats on a good quarter and all the exploration success. I had similar questions to Greg. Could I just follow up on sort of the East Gouldie, what that means? You said it's obviously you can extend it to the east and to the west. But would that change any of your sort of ideas on how much tons you could push out of that asset?

Guy Gosselin (EVP for Exploration)

No, the panel being open on both sides, both towards the north, south lead into the west. So we're just basically adding additional mineral inventory, adding additional infra. Obviously, when the zone gets thicker like that with better grade, that kind of it is becoming sort of an area of interest. Again, it was kind of a gap where we didn't add much drilling so far into an area of 200 meters. We had some drill holes further east that were kind of not as good. But I would say I was pleasantly surprised because the belief or our understanding was the deposit was pinching. All of a sudden, it is swelling back. So now we want to dedicate additional drilling in the second half of the year to better understand at a reasonable drill pattern.

I think we're going to try to target in this area drill pattern 175, 175 to better figure out what's the extent of that new batch at 30 meters. And we'll see how many ounces and what kind of decision it drives. But it's very close from the existing infrastructure. We're just talking about it's between four and 1,000 meters to the east of the current reserve. So it's not that far. Quite thick. Seems to be very close in the extension of the main thing. So it is kind of tracking our attention.

Anita Soni (Analyst)

Thanks. And then on Detour, the decision to defer the capital, I guess, until later in the year, is that related to the results of the study, maybe waiting for that to come out and see if you can better deploy capital? Or was there something else behind it?

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Hi, Anita. It's Natasha. Thanks for the question. No, it has nothing to do with that. It's timing. We're continuing to negotiate better terms with our suppliers. And as part of the process, we just slightly delayed the purchase of equipment and parts associated with it. That's it.

Anita Soni (Analyst)

I have before I turn it over is to capital allocation. You talked about returning capital to shareholders. Can you talk about, Jamie, the priorities in order? What will you address first? I know you have your buyback that's expiring in a little bit. Would you renew that? Would you consider buying back shares at these levels?

Jamie Porter (EVP and CFO)

Yes. Thanks, Anita, for the question. Yeah. We did indicate in the press release that we will be renewing the buyback program. And in my remarks, I indicated that the primary focus of the increased cash flow will be to strengthening our balance sheet. We do have, as I said, $800 million in debt maturities over the course of the next 15 months or so. So we want to be well-positioned with cash on hand to have the ability to repay that from our balance sheet if that's the route we decide to take. So we're still paying very healthy shareholder returns, the dividends, 50% of the free cash flow that we generated in the quarter. So that will continue to be the focus of our shareholder capital return program.

Anita Soni (Analyst)

Okay. So first, debt repayment. And then secondly, the potential increase in dividends or just maintaining the dividend?

Jamie Porter (EVP and CFO)

I'd say maintaining the dividend for now. We'll look at debt repayment and then just further strengthening the balance sheet and providing financial flexibility. And we'll be opportunistic with respect to the share buyback. It's there for that reason. In the first quarter, we saw the gold price move. And our share price didn't. So we stepped in to a small extent. But that's what we'll use that for going forward.

Anita Soni (Analyst)

Okay. Thank you very much. I'll leave it there.

Operator (participant)

Thank you. Your next question comes from the line of John Tumazos. From John Tumazos Very Independent Research, your line is open.

John Tumazos (Analyst)

Thank you very much. Congratulations on all of the progress in so many dimensions. I'm trying to imagine how the mine planning might evolve. In the new zone that's east of East Gouldie, over 1,000 meters east and deep, would that likely be another shaft 1,000 meters to the east? Or would that be a ramp from deep since the project plunges in that direction? First question. Second question, the grade intercepts in the mid-300 meters at Detour, its underground targets. Does that suggest that the pit doesn't need to go to 550 meters? And it's more economic to mine from underground, which, of course, solves the problem of waste dumps and where to put the waste stripping because the underground mining is less disruptive. Thank you.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Thank you, John. Dominique speaking. Yeah. For the scenario at East Gouldie, the team are looking at a different scenario. So now the shaft, we're going to be able to skip from that shaft, 12,000 tons per day including the waste. And that's going to be that's going to be the limit of this one. And the ramp, there's also a limit going with the ramp. So we need to have another exit to get the ore out. So that could be a second shaft. That could be also a new ramp maybe going through more the East Malartic zone first. So there's different opportunity into play. And the team is also looking how that could what is the most efficient way to do that shaft? Is it by, let's say, doing a ventilation raise that we're going to turn into a shaft?

Is it to do it like we're doing right now? I cannot give you what's going to be the scenario for now. But there is people on that. We just added the six resources to be able to digest and to look to all those scenarios.

Ammar Al-Joundi (President & CEO)

John, it's the right question that you're asking. In this case, because the mill is unconstrained, we really want to, as Dominic said, get more tons up. If the mill was constrained, then it becomes a question what's more economic to access at a shaft versus a ramp. In this case, and again, it'll be up to the engineers, because the mill is unconstrained, as we all know, we're going to have 40,000 tons a day available. To the extent you have this ginormous ore body, you want to bring up tons. And just for clarification, Dominic mentioned the roughly 11,000 tons a day on the shaft. There's roughly the equivalent amount on the ramps coming up. So we're going from 22,000 tons a day. And we would look at getting higher.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yeah. In fact, it is 19,000 ton per day from the shaft. But that includes waste. So the rest of the ore is coming from the ramp to end up to 20,000 ton per day.

