Agnico Eagle Mines - Earnings Call - Q2 2025

Transcript

Speaker 2

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited second quarter 2025 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 the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Mr. Ammar Al-Joundi, you may begin your conference.

Speaker 5

Thank you. Good morning, and thank you all for joining our Agnico Eagle Mines Limited second quarter conference call. It's always a pleasure to speak to all of you, and particularly a pleasure when things are going well and we have good news to share, like this morning. Before we come to our call, I'd like to remind everyone that we'll be making a number of forward-looking statements, so please keep that in mind and refer to the disclaimers at the beginning of this presentation. The message we'll be sharing with you this morning is, frankly, the same positive message we've been sharing for the last several quarters. One, we continue to report record financial results driven by strong and consistent operational performance. Two, we continue to strengthen the company, to strengthen the balance sheet, and to return record amounts of cash flow to our owners.

Three, we continue to invest heavily in building the foundations of our future growth, and we're excited to talk about that. By any measure, we've had another strong quarter. Gold prices are up, gold production is strong, and our costs are under control. With that, we're making a lot of money for our owners and reporting, once again, record financial results. Record free cash flow at $1.3 billion. Record adjusted EBITDA at $1.9 billion. Record adjusted net income at $1.94 a share. Remember, it's always the per-share metrics that matter most. We've returned record cash flow to our owners in the form of $200 million in dividends and $100 million in share buybacks. Add to that a further $550 million of debt repayments. While delivering those record financial results, we continue to make great progress and, in some cases, accelerating progress towards building the best project pipeline we've ever had.

We continue to have great success with the most aggressive exploration program we've ever had. With 866,000 ounces of safe, responsible gold production at peer-leading costs, I want to take a moment to thank all of our Agnico Eagle Mines Limited family for delivering these results. We know it's not easy. We know you work under difficult conditions, whether it's three kilometers underground at LaRonde or at minus 50 degrees in Nunavut. We know you always work hard, there are always challenges, and you push yourselves. You all do a great job, quarter after quarter, reliably, safely, responsibly. I just want to acknowledge and appreciate that. We all do. I'm proud to say that as gold is up $400 this quarter, our cash costs are up a relatively modest $30 per ounce compared to Q1. This means that we're delivering 93% of this remarkable gold price increase to our owners.

Jamie will go through that in a bit more detail, but again, to our teams on the ground, great work on cost control. Of course, one should expect record financial results when we have record gold prices. That's why people invest in a gold company. While we are naturally proud to be able to deliver these financial results, we want to emphasize that we remain, regardless of gold price, absolutely laser-focused on operational improvements, on controlling our costs, on capital discipline, and on continuing to build value per share for our owners. Consider the following examples in this quarter alone. At Odyssey, record gold production and record underground development. At GoldEx, record tons processed. At Macassa, record gold production. At Detour, the best mill throughput for a second quarter ever.

At our exploration sites, Guy and his team have delivered a, I think, quite remarkable 9% reduction in costs per meter drilled. These are all just a few examples. Individually, they may not seem material, but collectively, quarter over quarter, this focus on improvement adds up and makes a big difference. It also illustrates part of the culture at Agnico Eagle Mines Limited, where everyone, at every level, is encouraged and authorized to look at all options to do things better. At the same time, we continue to invest in the future as we make steady progress on our five key value drivers.

Ongoing work to get Detour to over a million ounces a year, our vision to get Canadian Malartic to over a million ounces a year, excellent construction progress at Upper Beaver, a brand-new mine in a great region that could add over 200,000 ounces a year, continued great drill results and accelerating on-site activity at Hope Bay with a target of over 400,000 ounces a year, and continued progress at San Nicolas, a high-grade, high-return copper project in the best mining jurisdiction in Mexico. These projects cumulatively represent approximately 1 to 1.3 to 1.5 million ounces of potential production, all from assets we already own in regions we've been operating for decades and, in most cases, leveraging off existing infrastructure already in place.

Dominique and Natasha will provide a brief update on some of these projects, and Jamie will describe how, at these gold prices, we can not only fund acceleration of these projects but continue to strengthen our balance sheet and continue to increase returns to our shareholders. Finally, once again, Guy Gosselin, who will be the star of the show as he spends a few minutes highlighting some of the exciting exploration results our team is delivering at some of the most promising ore bodies in the world. With that, I now turn it over to our CFO, Jamie Porter, to review the second quarter financial results.

Speaker 0

Thank you, Ammar, and good morning, everyone. We've had an excellent first half of the year with another strong quarter of operating results and good cost performance. By delivering on our production targets and controlling costs, we continue to ensure that the benefit of margin expansion in a higher gold price environment accrues directly and indirectly to our shareholders through both direct shareholder returns and the strengthening of our balance sheet. Our strong operational performance and cost control, paired with higher gold prices, drove record financial results, including record revenue of $2.8 billion, record adjusted earnings of $976 million, or $1.94 per share, and record adjusted EBITDA of $1.9 billion, and record free cash flow of $1.3 billion. Free cash flow more than doubled quarter over quarter, benefiting from favorable working capital adjustments primarily due to an increase in accrued taxes payable.

