Agnico Eagle Mines - Q2 2023

Transcript

Operator (participant)

Good morning. My name is Michelle. I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Second 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 question-and-answer 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, you may press the pound key. Now I will turn the call over to Mr. Ammar Al-Joundi. You may begin.

Ammar Al-Joundi (President and CEO)

Thank you very much. Good morning, everyone. Before we jump in, I would like to point out that we will be talking about some forward-looking concepts and statements, and there's some documents at the beginning of the package that you might want to go through. We have our team with us today. We're going to be in a very good position to talk about the quarter, in a very good position to answer questions afterwards. Really, today, there are only three key takeaways that we'll go through. One, we had a very strong operating quarter, consistent performance by the team across all the sites, and I'm proud to say now, for several quarters in a row. Two, excellent progress on our Abitibi optimization programs.

As many of you know, we have a very ambitious program to consolidate and optimize our Abitibi platform. We believe we have the potential to add several hundred thousand ounces of additional production, potentially, and we've made some good progress on that, and we'll talk about that and where we are. The third point is we've had some excellent exploration results. Guy will talk about that, but excellent results across many of the operations. I would say that all of these results are in places we already operate. We have infrastructure, we have teams, and we have the capacity to utilize and leverage off existing infrastructure. These are not exploration results at the top of a mountain range in the middle of nowhere. These are in our backyard, and they will make a big difference.

Guy will talk about it. In fact, we're so confident that we've increased his exploration budget, putting us over $300 million this year, demonstrating again, the confidence we have in the business. When we talk about strong operations, just hitting some highlights, record quarterly production. Costs, $840 cash costs at the bottom of our guidance range, all with another quarter of exceptional safety performance. I'm proud to say that, we have now had the safest first half of the, of the year ever in the 66-year history of the company. There is nothing more important than the safety of our people and our communities.

I've said it before, I'll say it again: you cannot have that kind of safety performance without excellent operating capabilities, and you can't have the kind of operating results we've had without that type of safety performance. That's all led to impressively record quarterly cash flow, and Jamie Porter will be talking about our financials later on. Hitting some highlights, payable gold production of 873,000 ounces, good cost control, all-in sustaining costs of $1,150 an ounce, cash costs of $840 an ounce at the bottom end of our guidance, generating almost $1 billion of operating cash flow this quarter. Just getting into a few more, frankly, I'm quite proud of this, so I'm going to hit a few points.

Malartic produced its seven millionth ounce since we've had it in 2011. We've updated the Odyssey project. Dominique is going to talk about that, but just some highlights, an additional 1.7 million ounces, additional three years out to 2042. Most importantly, still open at depth, still getting some very good exploration results and geologic upside. I mentioned on a call this morning, Malartic was discovered by the Goldie brothers in 1923. That mine has been around for 100 years. It's produced with us and previously over 12 million ounces. It's got a mine life out another 20 years. It's still open. It is just a great example of putting yourself in the best places in the world based on geologic potential and political stability.

100 years and plus. Detour, Natasha is going to talk about some of the great progress the team has made there to build that mine, but from an operating perspective, proudly, record quarterly mill throughput at Detour. At Goldex, record quarterly mill throughput since the restart. At Macassa, record quarterly mill throughput, record skip tons, record underground development. The team there has really, frankly, delivered on that mine, great ore body, a great operating team. Meliadine, record monthly mill throughput in May, Meadowbank, record production for the first six months of the year, again, with one of the safest quarters in the company's history. I'll address a question now because we'll get it later, I'm sure. With the very strong start of the year, we are already being asked, are we going to update and improve guidance?

What I would say is, it's very early. We've only had the first two quarters. I will say, we are clearly off to a very strong start. We are clearly tracking production so that would be above the midpoint of our guidance, and we are clearly tracking costs very well relative to our guidance. An excellent start of the year. We're very confident, and we're confident going forward. Next slide. Actually, keep it on this slide here. If we do the update on the key drivers, again, Natasha and Dominique are gonna talk about it. I'll just hit a few points. As I mentioned, Canadian Malartic, we updated the internal study in June. We talked about the additional ounces, the additional years, the potential there.

Really, what's exciting more than anything is the significant geologic upside that we continue to see there. That is a fantastic asset. At Detour Lake, Natasha is going to talk about it, the great progress we've made, but also Guy is going to talk about some of the exploration results to bring in potentially underground ore. Remember, our objective at Detour, our vision, is to try to get that to 1 million ounces a year. This is a mine that's already out to 2052 that is still going to be increasing.