Guy Gosselin (EVP for Exploration)

For the second part of your question, John, about Detour, it's the way with exactly what you describe, considering the plunge of the ore body. You see that there is not much in the first 300 meters. And it just keeps on plunging. And therefore, considering the grade and the fact that that thing, that seems to be kind of pretty good for underground. It would also, as you describe, mean less disturbance, less waste. And you can access to that higher grade part. And since at Detour, well, we're going to be maximizing the feed at the mill. But now it's a trigger. Can we get a better grade? And obviously, we're going to get a better grade if we go to that area from underground with the ramp more selective into the ore body.

For all of the reasons you describe, it makes more sense to go to that western part of the deposit and having eventually, as we describe, a combined open pit and underground scenario in the future.

John Tumazos (Analyst)

Thank you. If I could follow up on the east of East Gouldie, do you have information about the 1,000 meters in between? Had you drilled in between? Or is this just virgin ground for the 1,000 meters east?

Guy Gosselin (EVP for Exploration)

No, no. We have information in between. And we already had some loose drilling that was showing some economic intercept. And we already have some things that do not yet qualify inferred because the drilling pattern is too loose. What we were pleasantly surprised, although, is that we were kind of seeing a pattern to the east of East Gouldie that the zone was getting a bit narrower anymore in the 10 or 5-10 meters, still a decent grade. What we were pleasantly surprised to see is that the zone is getting back to 30-33 meters between three and 4.5. So that was a bit unexpected because I was thinking that the thickness was within the plunge of the typical ore shoot of the ore body.

But we were kind of pleasantly surprised to see the system swelling again, still with some good grade between three and four. And we have information in between. So eventually, you can and you can see on the graph that there's already some reserve. And then we move to resources and then some mineral inventory. And all of that, we're going to continue to drill because, as you remember, we only have 9 million ounces in the plan for Odyssey. But on total, there is 16 million ounces underground plus in Malartic. So all of that is in lower category. And we're going to continue to tight-fill the area between the current reserve and this area with a specific attention to this area when it seems to be thicker again.

John Tumazos (Analyst)

It is undulating. It pinches and swells. You have to drill. You just can't project.

Guy Gosselin (EVP for Exploration)

Wow. But it does, but at a large scale. The core of East Gouldie is typically very, very thick, up to 50-55 meters. And it was kind of progressively getting from 50-60 towards, let's say, more 10 meters. And all of a sudden, it's going back to 30 meters. But it's not kind of.

John Tumazos (Analyst)

[crosstalk]. I see.

Guy Gosselin (EVP for Exploration)

It's not pinching and swelling on small scale. It's kind of very kind of large scale, progressive pinching that is back swelling.

John Tumazos (Analyst)

Wonderful. Thank you.

Guy Gosselin (EVP for Exploration)

You're welcome.

Operator (participant)

Your next question comes from the line of Tanya Jakusconek from Scotiabank. Line is open.

Tanya Jakusconek (Analyst)

Oh, great. Good morning, everybody. Congrats on a good quarter and good exploration results as well. I'm going to start with Natasha, if I could. Morning, Natasha. On Detour, a couple of questions there. I just want to understand, Natasha, what exactly is happening between the ball mill and the SAG mill. I just want to understand getting that balance, what needs to be done? And then I'm trying to understand this grinding media. Have you resolved the issue there with the grinding media getting caught in the mill?

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Sure. Good morning, Tanya. Thanks for the question. Let's start with the grinding media. The grinding media is just basically these 5-inch steel balls. They're consumables that are going into the SAG. It's grinding the ore. What we have seen, it's very abnormal, is that these balls are pretty much chipping and flaking. It's accumulating steel in this mill. We're working with our suppliers. This is a supplier that we've used for 10 years. They're on it. They're working with us on this. We have new grinding media that was introduced sometime in mid-March. So far, it's yielded favorable results. But it's still early days. We're working with them. We're looking to resolve this issue fairly soon. Then.

Tanya Jakusconek (Analyst)

Is this grinding media, sorry, was it just a bad batch that maybe you got? Or I don't know.

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

It's still inconclusive. We're doing the investigation with our suppliers and a third party.

Tanya Jakusconek (Analyst)

Okay.

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Then this year, with respect to the SAG and ball mills, we're just optimizing the grinding efficiency and trying to find that load balance between the SAG and the ball mills. There's a few things we're doing in here. We're introducing new instrumentation in the SAG mill just to stabilize the operating conditions. We're optimizing the screen and grate sizing to improve the flow and the distribution of the load. We're also testing new liners, basically, just to extend the liner life. That's basically what we're doing on the front end.

Tanya Jakusconek (Analyst)

Okay. It's just trying to get that balance between the two to just make it consistent. Is that a fair view of it?