Gold production in the second quarter was approximately 866,000 ounces, a total cash cost of $933 per ounce, and all-in sustaining costs of $1,289 per ounce. Gold production was better than anticipated this quarter, primarily due to better grades at LaRonde, Canadian Malartic, and Macassa, with this outperformance partially offset by lower production at our Nunavut operations due to an extended caribou migration and lower gold production at Detour. I'm pleased to report that costs were within our guidance range. While our total cash costs of $933 per ounce were $30 per ounce higher than in the first quarter, the quarter-over-quarter increase was primarily due to higher royalties as a result of higher gold prices and a weakening Canadian dollar, which on a combined basis represents an increase of about $46 per ounce.

If we exclude the impact of royalties and foreign exchange, our cash costs were actually lower than in the first quarter, which is, again, a testament to the ongoing optimization efforts that Dominique and Natasha will talk about later in the presentation. For the full year, we are maintaining our cost guidance and expect cash costs to be within the guided range of $915 to $965 per ounce. All-in sustaining costs per ounce were higher than the previous quarter, primarily due to the increased cash costs and the timing of sustaining capital spend. We continue to expect to be within our guidance for the full year at between $1,250 and $1,300 per ounce. Our all-in sustaining costs continue to be hundreds of dollars per ounce below those of our peers. This is the result of our focus on controlling costs, continuous improvement initiatives, and the benefits of our regional strategy.

As an example of the benefits of that regional strategy, our Abitibi platform in Quebec and Ontario outperformed in the first half of 2025 with over 1 million ounces of gold production, a total cash cost of only approximately $850 per ounce, and a realized operating margin of 73%. This platform hosts five of our 10 operating mines, including the two largest gold mines in Canada, with multiple decades of mine life and strong potential across the region to continue to grow and expand. If we move on to the next slide, the record free cash flow we generated this quarter allowed us to continue to strengthen our balance sheet, ending the quarter with net cash of almost $1 billion, improving from a net debt position of $5 million at last quarter end.

In addition, given our strong cash position, we decided to prepay $510 million of long-term debt in addition to the $40 million of debt that matured in the quarter. Over the past 15 months, we have significantly deleveraged the balance sheet, reducing our gross debt in that period by $1.3 billion. We will look for further opportunities to reduce debt in the third quarter and intend to continue to strengthen the balance sheet and increase our financial flexibility while at the same time increasing returns to shareholders. If we move on to the next slide, we delivered, as Ammar mentioned, we delivered record shareholder returns this quarter, totaling approximately $300 million and $550 million for the first half of the year, bringing the cumulative shareholder returns in Agnico Eagle's history to approximately $4.7 billion, the majority of which has been returned in the last several years.

From a capital allocation perspective, we remain well-positioned in this gold price environment to continue to take a balanced approach. We expect to continue to increase shareholder returns through increased share buyback activity and dividends. We also expect to continue to strengthen our financial position and flexibility by increasing our net cash position and potentially repaying additional debt. Lastly, and importantly, we will continue to reinvest in our business in order to bring our high-return organic growth projects online. We have five key value driver projects between Detour Underground, filling the mill at Canadian Malartic, Upper Beaver, Hope Bay, and San Nicolas, all of which generate solid returns at gold prices $1,000 or more below current spot levels. We have a strong balance sheet, and we'll look for opportunities to accelerate reinvestment in the business to drive growth and value creation.

At current gold prices, we are generating a lot of cash and will remain disciplined with a measured capital allocation approach, which is focused on increasing returns to shareholders over the long term. With that, I'll turn the call over to Dominique, who will provide an overview of our Quebec, Nunavut, and Finland operations.

Speaker 7

Thank you, Jamie. Good morning, everyone. First, I would like to thank the teams for the excellent quarter to continue to keep improving safety, focusing on costs and production, productivity, while protecting the environment and the wildlife. The quarter was led by LaRonde. The production was led by LaRonde and Canadian Malartic, mainly because of upside grade. At LaRonde, we had three of the 25 stopes better than expected, and at Canadian Malartic, still having more tons at good grade around the old workings, which is a positive surprise. Very good timing because it offsets some challenges at Nunavut, where we have a longer caribou migration than planned in our forecast. Some years are better, like last year, and some years require more stoppage, like this year.

It is very variable and depending on the caribou path, so we don't control that one, but our plans are adjusted to it, and wildlife protection will remain always a priority. Despite those challenging Q2 in Nunavut, both Meliadine and Meadowbank remain on track to achieve this year's guidance. Moving to the optimization, I would like to thank specifically the Kittila team and congratulate them because they are doing significant change management in their way to approach underground production, and we see 10% to 15% improvement in productivity underground, which leads to a 4% decrease in cost per ton if we compare the first half of 2025 compared to the first half of 2024. Very good there. The thing I would like to bring your attention to is about fleet management systems. Currently, our underground mines are operating mainly based on radio communication and manual scheduling.