To get it to 1 million ounces a year, it's going to be a combination of increasing the mill throughput and bringing in higher grade ore from the underground, and we're working on that, and we'll be looking to give some updates in the first half of next year. On optimizing some of the other assets, good progress, looking at the potential at Macassa, the upper zones in Amalgamated Kirkland. We're doing our work on Upper Beaver. We're doing our work at Wasamac. I remind everyone, the opportunities there are not just the base case standalone for those projects.

Really, what we're excited about, and what we're working hard on, is can we develop those assets without having to build additional mill capacity and utilize existing infrastructure, mill infrastructure and tailings infrastructure, at either Malartic or at LaRonde? As a reminder, the Upper Beaver and Wasamac each have a potential for between 150,000-200,000 ounces a year. Amalgamated Kirkland and the upper zones at Macassa, 20,000-40,000 ounces a year, and that's progressing well. Just between those projects, we have the potential for an additional 350,000-450,000 ounces a year using existing infrastructure, which reduces our permitting risk, which reduces our environmental footprint, and materially increases our return on capital.

That's something we're very focused on, and that doesn't include other projects, for example, at Camflo, for example, potentially a second shaft at some point at Malartic. Before I turn it over, we're also getting questions on how are these studies going? Frankly, they're going well. There are no delays whatsoever. We expect to start to come out with some guidance in the first or second quarter of next year. Understand something as simple as, you know, the underground at Malartic, it just takes a lot of drilling. These things just take a little bit of time, and frankly, I'm very impressed with the way the team is working and the progress made.

We expect to be able to start giving some guidance in the first or second quarter next year. You know, not everything is probably gonna work, but things are looking pretty well so far. I will turn it over to Dominique to talk first about Odyssey.

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

Thank you, Ammar. Odyssey project, if we put it in perspective, the first hole where we discovered the East Gouldie zone in 2018, in 2021, we released our first study, we just updated that one last June. Very good improvement, where we production profile increased by three years, we have now in front of us a 20 years life of mine with 8.5 million ounces on the production plan, this is just the beginning. As Ammar said, there's still full of potential to just increase those zones and eventually, maybe also, on the regional aspect too. Maybe one important point about that updated study and where we are today is we de-risked the project with now.

In 2020, we had 5% of the quality, the ounces, which were under indicated resources. Now we're up to 53, which is a good news, the grade is still there. There's no discrepancy, the team are happy about that. Also, we have now 60% of the surface construction completed in the last two year and a half, which was not the easiest year to do that. I need to say, the fact that we were in Abitibi, the fact that also we had good guys, good leaders with experience to deliver that, this have been done very well done in those years. I have in the room here Serge Blais and Daniel Paré, which are two leaders, key guys, which have worked on that.

The, we are now going to reduce the pace of the construction through the workers. That side's gonna decrease from 400-150, so it's gonna be easier pace. Now we're getting into the next phase, which is sinking the shaft. Overall, at the current gold price, the value of the project is $2.5 billion, with a 33% return on the investment. An update on the ramp, how it's going. Odyssey South ramp up is going on track, so the team did over 1 km drilling last month. No, in May, it was a record.

We are now at 600 m below the surface, and we start the production from the Odyssey South, Ody South, Odyssey South zone, which is the first one we're going to mine there for the next 3, 4, or 5 years at approximately 80,000 ounces per year. We are on track with that. Maybe a good news on the reconciliation so far, we talked to you about the internal zone, which was something difficult to see from the surface or to understand from the surface. Now we're touching it, and we see that there is upside through those zones, and that could potentially add more ounces from 2024 to 2027. It is still early, we're defining the infill drilling program right now to better understand those zones.

The first stop was supposed to be 30 tons at 2.6. It ends up to be 45 tons at 2.9. This is a great bonus that we had. The next important phase also is all the shaft sinking. To access the East Gouldie zone, which you could see on the bottom, bottom left of the figure, there's two things. We need to bring the ramp and to build all the infrastructure and to start to develop the first pyramids. We also need to sink the shaft. It's a 1.8 km shaft, where today we're at the 76 m done, and we need. We are also in the step that is now we're just initiating the full cycle to sink the shaft.

We took the first 4 m bench last week, the next one is coming in the coming weeks, we start installing the seal. That's a good news. That was an important step, all the construction done behind in the past year was to achieve that. Everything is on track on that side. We add up to 16 drills on the property in the second quarter. As you could see, we're still drilling intensively. In the past year, we've put emphasis on 2 doing conversion again, to de-risk that study. Now we're turning back to do more exploration and potentially add resources.

On top of that, we need to recall that the mill have a 40,000 ton per day capacity still available in the, one of the best place in the world. We have homework to do to bring some ounces through that mill. On that, I will pass the microphone to Natasha.