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Fair. Fair. Yes.

Tanya Jakusconek (Analyst)

Okay. Okay. Thank you for that. Then the second part on Detour is we do have that study coming out at the end of the second quarter. From a conceptual basis, should I be thinking that it's going to be based on that 1.6-million-ounce resource of the underground that was released in February plus some additional ore or additional resources, sorry, inferred, that are coming in from part of the pit?

Guy Gosselin (EVP for Exploration)

You're right, Tanya. Yep. You're right, Tanya. So as we are relooking at within the open pit that you described, so the inferred that we produced last year, and also when you look at the larger resource pit that we show in blue on the long section, so what portion of that could we mine quicker by accessing underground? So it will be a combined kind of what could be within the resource pit, what is outside to the west. You're right.

Tanya Jakusconek (Analyst)

Okay. So it's not going to be any new additional ounces within your resource envelope that I should be thinking about?

Guy Gosselin (EVP for Exploration)

No. The study we will be producing will still be based on the number we produce at year-end. But obviously, we're still working on the next scenario that continues to integrate all of those nice drill holes. We have those, let's say, in an additional kind of mineral inventory that could help at enhancing. But what we will be looking in the PEA will be most the number from what we've had in end at year-end 2023. So as you know, it's a picture shot at a certain point in time that we're going to continue to update over time.

Tanya Jakusconek (Analyst)

Okay. No, that's great. Thank you. And then my second question maybe for Natasha and Dominique, I just wanted to ask on just and I asked this for Newmont yesterday as well. It's just on the costing side. We're finally seeing strong margins out of the gold companies. And I just want to get an idea on the costs, the inflationary pressures, if any. Have they eased? Or are you seeing any relief, any pressures on your cost structure?

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Good morning, Tanya, Dominique. I will say on the inflation, it is stabilizing and maybe getting down a bit on the workforce, contractor, I will say. This is good news. I think what we need to protect to keep the margin is the cut-off grade. This is the part where I think we need to be disciplined to keep the margin. I don't see any big inflation coming because of the gold price increase. I see just the danger that we need to be careful that we don't play too much with the cut-off grade. Or we stay stable cut-off grade. It is more our philosophy.

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

Yeah. And same on my side, Tanya. We don't see any rise in costs. We're pretty stable from an inflation point of view. But we're continuing our efforts with renegotiating with our suppliers and finding the best optimal pricing that we can on our side.

Ammar Al-Joundi (President & CEO)

We just had our board meeting yesterday. Really, Tanya, the emphasis there was, how do we reduce costs? I mean, so we're working hard on making sure that the margin goes to our owners.

Guy Gosselin (EVP for Exploration)

And Tanya, maybe it's a smaller drop in the overall cost structure. But in the drilling industry as well, which is an old contractor base, we've seen some easing into the costs. There's a bit less activity. And we've seen some reduction in costs in the drilling. So overall, we're quite pleased with that.

Tanya Jakusconek (Analyst)

Can I just ask about cyanide and steel? Newmont mentioned yesterday that they saw slight increases there. I'm just trying to see if that's the same for you guys.

Natasha Vaz (EVP and COO for Ontario, Australia and Mexico)

We haven't seen anything material.

Tanya Jakusconek (Analyst)

Okay. That's helpful. Thank you so much for that. And if I could just put one last exploration question in from Guy. Guy, that's a lot of interesting results that you're getting. And it looks like these things are getting bigger. For us, though, when do you think the market is going to be ready to get some results, some conceptual views of what this could be? I think we talked about Hope Bay maybe having something in 2025. Is that still fair that we would have something like?

Guy Gosselin (EVP for Exploration)

It is. It is still fair. So we're going to be obviously focusing at bringing that new area to infer and indicate that if possible, that's really what we are all over at the moment so that we can put that. So you're right, Hope Bay, somewhere in 2025, we should be in a position, especially with those better results recently, to provide you with an update.

Tanya Jakusconek (Analyst)

Then can I ask about Odyssey? We've got obviously upside to the east, upside to the west. I know it's all drilling dependent. When do you think you'll be ready? Is it a couple of years that we need to wait to see something conceptual? I'm just trying to put a timeline.

Dominique Girard (EVP and COO for Nunavut, Quebec and Europe)

Yeah. It is drilling-driven. We're going to have internal scenario coming in the second half of this year. I cannot commit to when we're going to have something more robust on that.

Ammar Al-Joundi (President & CEO)

It'll be drilling-driven, as Dom said. So your timeline's not far off, Tanya.

Tanya Jakusconek (Analyst)

Great. Congratulations. Thank you for answering my questions.

Operator (participant)

Thank you. That concludes the Q&A portion of today's call. I would like to turn it back to Mr. Ammar Al-Joundi for closing remarks.

Ammar Al-Joundi (President & CEO)

Thank you, operator. Thank you, everyone, for participating this morning. As a reminder, we are hosting our annual general meeting today at 11:00 A.M. at the Arcadian Court in Toronto. We hope to see some of you there. Thank you, everyone. Have a great weekend. Bye-bye.

Operator (participant)

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.