A truck driver could often wait or do unnecessary traveling due to change of, for example, an equipment is down or just the timing. The truck drivers are not fully efficient right now. Imagine that you are in a truck underground into a tunnel. You don't have visibility of what it is, let's say, two, three, four kilometers away. It's very difficult to be optimum. What is a fleet management system? It is a system that gives you real-time track information about the equipment and the people that you could track. The system knows exactly where each one is, how fast it's moving, and if it is waiting. With the fleet management system, with algorithm and. Artificial intelligence, we will be able to optimize and to coordinate the fleet, to reassign the trucks or to better route if needed, if something happens.

The result of that, as an example, currently a truck could do maybe five trips into a shift. If we bring that to seven trips into a shift, that's a 40% improvement. Simple like that. It's also reducing fuel consumption because there's less idle time and less route traveling that you do, which is unnecessary. Our plan is to use SZ5 and to pilot a new fleet management system for underground. The SZ5 team have been the leaders in implementing the first LTE communication system in the world underground. That was seven to eight years ago. They've been the leaders in implementing remote operation underground, where right now 25% of the ore is out of the mine without any truck driver operating from surfaces. The next chapter for them is to develop the fleet management system for underground.

What result we could expect from that when we look historically using those systems in open pit, which we do, could be 10% to 15% improvement. We expect to reach that also for underground. It remains to be seen. It remains to be done. Lots of work, but we count on SZ5 to develop that. We're going to pilot in 2025 the loading and the hauling, and in 2026, after positive results, starting to implement that also to other mines which already have equipment connected to the system. Moving to the next slide, I would like to bring your attention to the figure on the right. You could see in black, this is what is done concerning the ramp and the shaft development, shaft sinking. The good news, we are on target. We are on course.

Even though the shaft sinking is four to five weeks in advance compared to the plan, very good news. The second thing on the image, you could see the dotted line. That was the resource used when we did the June 2023 study. As he's going to show you, that ore body just keeps growing. Right now, if we take all the resources together, we're looking to 20 million ounces into that ore body. That brings me to the point number one and two below, where shaft number one, the team came with a good idea to improve it. We're going to go slightly deeper, 70 meters deeper with the shaft number one. We're going to also add a second loading station to build flexibility to help the production and to save on costs with this one. That's the first thing now new into the story.

The second one about the second shaft, the team is finalizing where it's going to be and the capacity of this one, but it looks like it's going to be close to this one. The reason is simple, because that's the center of the mass, and it's also bringing some flexibility or synergy to work with the first shaft. We're not yet finalized on that one, but this is where we're heading. Strategically, we need to position that shaft into good rock. With the shaft number one at 20,000 tons per day, including the ramp, plus shaft number two, let's say at potentially 10,000 tons per day, we're going to be 30,000 tons per day coming from that ore body and potentially getting to 750,000 to 800,000 ounces per year from one ore body.

That's going to be definitely the biggest underground mine in Canada in terms of production of gold. We still have room at the mill. We have a 60,000 ton per day. We're going to use 30,000 just for that ore body. This is why number three and four, we're looking to Marban Pit, which is a 13 kilometer away satellite pit of the Canadian Malartic Mill. We're going to truck it to the mill. We have the Wazamek underground satellite project, which is 100 kilometers away from the Malartic Mill. When you add all of them together, we're going to be around 45,000 to 50,000 tons per day, and we're getting to the 1 million ounces production per year. That vision is realistic, and this is what we're working on.

All those pieces of the puzzle, let's say number two to four, are going to come together with advanced studies more in early 2027. We're going to be in position to give you more detail on that. On this, I will pass the microphone to Natasha.

Speaker 6

Thanks, Dom. Good morning, everyone. I'll cover the operational highlights for Ontario, Australia, and Mexico. The regions delivered another strong quarter when it came to safety, operating, and cost performance. At Macassa, as Ammar mentioned, the team beat their record on gold production for the second consecutive quarter. The strong quarter was really on the back of one cut-and-fill area that overperformed with higher-than-expected grades. Over at Detour, they had their highest Q2 mill throughput, and that's a good sign that we're starting to stabilize the higher throughput. The ounces for the quarter were affected by lower grades. During the first half of the year, mining was within a low-grade domain, which did result in some localized negative ore tonnage reconciliation. We ended up supplementing the shortfall with ore from our low-grade stockpiles.

Mining activities are going to remain in this low-grade domain throughout Q3, and we expect the grade to improve in Q4 as we move into higher-grade domains. Given the year-to-date gold production, we now expect to be around the lower end of the full-year production guidance range at Detour. With respect to San Nicolas, through the joint venture, we're continuing to advance the feasibility study, which remains on schedule to be completed by the end of this year. We're also continuing to engage with the government authorities and stakeholders with respect to our key permits, specifically the environmental impact assessment, and then following that, the change of land use. This quarter, the JV also received an exploration permit authorizing additional drill pads across the property. We're going to take this as a slightly positive signal from an overall permitting standpoint.