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

Thank you, Dom, good morning, everyone. I'm on slide nine. The slide highlights the evolution of Detour and the journey that it has been on, to make operational improvements on all fronts, actually, from the mine to the mill, and on the maintenance front as well. The culture of Detour has always been one that's focused on safety and on minimizing our footprint, but also one that focuses on cost control and value generation, by just going back to basics on how we operate, by assessing innovative approaches, by constantly pursuing efficiencies, and most importantly of all, by empowering our people. As you see here, there are some initiatives that the site has successfully achieved, and what we've shown here just scratches the surface.

The bottom line is that you can see that we have a track record of delivering improvements, and these improvement initiatives is an ongoing process. We continue the transformation of Detour into one of the world's largest and most profitable gold mines by assessing the potential, like Ammar said, to achieve the 1 million ounces annually. You know, this comes in the form of two main projects: increasing the mill capacity and assessing the underground potential. Ammar mentioned, both are currently ongoing, but from a mill tonnage perspective, as shown on the graph, we have steadily been delivering year-over-year and growing mill capacity by 5% on an annual basis.

This past year, we've completed the installation of the screens on the secondary crusher. We believe that we can add an additional 1.4 million tons to the throughput from 2022 to get us to an annual throughput of about 27 million tons. As mentioned before, we're also advancing several projects to improve the runtime and sustain throughput of 28 million tons by 2025 or even sooner. As a result of our ongoing efforts, this quarter, the tons per operating hour improved significantly, and combined with the high mill availability, the mill recorded its best quarterly mill throughput and close to what we need to achieve the 28 million tons a year. Now we are looking at sustaining it, we're looking at small modifications in different areas.

We're looking to improve the efficiencies of the SAG discharge screens. We're looking at small changes to extend liner life. We're tweaking the refeed system so that it operates better and more efficiently in the winter. We're relocating some of the pipelines in the mill to maximize efficiency of pipe replacement during our shutdowns. In parallel, we're also assessing a few projects to potentially exceed the mill throughput beyond 28 million tons a year. We're gonna be trialing the ore sorting and we're gonna be working on an expert system like we have at some of our other mills. In terms of the underground study, we're continuing to advance this based on a revised mineral resource that factors in additional drilling that was completed earlier this year.

As Ammar mentioned, we expect the report and the results of the study to be shared with you sometime in the first half of 2024. In parallel, the exploration team is continuing to carry out an aggressive drilling program at Detour, and Guy will be expanding on this and some other exploration programs next. Before I end, I just wanna commend the sites on an incredible quarter and a year so far. On behalf of Dom and myself, thank you for all your hard work, your passion to continually look at ways of improving and optimizing our business, not just at Detour, but at all of our sites, and for making our jobs a little bit easier. With that, I'll turn the call over to Guy.

Guy Gosselin (EVP in Exploration)

Thank you, Natasha, and good morning, everybody. To continue at Detour on page 10 of the slide deck, we continue to see excellent result below the west pit and the extension. Now the focus is really out, you know, to get to an underground resources model, reduce the drill spacing over that large area. You know, we look at the scale, where we continue to get good results up to 2 km away from the pit. Based on those good results we've been getting year to date, and I'm not gonna go through the long list we've seen in the press release, but those are the kind of grade and width that, you know, makes it at first sight for an underground scenario. The focus is really to continue to advance. We're currently ahead of schedule with the drilling.

We see unit costs that are better than expected, with good productivity from the, on our drill over there on our drilling program. We're planning to add, as part of what Ammar mentioned, you know, an overall addition of $32 million. A portion of that, $5 million, is to carry on drilling at the same pace with those 10 drill rig. In order to be in a better position by year-end, to provide sort of a first overview of what could be, underground resources, for Detour, around which we're going to be building our business case for the underground project. At a larger scale, I would say if we go to next slide, 12, on the overall, the rest of the portfolio, we've seen overall very good results on several assets.

For example, at Meliadine, during Q1 and Q2, we've seen result in Tiriganiaq at depth, you know, at some of the deepest drill hole ever drill at Meliadine. That support, you know, that what we believe, that the deposit remains open, has significant upside. It's one of those that we see a very good potential for reserve replacement, we want to be a bit more aggressive. With that, again, that stage-gate approach, you know, we wanna add to the budget that was approved, adding another 25 km of drilling and also extending that drill platform to the east so that we have a better understanding of, you know, how much we can continue to grow Meliadine. Moving to Kittila, we've seen again, some very good results close to the Rimpi/Roura infrastructure.

Those are very near-term opportunity, where we can quickly bring additional resources, bring them to reserve, very close some existing infrastructure. In parallel, you know, while conducting some geological, geotechnical drilling closer to surface, we've encountered some of that parallel Sisar zone in an area that was previously, you know, maybe not understood properly. We started to understand the Sisar zone about six or seven years ago at a certain depth. Now we realize that some of those drill holes closer to surface were potentially stop a bit short.

We now we are, we are assessing when if we have we left any of those potential parallel structure in the upper part of the mine, which could be very appealing because we already have all of those infrastructure over there, which could provide additional flexibility for the team over there at Kittila. Moving to Macassa, continue to get a good result in the extension, both of the main break and the salt mine complex. More importantly, now that we have, you know, shaft number four in place and a much, much better, I don't know, capacity, both with the ventilation access and everything. Now we are starting to put some long-term thinking and establishing long-term exploration platform, like we did back in the days at LaRonde.

Establishing long-term exploration drift to the east, to the west of shaft four, because we know that the deposit remains open at depth and all of those. It opened up our shaft number four infrastructure, a very good playground to think long-term at Macassa. Maybe to wrap up on a little bit on Malartic, that Dominique cover in the beginning of the presentation. Again, another site where we want to continue to add additional drilling in the second half, based on the good results that have been delivered. We see, again, Meliadine, the opportunity to, you know, continue to grow. We just took about 9 million ounces out of the total 16 million ounces.

We see the opportunity to continue to convert the remaining resources that are currently not in the plan and bring them into a future update of the project, while we continue to grow the footprint of the deposit that continue to be open laterally. Moving to next page quickly. Hope Bay, this is another one where we took sort of a stage-gate approach. We were basically starting with a budget for the first 6 months, but based on the very good results we've seen both at Doris and more recently at Madrid, and I think this is why we see maybe the change in the dynamic. We always knew that Madrid was open at depth and laterally.

Now we are seeing, you know, excellent grade with good thicknesses at depth that shows that, you know, the structure seems to be maybe better, better defined, higher grade, with visible gold, and with large step out that we've conducted, like that drill hole 105, which is 500 m step out below. We see excellent potential to significantly grow, so it's gonna continue to take time to bring it to resources. Now we see, you know, what we believe when we did the acquisition, that we can significantly grow the deposit and identify a higher grade source of ore. Those things are unraveling as and we're pleased with the results so far, which convince us to add another $14.5 million for the second half of the year.

On that, I will be handing over to Jamie, I think.

Jamie Porter (EVP in Finance and CFO)

Great. Thank you, Guy. Yeah, just some brief comments on the financial results for the quarter. Overall, you know, as Ammar summarized up, upfront, just a phenomenal performance from an operating and a safety perspective, leading to phenomenal financial results, resulted in a number of new records. From a gold production perspective, we hit a new record of 873,000 ounces. That reflected 100% of Canadian Malartic for the second quarter. In terms of operating margin, again, close to $1 billion of operating margin, with very strong contributions from our two biggest mines, which happen to be the two biggest mines in Canada, Detour and Canadian Malartic, and also a strong contribution from Fosterville. From a cash costs and all-in sustaining costs performance, we're in great shape relative to guidance.

We came in at $840 per ounce total cash cost, which is $25 below the midpoint of our guidance, and $1,150 in terms of all-in sustaining costs, $15 below the midpoint of our guidance. Our cost did benefit from Canadian dollar weakness in the quarter, relative to what we'd what we'd guided, but also the strong operating performance really helped to ensure that we had a strong cost performance. You can see in the table at the bottom right, that we've been successful in managing our costs, keeping a lid on our costs over the past three quarters, where they've actually been fairly stable or in decline. We move over to the next slide, just some financial highlights here on slide 14.

We'll walk through our overall the records that I mentioned. We had record revenues for the quarter. We sold 859,000 ounces. We're benefiting from the strong gold price environment at a realized price of $1,975 per ounce. Again, record revenues. Very strong earnings. Our adjusted earnings per share were $0.65 in the quarter, again, reflecting the strong operating performance. If we look at our capital spending for the second quarter, we came in, if we include capitalized exploration, at $416 million, which is in line with our guidance. Great results overall, Q2. My last slide just talks, well, summarizes our balance sheet position, the current strength and financial flexibility that we have.

We were active in terms of debt repayment in the quarter. You'll recall that at the end of the first quarter, we drew $1 billion on our credit facility as part of the acquisition of the other 50% of Canadian Malartic. We repaid $900 million of that in the second quarter, $600 million via the term credit facility and $300 million from cash on hand. We ended the quarter with $433 million in cash, down about $300 million from where we were at the end of the first quarter. Overall, very strong financial position to be in. We actually improved our net debt position to $1.5 billion in the quarter and increased our overall liquidity to $2.1 billion.