With respect to the plan to approve the project, this really hasn't changed. It's expected to follow dependent on the receipt of the permits and the results of the study. In terms of the operational and cost improvement efforts, they're ongoing with a strong focus on extracting the full potential at all our sites. We've just included a couple of examples here on this slide. One of them is the internalization of the maintenance work on the 795 trucks at Detour. The team is progressing very well on this, and it does have a cost savings of about $5 million a year. Moreover, we're developing the in-house expertise and sustaining an internal knowledge base on these ultra-class trucks, which to me is really invaluable. Another example is at Macassa.

The mine has over 90 years of operations, and with the recent infrastructure upgrades, we're now in the very early stages of connecting the mine. With the work ongoing for the next, say, two to three years, similar to what Dom was saying with respect to LZ5, Macassa will also be able to leverage technology to help us optimize our processes even further than the team already has. Our GM at Macassa, Mariana, said that well. She says that connecting this mine will help us, quote, unquote, "turn on the lights," which I agree because we'll be able to track in real time personnel and equipment, provide situational awareness, automate and enhance the reliability of the data that we have, make it easier to diagnose equipment health, utilize fleet management systems, and enable us to obtain short-interval control.

Of course, Macassa will be utilizing the learnings from LZ5 as they go through their journey so that we'll be able to make quicker decisions, become more agile, become more productive, and as a result, optimize our costs. Moving to the next slide, I'll give you a quick update on the two projects in Ontario that we continue to be excited about because it does give us an opportunity to grow low-risk, profitable production in one of the best mining jurisdictions in the world. I want to talk to you first about Detour Lake and the underground project. This is a world-class asset. We outlined a pathway for Detour to be a 1 million-ounce producer annually for over a 14-year period. It's still early days, but this quarter, we received the permit to take water.

Upon receipt of that permit, we established the box cut for the ramp, mobilized the development contractors, and as you see in that picture, took our first round in July. We're also continuing with the infill and expansion drilling and continuing to see positive results, but Guy will discuss this later in the presentation. As for Upper Beaver, again, this is another low-risk opportunity to grow the production profile in a camp we know well and where we can leverage the benefit of our technical expertise and our workforce at Macassa. This quarter, we continue to advance on both the surface setup needed for shaft sinking and the site preparation for the ramp. Those of you that joined us on our site visit earlier this quarter, you got to see this firsthand.

Our construction team, who leveraged their past experiences from building our other mines, has advanced very well on the steel installation of the head frame and the installation of the hoist. We're expecting all of this infrastructure to be commissioned in early Q4 this year and then commence shaft sinking right after that in the same quarter. As for the exploration ramp, the box cut was completed in Q1. In Q2, the team finalized the supporting infrastructure such as the storage bays, the temporary air and water services. We also made the decision to self-perform this ramp development, and we successfully recruited the team there. Now we're expecting to commence the ramp development a little sooner than we had originally planned in Q3 rather than in Q4.

I know I've mentioned this before, but with the inclusion of these two projects, we could see gold production from our Ontario operations grow by 50% by the early 2030s. We're looking forward to continuing to advance these projects throughout 2025. Finally, to conclude, similar to Ammar and Dominique, I just wanted to thank all the operating sites and the project teams for all their efforts in achieving our objectives to date and for your focus on business improvement, not just on cost, but on all fronts, including safety. With that, I'll just pass it over to Guy.

Speaker 3

Thank you, Natasha, and good morning, everyone. First of all, I would like to take a moment to highlight the work of our great exploration team, both mine site and regional exploration through the portfolio. The first half of 2025 has been excellent. We currently have 120 diamond drill rigs in operation on mine site and regional exploration. Our health and safety performance continued to improve overall as our team is committed to our boots-in-the-field program to improve our safety performance in every single aspect in collaboration with our various diamond drilling entrepreneurs. This, concurrently with our drilling excellence program, led to the safe delivering of our first six months of drilling, slightly ahead of the program with 670 kilometers of drilling completed, with expenditures standing at about 9% below our budget.

I'm extremely proud of the improvement observed since 2022, where we have reversed the trend in safety, productivity, and unit costs after COVID. Among highlights, I would like to mention Detour Lake exploration just celebrated five years with a million meters of core being drilled with our entrepreneur and PLH and Tekwa Tagamu partner. Canadian Malartic and Odyssey and regional exploration around the mine have just celebrated seven years without a reportable accident and 2 million meters of core drilled and processed at the regional core shack facility, and Macassa exploration team on the ground with the entrepreneur Port Longier and Wajibagan partner that celebrated two years and 300,000 meters of drilling done without a reportable accident. Across the board, world-class exploration team delivering safe and exciting drill results on world-class assets.

From a result standpoint, I would like to comment on three of our key value driver projects: Canadian Malartic, Detour, and Hope Bay. On slide 12, at Odyssey, we currently have 26 drill rigs working surface and underground and around the mine, and are getting some very exciting results in three areas that I would like to highlight. In the upper eastern portion of the East Gouldy, we've seen some great results, such as 5.7 grams over 17 meters around 900 meters, which is the upper part of the East Gouldy deposit. We see that area is progressing well and expands the deposit and will likely get into reserve at our next year-end mineral reserve and mineral resources update.