We're in great financial shape, and with that, I'll turn it back to Ammar.

Ammar Al-Joundi (President and CEO)

Thank you, Jamie. I would like to, on this first call, for Jamie, formally welcome him to the company. You know, we have a great leadership team, and we're also very protective of our culture. I think with Jamie, we got a super smart guy with a lot of experience, but also a nice guy who fits in very well. Welcome, Jamie, and congratulations for already delivering the highest cash flow record ever for the company. We know that was mostly you. Just finishing off before we jump into questions, look, this is the same strategy we've had for 66 years, which is we wanna build a high-quality, reliable, consistent gold company with superior leverage to gold.

Not only superior leverage to gold, but importantly, superior leverage to gold on a per share basis, and on a risk-adjusted basis. We're gonna do that by building profitable, high quality, low-risk business based on two key factors, well, a few key factors. One, a leading position in what we strongly believe are the best mining jurisdictions in the world, based on two criteria: one, obviously, the geologic potential, but it has to have the geologic potential for multiple mines over multiple decades. Two, associated with that, the political stability to actually operate multiple mines in multiple decades. You know, when you look at Malartic around since 1923, when you look at Detour, originally as an underground mine, going to Canada's largest open pit mine, going back potentially to an underground mine.

When you look at all of the things that Guy talked about, all of those exploration results, they're tremendous, but they're in established camps where we've been for a long time. This strategy works, it's worked for years, and we think it's even more important given the geopolitical issues going on in the world today. We have built this business largely on demonstrated technical skills. All of these projects we're working on are tough, but we're gonna make them happen, or we're confident we're gonna make them happen. You know, we've had Jean Robitaille and his team talk about some of the things they're working on. We have an excellent technical team. Let me step back. The team delivered these results, not in an easy quarter. We had the fires in Ontario and Quebec.

We had the earliest and longest caribou migration season that we've experienced in Nunavut. That's a good thing. It shows the health of the herds up there. The team delivered record results with those challenges. We're gonna continue our emphasis on per share metrics. We're going to continue to understand that if you want to be in a region for 50 years or 60 years or 100 years, you can't just be good at ESG, you can't just be accepted in the community, you have to be part of the community. That's what we've always done, and we're gonna continue to do. We're gonna continue to focus on creating value through the drill bit.

We are going to continue discipline capital investments based on knowledge and diligence, we're going to continue to return capital to shareholders, building on our 39 years of consecutive dividends. You know, sometimes people at meetings mention that Agnico Eagle is the sleep well at night gold stock. I, and I would say that I hope that even with the challenges, what we've been able to deliver in this quarter, demonstrates that we are, in fact, the sleep well at night gold stock. With that, operator, I'd like to turn it over to questions.

Operator (participant)

Thank you. Ladies and gentlemen, we'll now conduct a question and answer session. If you have a question, please press the star key, followed by the number one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. If you would like to withdraw your question, please press the pound key. Also, ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment while we stand by for questions. First question in the queue comes from Ralph Profiti with Eight Capital. Your line is open. Please proceed.

Ralph Profiti (Senior Equity Research Analyst)

Great. Thanks, operator. Good morning, everyone. Ammar, two questions from me. Firstly, there was some discussion about the challenges in defining some of the internal zones at Odyssey. You know, when we think about potentially adding production 2024 to 2027, is that dependent on sort of a successful surface exploration drilling program, or will we need to move more towards an underground drilling strategy to better define those resources?

Guy Gosselin (EVP in Exploration)

I'm gonna take that one. No, the internal zone were originally recognized from surface drilling, you know, they are a bit different in nature than the Odyssey South and Odyssey North that sits at the contact of the porphyry. Now, as we are getting closer, we're having a lot more access, a lot more drilling as we are infilling and bringing the Odyssey South into production. Now we get to better understand the shape of those. We took a conservative approach so far, you know, not putting any of that into the mine plan. Now they are showing up as incremental done. We see more of that that will show up as, you know, production will take place, and we're gonna get a better understanding because they are not as well defined in the South zone.

It takes more drilling, takes more development, and you're going to see them showing up progressively along with in the life of mine.

Ammar Al-Joundi (President and CEO)

One thing, and maybe, Dominic, you can mention on this. The team, and it's a good question, and the team has already changed the ramp positioning so that when we're down there, we're much better able to exploit the additional ounces to the extent that they're there. Dominic, I don't know if you want to. I guess I've explained it well enough.

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

No, that, that's fine.

Ammar Al-Joundi (President and CEO)

Okay.

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

Thank you.

Ralph Profiti (Senior Equity Research Analyst)

Great. Great. Yeah, that's quite helpful. Maybe a question for Detour and Natasha. On first onset, does the nature of the mineralization show favorability to ore sorting? Is this simply sort of a, you know, low density, unmineralized versus high density? Would ore sorting sort of be more amenable in the underground scenario versus the open pit or both?

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

Hi, Ralph. I'll start, and then I'll let Guy add to this. With respect to the ore sorting, we haven't started the phase two trial, but we are looking at about 1.5 million tons of material that we plan on trialing this year, majority of which is, is all of it, is, is actually at the pit. Guy, do you want to add?

Guy Gosselin (EVP in Exploration)

Yeah, I will step in. Listen, the proposal is to use marginal ore on stockpile mainly, and just do an upgrade with the ore sorting. It's ongoing, 1.5 million tons. We anticipate to complete the study in the next, let's say, 12 months, and we'll see from there.

Ralph Profiti (Senior Equity Research Analyst)

Okay. Thanks very much.

Ammar Al-Joundi (President and CEO)

Thank you.

Operator (participant)

Your next question in the queue comes from Anita Soni with CIBC. Please proceed.

Anita Soni (CFA)

Hi, good morning, everyone, and congratulations on a strong result. My question is with respect to the drill results at Hope Bay. Could you just give us some context in what, you know, that means to the mine plan and when you expect to restart Hope Bay and the time frame on the project?

Guy Gosselin (EVP in Exploration)

Hi, Anita. I'm gonna put some color maybe on that. We were obviously, you know, in order for Hope Bay to work, we see the need for the mine to be much larger, like we are doing at Meadowbank and Meliadine, something that will be between 300,000-400,000 ounces of gold per year. Therefore, we were needing either to find additional mining to be able to ramp up the tonnage or find better grade. I think what we are demonstrating in, with that new drilling at Madrid, is that we, we have potentially identified another mining area with good grade, better grade.

It shows that, you know, we can not only potentially grow the, the, the critical mass of resources, but get better grade, and that will eventually be incorporated as we're gonna get more drilling into an updated study. It just means that we, we know we were right, that there are a lot more gold over there. Locally, it seems that it's even better grade, and we're gonna continue to need more time for drilling, but we, we now recognize that it's not just a wishful thinking, you know, it's there, and those drill hole are demonstrating that it works to carry on drilling on it.

Anita Soni (CFA)

Thank you. Secondly, on Fosterville. You received your permits to resume mining at your, and processing at your prior rate. I think you didn't upgrade the guidance 'cause you're catching up on development work. Would that have an impact to 2024? I think my understanding was it was about 30, in the order of 40,000 ounces, give or take 10,000, for next year, that could have a potential positive impact.

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

Hi, Anita. Right now, we're currently working on updating the mining sequence, based on the mid-year models and getting ready for the budget season and looking at the production profile for the remainder of 2023 and going into 2024 onwards. I would say for now, we've decided to focus in on the capital development, in an effort to get ahead of the critical areas of the mine. We'll have an update on the rest of the life of mine towards the end of this year.

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

Operator (participant)

Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. The next question in the queue comes from Mike Parkin with National Bank. Please proceed.

Mike Parkin (Managing Director)

Hi, guys. congrats on the good quarter, and Jamie, welcome aboard, officially. A couple just kind of housekeeping items. With Canadian Malartic, the depreciation per ounce, reported for Q2, is that fair to kind of assume a similar rate going forward? Or is the book value still not quite set in stone and therefore depreciation per ounce could, you know, be a little bit volatile at that asset?

Jamie Porter (EVP in Finance and CFO)

Yes. Thanks, Mike. It's the latter. The way the accounting works for that is you have really 12 months from the time of acquisition to do the purchase price allocation. I'd say, you know, what we recorded in the second quarter is a good, is the best estimate for Q3 and Q4, and if there's an update, it would be towards the early end of the year.

Mike Parkin (Managing Director)

Sorry about that. Second, where are you in terms of being cash taxable on Detour Lake? Are you paying taxes? Are you still consuming tax pools?

Jamie Porter (EVP in Finance and CFO)

Yeah, I think our forecasts have us actually paying cash taxes. I mean, obviously, we're paying Ontario mining taxes.

Mike Parkin (Managing Director)

Right.

Jamie Porter (EVP in Finance and CFO)

Cash taxes starting next year. That's all dependent, of course, on the plans with respect to underground development, which would defer the payment of cash taxes to subsequent years.

Mike Parkin (Managing Director)

Right. Okay, good point. Also on Detour, I remember in the past, from past owners, they've negotiated discounted power costs. Is that something that's behind you now, and you're paying kind of average grid prices, or do you still have those rolling contracts with discounted rates applied?