In the lower east extension of East Gouldie, with results up to 3.4 grams over 36 meters and 3.5 grams over 19 meters, outside of the current mineral reserve and resources, extending the zone below 2 kilometers depth and still open at depth, by the way. Also, the Eclipse parallel zone, with results up to 3.8 grams over 14 meters, continues to demonstrate the potential to add a parallel zone in proximity to the existing zone currently in the mine plan, offering potential for additional optionality and flexibility for future mining. The strong results in the lower east and Eclipse continue to expand the zone laterally and should lead to substantial mineral resources addition at year-end this year. This continues to enhance our scenario for the location of the second shaft as it was described by Dominique earlier.

Now, on slide 13, at Detour, drilling continues with eight drill rigs that continue to infill the deposit in the area that is targeted for the underground mine project, both below the pit in the saddle in the central portion of the deposit, with results up to 3.4 grams over 67 meters. To the west of the pit, next to the planned exploration ramp, with results up to 2.9 grams over 32 meters and 1.7 grams over 113 meters. The western extension of the deposit outside and to the west of the open pit and next to the proposed exploration ramp continues to deliver strong results that could potentially outline an area where underground production could be accelerated in our underground mine development scenario. Last but not least, on slide 14, at Hope Bay, we have six drill rigs in operation and have completed almost 70,000 meters year to date.

We continue to see strong results in two very interesting areas. First of all, close to surface in Patch 7, with 16 grams over 4 meters and 5.7 grams over 12 meters at around 300 meters depth, that could potentially be accessible early in the mine plan, close to surface, and in our project development scenario. More importantly, I would like to bring your attention to the deep result we just got in the gap between Soolook and Patch, with one of the best drill results to date at Hope Bay that we can see in the core box below that long section in hole 345 that returned 53 grams over 8.4 meters. We're using 25.7 grams using capping of the high-grade assays at 50 grams, but that drill intercept is quite spectacular, as you can see visually, simple quartz vein, visible gold.

That drill hole sits at 750 meters below surface, where the zone remains open at depth, showing great potential for the mineralization to continue to expand at much greater depth than we currently know. We anticipate that these results will have a positive impact on the mineral reserve for Hope Bay at year-end. Mid-year, we're very confident that we are in a good position to replace mineral reserve from ongoing production depletion and potentially grow our overall year-over-year bottom line reserve total. As we continue to de-risk our key value driver project and deliver economic studies that pertain to each of them, I would like to return the microphone to Ammar for some closing remarks.

Speaker 0

Thank you, Guy, and everyone else. We began today's call by saying our key messages are largely the same as those over the past several quarters: good production, good cost control, great progress moving forward, and accelerating the best pipeline we've ever had. As Guy just discussed, excellent exploration results with the most aggressive exploration in the company's history. All of this as gold prices continue to reach new highs, as we continue to generate record cash flows, as we strengthen the balance sheet, and as we return record amounts of cash to our owners. I have to say, in this case, it is a pleasure to be repeating the same good news message quarter over quarter.

At Agnico Eagle Mines Limited, we will continue to work hard for all of our stakeholders, and we will continue to build off the same foundational strategic pillars that have served us well over the past 68 years. We will focus on the best mining jurisdictions based on geologic potential and political stability. We will be disciplined with our owners' money, making investment decisions based on technical and regional knowledge and creating value through the drill bit. We believe we are uniquely well-positioned with a quality project pipeline leveraging existing assets in the best regions in the world where we believe we have a competitive advantage. We will continue to focus on creating value on a per-share basis and on being leaders in our industry in returning capital to shareholders, as evidenced by over 42 years of consecutive dividend payments and increasing share buybacks. Thank you all for your time.

Operator, may I ask you to open up for questions?

Speaker 2

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on a touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Fahad Tariq from Jefferies. Your line is now open.

Hi, thanks for taking my question. Congratulations on the quarter generated free cash flow of about $1.3 billion and then repurchased shares of about $100 million. Maybe can you walk us through your thought process on buybacks versus dividends? Does the current share valuation play a role in determining which option you choose to return capital to shareholders? Thanks.

Speaker 0

Yeah, thanks a lot for the questions, Jamie here. As I said in my remarks today, we're doing what we said we're going to do. We're taking advantage of higher gold prices to strengthen the balance sheet, to reinvest in the business, and increase returns to shareholders. We pay a hefty dividend, $800 million annually. We've dramatically increased our level of activity on the share buyback, and we doubled it in the second quarter relative to the first. I think there's room through the rest of the year to do even more. We're at $550 million through the first half of the year if you annualize that. Just assuming we did the same, we're at $1.1 billion. What we've been saying consistently over the past several years is that we're targeting about a third of our free cash flow being returned to shareholders.

If the gold price stays where it is, that total return to shareholders could get up to $1.3 billion, which implies a lot more activity on the share buyback in the second half of the year. I think that's what we're favoring in the near term. We'll certainly be evaluating the dividend as we get into our budgeting season. If there's room for an increase there, it would likely be later this year or early next.