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

Hi, Mike. We still have the contract in place until the end of this year, and we're working on a new program starting next year, hopefully.

Mike Parkin (Managing Director)

I remember it was pretty significant. Is it still kind of that similar scale, where it's meaningful savings for you guys?

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

Correct. Until the end of this year. Yes.

Mike Parkin (Managing Director)

Okay. Okay, that's it for me. Thanks so much.

Operator (participant)

Thank you. The next question in the queue comes from Tanya Jakusconek. Your line is open. Please proceed.

Tanya Jakusconek (Director in Gold and Precious Minerals)

Great. Good morning, everyone, and congrats on a good quarter, and thank you so much for taking my questions. Well, I think I'm gonna start with Guy first, just on the exploration results. Guy, I know I asked this question on, on the Q1 call as well, and you've had more drilling done to date. I know we talked about reserve replacement. With what you're seeing to date, is that still on track to replace your reserves this year?

Guy Gosselin (EVP in Exploration)

Overall, yeah. With what we foresee with the addition of East Goldie on the top of the ongoing replacement at each of the site, we expect the overall reserve to be at least replaced, if not growing by year-end.

Tanya Jakusconek (Director in Gold and Precious Minerals)

One asset that you didn't talk about in, on these exploration results, or maybe, and, and I apologize, the press release was long and maybe I missed it, but, you didn't talk about Fosterville. Your, you know, has anything changed there with respect to what you think is, you see on the exploration side or the exploration upside?

Guy Gosselin (EVP in Exploration)

We continue to drill in, specifically two area. We continue to, infill the, in the Robbins Hill area, where we are getting kind of a mixed bag of results, but I think it is kind of in line with the, the known part of Robbins Hill above the decline so far. At the bottom of the Phoenix, you know, in what we call the Cardinal Play, we continue to see some interesting results, sometime wide, the average grade within it, with some smaller scale, vein with VG. Obviously, nothing like the Swan Zone yet, but we see, again, good potential in the downplunge extension of the Phoenix.

Tanya Jakusconek (Director in Gold and Precious Minerals)

Okay. Okay, thank you for that. My second question is just a little bit to talk about the inflationary pressures, and maybe that's over to Ammar. You know, you've mentioned on, on in the press release that you are seeing some relief. I know I ask, you know, in what areas are you seeing the relief? I'm just trying to understand because different companies with different assets are seeing different things. I'm just interested in where you're seeing relief versus your guidance that included the 2022 pricing.

Ammar Al-Joundi (President and CEO)

Thanks, Tanya. One, we had some tailwinds with the currency, which helped, which continues to, but certainly, we have seen relief on some of the consumables. Energy is a big one. As I think you can see on the press release, you know, we've been able to hedge a good portion of our diesel. I think it's at $0.60-$0.65, if I recall, versus $0.93 in our budget. The team did a pretty spectacular job, in my view, of waiting out the peak and coming in when the markets were more advantageous. We're seeing relief on steel, grinding material, a number of consumables. We're also starting to see. Often exploration is a leading indicator.

We're starting to see better drillers available, higher quality, more numbers, a better performance. The biggest challenge probably remains with respect to, to cost pressure, is people. We are still working very hard to make sure we get the people and the highest quality people. Now, I'll repeat what I've said before, as difficult as it is for us, when you are the number one employer, and you've been there for 60 years, and you have the best projects, you always get the best teams available. While it's difficult, I would say our strategy leaves us in a competitive advantage, even, even in that area.

Tanya Jakusconek (Director in Gold and Precious Minerals)

Just on the same thing with explosives and cyanide, you're seeing some relief there as well?

Ammar Al-Joundi (President and CEO)

Yes.

Tanya Jakusconek (Director in Gold and Precious Minerals)

Okay, that's good. You know, I know that, you know, And maybe just for, for myself, like, you would have very low inventories on site, given your location, except your isolated mines, but your other mines would have very low inventory on site, so you'd be pretty much, buying on spot markets now. Would that be a fair statement?

Ammar Al-Joundi (President and CEO)

That's right. I mean, as you correctly stated, it's, it's a different story up in Nunavut because you have the barge season. Yes, you know, where we operate, in the Abitibi, in particular, you know, it's a very substantial, mining district, and we can operate with lower, inventory. Yeah, much more, spot pricing.

Tanya Jakusconek (Director in Gold and Precious Minerals)

If I could ask just 1 final question, Ammar, I know you talked about, you know, the guidance and sort of, you know, you're not changing the guidance, but we're above the midpoint on production. Maybe you can just guide us to, you know, because the whole sector, I would say, majority of the sector is second half weighted with a strong Q4. Can we just review with you how your second half looks like? Is it evenly distributed? Are any mines, you know, taking a lower production profile in the second half that we should be aware of?