Okay, that's clear. Maybe just switching gears to Macassa, maybe this question's for Natasha, but can you talk a little bit about how to think about grades in the second half? There's been two consecutive quarters now of pretty high grades. I understand it's one or two or maybe three stopes, but can you talk through how to think about grades in the second half? Thanks.

Speaker 6

Thank you for the question. Both quarters, we did see some localized positive grade reconciliation. We are not factoring that in in the second half, and we're expecting to be a bit of a softer second half, but still meeting guidance.

Speaker 0

Okay, thank you.

Speaker 2

Thank you. Your next question is from Josh Wilkinson from RBC Capital Markets. Your line is now open.

Yeah, thanks very much. I think this question is probably best for Jamie. Some of the free cash flow beat this quarter looks like it was attributed to the tax deferrals. I'm just wondering how should we think about that going forward and when that liability maybe reconciles. Would that be a headwind, I suppose, to free cash flow? Thanks.

Speaker 0

Yeah, hi, Josh. Thanks for the question. Yeah, no, you're absolutely right. I mean, that was a big swing this quarter. I think pre-change in taxes payable, our free cash flow is about $800 million. It was almost a half a billion dollar swing as a result of taxes. If we look at our cash taxes for 2025, we've paid about $600 million in the first half of the year, and we plan to pay about $600 million in the second half of the year. In around $1.2 billion for 2025 in cash taxes. Now, our income tax expense is substantially higher than that. The way it works, we pay installments based on the prior year's profitability. If the gold price stays where it is, we will have a significant catch-up payment in Q1 of 2026.

Just as we did this year.

Just as we did this year. This year in Q1, we paid $400 million in relation to 2024. At these gold prices in Q1 2026, we could have upwards of a $900 million catch-up payment in relation to 2025. You are going to see this volatility in periods where the gold price is rising at a great rate as it has been.

Got it. Thank you. On Detour, just on the operating side, what should we think about sequencing in the second half of the year? Maybe more specifically, what sort of grade can we expect in the fourth quarter when we're out of this, or this maybe more challenging zone?

Speaker 6

As mentioned earlier, with Q3, we're still going to be in the lower grade domain. In Q4, we're expecting to be in higher grade, I would say somewhere between 0.97 and 1.

Okay, that's solid. On Malartic, similar sort of question here for Barnat. When does the contribution from that area taper off?

Speaker 0

Good. Yeah, Josh, it's Guy. That's something we're going to see through the remainder of the Barnat, of the open pit, as we experienced back in the day even in Canadian Malartic. As you get towards the bottom of the cone of the pit, we're getting closer to the old workings. Around the old workings, it's basically either it was some time we are kind of taking a conservative approach about the pillar that we're left around the old workings. There's more time left than planned on our void model, and the grade is better also. That trend is expected to go, it could be variable. Theoretically, for the rest of the open pit at Barnat, we should see that positive trend with a little bit more time left behind by the old miners.

Great. Thank you very much.

Speaker 2

Thank you. Your next question is from Anita Soni from CIBC Capital Markets. Your line is now open.

Speaker 6

Thank you. Ammar, Jamie, and team. First question, just wanted to ask about the exploration results at East School. I think you said that you're evaluating deepening the shaft as well as doing a second shaft. On the shaft deepening side, do you have an idea of how much that would cost in terms of the moving loading station? I'm trying to understand if that loading station is not built yet. It's just a matter from a design standpoint of actually moving that loading pocket further down and then adding one a little higher up. What would that do to the CapEx for the asset?

Speaker 0

Yeah, deepening the shaft number one by 70 meters, including doing a third loading station, which means all the infrastructure plus a crusher. We're talking approximately $40 million U.S. to do that. It is a payback project. We're going to save on trucking, we're going to save on fuel, we're going to be more effective. Overall, that's a positive thing. As Guy showed in his slides, it's getting deeper than expected. The 70 meter, let's say we're going to be at 1,870 meters with the shaft. It is like the limit of the deep we could go with that technology and the shaft we're having in head.

Speaker 6

Okay. No, $40 million sounds very reasonable. In terms of capital allocation for Jamie, I think you mentioned one-third capital return to shareholders. I could be wrong about the one-third, but I did catch $1.3 billion at these gold prices. Could you talk about how the other portions of the other two-thirds and how that's split? Could we see some accelerated investment into your organic opportunities going into the next couple of years, or at least next year?

Yeah, thanks, Anita. Yes, I think absolutely. I mean, we'll continue to strengthen the balance sheet. We still have almost $600 million of debt on the balance sheet. We'll look for opportunities to prepay some of that. As we alluded to in our remarks on the call, I think there will be opportunities for us to accelerate development of some of our projects. That's what we should be doing. In these gold prices, we're generating high returns. We should be reinvesting in high-return projects. We could well see higher capital in the years ahead in order to do that.