Ammar Al-Joundi (President and CEO)

I think what I would suggest is the third quarter, at least by my forecasts, and, you know, I caveat with, I've been in this business for 25 years, and you never know what's going to happen. The third quarter should be very similar to the second quarter. Should be. The fourth quarter, the variability, Tanya, as you know, is gonna be at Kittila, whether we get the SAC approval or not. What I would say is our guidance is assuming we don't get it, and if we do get the approval to continue to operate at 2 million tons a year, then I would, you know, that's 30,000, roughly, extra ounces.

Without changing the guidance, I would expect the third quarter to be similar to the second and the fourth quarter, to be less, if we don't get the SAC, but that's in our guidance, and if we do, then it would be similar again, to the second quarter.

Tanya Jakusconek (Director in Gold and Precious Minerals)

Okay, that's perfect. Just a clarification, I think Anita asked on the Fosterville. From memory, I had about 30,000 ounces. Maybe Natasha can confirm that if we were to go back to the additional throughput of what the permit allows you, it would be an additional 30,000. Is that fair?

Ammar Al-Joundi (President and CEO)

I think, I mean, we're still working on our budget for next year. What I would say is it allows us to operate those 6 hours at night that we weren't able to operate, so that's gonna have an impact on ounces. We are catching up a little bit on development. You know, the guys, frankly, did a stellar job in the first half of the year, dealing with that restriction. Also, and this is important, very important. You know, in the scheme of things, it's not a huge number, but it also makes the work environment a lot better for our employees. It was a tough work environment. It was hot. We don't like to do that to anybody.

I just wanna make sure we emphasize that it's not just the ounces, it's also importantly the work environment for our employees.

Tanya Jakusconek (Director in Gold and Precious Minerals)

No, no, yeah, for sure. Okay, thank you. I'll let someone else ask questions.

Operator (participant)

Your next question in the queue comes from John Tumazos, from John Tumazos Very Independent Research.

John Tumazos (President and CEO)

Thank you. With the $28 million drop in first half exploration expense from a year ago, could you explain how much of that is more being capitalized due to success, versus any streamlinings, versus more or less meters being drilled?

Guy Gosselin (EVP in Exploration)

Hi, John. It's mostly, I would say, a reprioritization of the asset. We are doing less on other project, let's say, in Mexico, for example, Santa Gertrudis, we've basically stopped drilling over there, reassessing the potential. We've also reduced activity, for example, in Colombia. I would say, the budget on key value driver or the number of meter hasn't changed. It was basically to say we, in a lower gold price environment, like we were facing during the budget period, we thought, you know, that, you know, less money should be allocated to grassroots project, and we should focus on operating asset and key value driver.

John Tumazos (President and CEO)

When you drill in the Abitibi, sort of in your backyard, are the costs lower than when you're operating in Sonora or Colombia or other grassroots places?

Guy Gosselin (EVP in Exploration)

It's very variable, depending on the location, to be honest, John. You know, if you have no water, if you have to, if it's more labor intensive. I think all in all, we are drilling at similar costs in Mexico. When you have a, it also depends on the size of the project. When we have a similar scope of work, similar kind of drill program, we can achieve good costs. The costs are just not dispatched the same way. You have to transport water or if you're in the Abitibi, where you can find water a little bit everywhere.

John Tumazos (President and CEO)

Thank you.

Operator (participant)

Thank you. The next question in the queue comes from Anita Soni from CIBC. Please proceed.

Anita Soni (CFA)

Hello. It was just a follow-up to Tanya's question about the cadence of Q3 and Q4. The downtrend, if all else being equal and Kittila not getting its permit, is because you would have to throttle back Kittila in the fourth quarter, and I think the second half of the year, LaRonde will have sort of periodic shutdowns to deal with that, I guess, tie in of the new system there. Is that correct?

Ammar Al-Joundi (President and CEO)

Yes, broadly correct, Anita.

Anita Soni (CFA)

Okay. All right. Thank you very much.

Ammar Al-Joundi (President and CEO)

Thank you.

Operator (participant)

There are no further questions at this time. Speakers, do you have any closing remarks?

Ammar Al-Joundi (President and CEO)

Well, we just wanna thank everyone. We know it's a busy day. Finally, I hope all of you get a little bit of time off in the next couple of weeks with your families. Summers in Canada are short. Thank you everyone for joining us, and have a good day.

Operator (participant)

Thank you, ladies and gentlemen. This will conclude your conference. Please disconnect your line.