Speaker 0

Anita, it's Ammar here. To the extent that we are accelerating, it's only because they're good projects. It's only because they're good projects. Frankly, the team is doing a very good job, and there's a lot going on. These are in the future. Having been in this business a long time, I can tell you I'm pleasantly surprised at the quality of the work and the potential of the projects and the ability to actually move these things forward. It's not because we're going to have extra money at these levels that we are looking to accelerate. It's primarily because they're even, in some cases, better than we thought, and we're making faster progress than we thought.

Speaker 6

No, for sure. I think you demonstrated a prudent capital allocation. I think it was this time last year I was worried about you guys building a second shaft, and now I'm hoping you build a second shaft. A lot changes in a year.

Speaker 0

Well said.

Speaker 6

That's it for my questions.

Speaker 2

Thank you. Your next question is from Tanya Jakusconek from Scotiabank. Your line is now open.

Speaker 5

Yes, good morning. Thank you very much for taking my questions and congrats on a good quarter. Jamie, just coming back to you on that capital allocation. It's just a lot of cash, and I appreciate there's some of that $600 million of debt you want to pay down or buy back. I understand you're going to be reviewing the dividend maybe third quarter or fourth quarter or early next year. Can I just ask what minimum cash balance you feel comfortable keeping on your balance sheet to run your business? First one. Number two, if we were to see additional capital be put to projects, just accelerated, would it be for Detour, Hope Bay, and Canadian Malartic? Would those be the three that you highlighted?

Speaker 0

Thanks, Tanya, for the question. Yeah, no, I mean, on your first question with respect to the minimum cash balance, at these gold prices, we could be well north of $2 billion, $2.5 billion in cash on the balance sheet by the end of this year. I'm certainly comfortable at those levels. We talked about the timing of cash tax payments. We are going to have a significant cash tax outflow in the first quarter of next year. This goes to your second question. We do anticipate having opportunities to accelerate some of our capital spending to bring some of that production forward. I think it's across our project pipeline. We'll be talking more about the potential to accelerate some of the underground production to Detour as an example.

Across all of our key value drivers, there are opportunities for us to do more quicker and bring in that incremental production sooner.

Speaker 5

Okay. Should I be kind of thinking that we should keep this total capital? I'm going to say it in a way, should we be thinking between the $2 billion to $2.5 billion range over the next few years? Should I be thinking about it that way?

Speaker 0

Yeah, I'd say it's too early to give you any formal guidance on that, Tanya. We're in the process. We're going through our kind of budgeting and scenario analysis now. As we get into the fall, we'll have more clarity in terms of what the capital profile looks like over the next several years.

Speaker 5

Thank you. Maybe I could just ask about, as you are thinking about your capital profile, can you talk a little bit about how you are thinking about your life of mine plans and your reserves and resources, given the big discrepancy in the gold price where we're at versus where reserves and resources are done? How are you thinking about approaching that?

Speaker 0

I'll start with that, Tanya, and then maybe I'll ask Guy to jump in. I mean, that's an excellent question. It's one thing managing your reserve price when gold moves $100 or $200 a year. Frankly, it becomes a more complex question when the gold price moves $1,000 or $1,500. Right now, we're maintaining, and Guy can get into the specifics, a very reasonable number for our reserves. He'll get into that, and I don't want to steal his thunder. We're doing a good job in replacing reserves, but there could be opportunities, Tanya, and I think I've talked to you about this. Let's take a look at, for example, something like Meadowbank. Meadowbank was supposed to run out in 2028. This is not formal direction to anybody, but we are working on something that might allow us to extend it at a lower rate to, say, 2034.

Those would be lower-grade ounces that weren't the best use of our owners' money at an $1,800 environment to make an awful lot of money for our owners at $3,300. In that example, of course, it makes sense because you're otherwise going to shut down the mine. Of course, it makes sense to take advantage of those additional ounces. We're working on that. It is a function, and you know this very well. It's a function of, do you have spare mill capacity? Are you extending a mine life? If you bring in lower-grade stuff, are you displacing higher-grade into many years in the future? It's an excellent question because gold has changed a lot. We're looking at all of that. I don't know, Guy, if you want to jump in. Yeah, exactly. We're looking at it on a mine-by-mine approach.

As mentioned by Ammar, it's paramount for us to continue to send to the mill what was in our guidance, meaning we don't want to lower the cut-off grade and change the mining sequence. On the mine-by-mine, we're looking if there's extra mill capacity that we can send additional ton at lower grade that are preferable in the higher gold price environment, which is the right thing to do. Also looking at sensitivity long-term. We've started some analysis of what could be the implication under a higher gold price environment, looking at sensitivity on each of the deposits, which may help us in some design and making sure we're not, for example, putting a waste dump next to a pit that could be much larger or stuff like that. We're running those scenarios. Our bottom line remains the same. We don't want to lower the cut-off grade.

We don't want to change the mining sequence. We are committed to deliver the right ounces first, the right ton first at the mill. If there's available additional milling capacity, we're going to do so if they are profitable.

Speaker 5

Thank you very much for that. I don't want to ask any more questions, although I do have a lot. Hopefully, someone asks about how your exploration and reserve replacement is going. I'll wait, hopefully, to hear on that. Thank you.

Speaker 2

Thank you. Your next question is from Daniel Major from UBS Investment Bank. Your line is now open.

Speaker 7

Hi, guys. Thanks for the questions. I think most of the capital allocation questions have been asked in different ways, so I'll leave that one. I suppose two questions. One, you mentioned about the scope to accelerate CapEx potentially. I think around this time last year, maybe it was Q3, you increased the CapEx budget for this year. Should we assume that that ability to accelerate CapEx more applies to 2026, 2027, and this year's budget is kind of reasonably fixed? Is that the right way of thinking about it?

Speaker 0

Yeah, thanks for the question, Dan. I think that's. I mean, I think we're going through the process now of looking at our capital spending outlook. I think there will be incremental spending beyond this year's budget. Examples that Dom just spoke about, the third loading shaft at Odyssey, $40 million probably has an 80% IRR. If there's things like that that we can do to lower costs in the future to bring production on sooner, strong return projects, we'll look at them. We'll have an announcement early next year out on Hope Bay. That's going to be a new significant mine for the company, but comes with a fairly hefty capital cost. There is the potential for an increase in our overall capital spending. It's going to result in higher long-term returns and value creation for shareholders.

Speaker 7

Okay, thanks. The second one, just on the kind of portfolio, M&A, etc., actually more on the sort of streamlining side. You've got a big portfolio of early-stage kind of options. Is this high gold price environment an opportunity to monetize some of those that don't meet your quality criteria?

Speaker 0

Yeah, I mean, clearly. Good question, good observation. We don't invest in this as a portfolio to trade and make money. Everything we invest in, we take a look at what's the long-term potential. That said, historically, 9 out of 10 we decide don't fit exactly. It's a good observation to notice that at these gold prices, the value of that portfolio has gone up a lot. I can't really talk much more about it than that, but to say that it's not an unreasonable question.

Speaker 7

Thanks. A final just operational question. Grades at Fosterville continue to hold up well into the eighths, and you look at be tracking well ahead of the guidance. Are you still expecting that grade profile to come off in the second half? Is it kind of a reconciliation largely and should normalize, or is it. Are we more likely to sort of hold those rates into the end of the year?

Speaker 2

Hi, Daniel. With Fosterville, reconciliation has been actually okay. It's just the mine sequence. We were expecting a stronger H1, similar to Macassa, I guess, and we're expecting a lower H2, a softer H2.

Speaker 7

Great, thanks. We've got some good set of numbers, and I'll go back in a key.

Speaker 2

Thank you. Your next question is from John Tumazos from John Tumazos Very Independent Research LLC. Your line is now open.

Thank you. With the favorable paces of underground development at the underground at Canadian Malartic, is it possible that the East Gouldie shaft has output in the second half of 2026 or reaches full output sometime in 2028 instead of 2029?

Speaker 6

Yeah, John, Dominique speaking. The first shaft, the end of the commissioning for the mid-shaft loading station is mid-2027. Getting to the latest loading where we're going to be at the turn now, I don't have that date, but I guess we're in the 2030.

Speaker 7

The commissioning of the midpoint is at 2027, and you can conclude from that.

Speaker 6

June 2027, it should be a good party at Malartic where we're going to start to bring some ore to the top with that new shaft.

Speaker 0

You can come to that party if you want, John.

Thank you. I can ask a second one. The investment portfolio was up to $1.063 billion at June 30. Should we post every night on the investor relations page of the website the value of your total stock holdings, just like your hedge fund manager? How do you want to safeguard these values? Some of us buy Agnico Eagle Mines Limited and not a 4N and Canada Nickel and all this stuff. Is this a good opportunity to take half a billion off the table since the stocks are up $400 million year to date?

Yeah, look, I want to get to the core of our philosophy on that. We talk a lot, and I talk a lot about being disciplined with your money and about capital allocation. It's our belief, and again, my personal belief, that I can't be sincere, we can't be sincere in saying we're going to be disciplined in allocating your capital, especially into new investments, if we don't know a lot about those investments, if we haven't done our homework. We've always had a view that we're willing to take small positions in interesting companies early on, as you would want us to, in regions that we like with projects with good prospectivity to get to know more about them and from that decide, based on knowledge, whether or not it makes sense to spend and invest your money. None of these are as a portfolio.

I certainly wouldn't treat it as a hedge position. That said, as I mentioned before, quite often, and in fact, in most cases, we look at something and we say it doesn't necessarily fit perfectly. In some cases, it does, and it's worked well. We do appreciate that the market has gone up, and to the extent it made sense to divest some of these things, we're not ignorant of market conditions.

Thank you. It's just a lot of money. At least it seems like a lot of money to me. Thank you.

You're welcome. It is a lot of money. Fair point.

Speaker 2

Thank you. There are no further questions at this time. I will now hand the call back over to Mr. Ammar Al-Joundi for closing remarks.

Speaker 0

Thank you, everyone, for taking the time. There's a lot going on. The business is running really well, and we continue to appreciate the support of everybody on the call, both our investors and the analysts who cover us. Thank you.

Speaker 2

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.