Agnico Eagle Mines Limited (NYSE:AEM) Denver Gold Forum Americas September 17, 2024 11:00 AM ET

Company Participants

Ammar Al-Joundi - President and Chief Executive Officer

Conference Call Participants

Raj Roy - BMO Capital Markets

Raj Roy

[Starts Abruptly]

follow a slightly different format for this it's going to be half presentation, half fireside chat and to speak to us today on Agnico we have President and Chief Executive Officer Ammar Al-Joundi. Ammar it's great to have you here.

Ammar Al-Joundi

Alright. It's a real pleasure. Well good morning everyone, it's fantastic to see the seats are almost full. Sometimes I come to these presentations, these conferences, and there's 10 people, and five of them are Agnico people. So it's a real sign of where we are in the market and as Raj said, we're going to try to do sort of half presentation, half discussion, which means I've got 10 minutes and I'm going to go through it quickly and I am going to talk about Agnico and our strategy, but I'm going to also talk about it within the context of a $2,500 gold price, because I think there are some important things to talk about in the price that environment we're in. Of course there are some forward-looking statements and it's hard, frankly, it's hard to predict the future too far out, take that into account.

So first as we talk about Agnico, some of you know us, a lot of you know us, some of you don't know us. I want to start by talking about our strategy. And our strategy is a little bit different than some of our peers. Agnico Eagle started from very humble beginnings in 1957 in Cobalt, Ontario. We are miners. We've started from very small mines. We probably built and closed 20 mines between 1957 and the early ???70s. And through this technical hard work, we've grown to be the largest mining company in Canada.

We produce more gold now in Canada than the next eight companies combined and it talks a little bit to our strategy and our strategy really there are three pillars. One, we're a regionally focused company, not globally, I'll get into that. Two, we are a mining company. We build our own mines, we focus on technology, we focus on exploration. And three, we've always had a per share basis. We do not care about the size of the company in absolute terms. Our owners give us money to make them money on a per share basis. That's all we focus on.

So when I talk about regional and the map up here behind me, we are operating around the globe, but we're very specific in the regions we operate. Now, most of our peers consider themselves and are in fact global mining companies. They will go anywhere in the world to build a mine. And that's fine. I get that. That's a good strategy and they're good at it. Agnico, we're a little different. We won't go anywhere in the world. We will go only to regions that meet two very specific criteria. It's the same criteria we've had since 1957, and it works for us.

The first criteria obviously is you have to have the geologic potential, but for us you have to have the geologic potential for multiple mines over multiple decades, and I'll get to why that's so important. And second, it seems self-evident, but you have to have the political stability to actually operate multiple mines for multiple decades. Think about it. Sometimes it takes you five, six years to do exploration, another five or six years to get the permits, another three years to build the project, another four or five years to get your money back. In some cases, you're into it for 20-years, and frankly, if the governments change, you're out of luck. So, geologic potential, multiple mines, multiple decades, political stability.

On the technical side, as I mentioned, we've always been strong on exploration. Mark made some very good points about investing in the business. Agnico Eagle, at times when we were producing a third of what our peers were producing, we were spending more on exploration. Because we're in regions, we understand, and we know that's how you create value. We are very strong technically in what we do. We're strong in innovation. We don't look to be innovative in everything, but we look to be innovative in things that bring financial returns to our shareholders.

We operate the deepest mine in the Western world. We are arguably the most advanced underground miners when it comes to automation, we're good at what we do and we focus on a per share basis. And this strategy of regional focus we think gives us a competitive advantage. So every CEO will come up and say well, you know, we're really good at this, we're really good at that. Challenge us. What makes a good miner?

You know, Mike and Mark, they buy the same equipment we do. They have very good engineers, they have very good people, they're very smart people themselves. Our competitive advantage in Quebec and in Canada for example, as I mentioned, we are the employee of choice. That means we have half the turnover of our peers. Half the turnover of our peers means you have more predictable production means you have lower cost. It just does. We are the purchaser of choice. Not only do we acquire more, we produce more gold than the next state companies, a lot of the suppliers in the region we operate at, we help their grandparents start their business.

We know the permitting better. We know the contractors better. When COVID hit, we performed pretty well. You know why? Because we could get the contractors. That's why. So it really does allow us to build a competitive advantage. And the proof is in the pudding, just some numbers. In the last 20-years, we've grown from one mine to 11 mines, from one country to four countries. Productions grown from 240,000 ounces a year to about 3.5 million. But none of that matters. What matters is per share metrics. Over that same time, our production per share has gone up by 2.5 times.

So when people talk about growth, always say, yes, that's fine, how are you growing per share? Because frankly, that's our job. And our dividend payment has gone up by more than a factor of 50. In the entire world, if you look at the criteria of geologic potential for multiple mines over multiple decades, because that's how you build a competitive advantage. And political stability for multiple minds over multiple decades. In our opinion, the three best regions in the world are Nevada, and Newmont and Barrick have done a good job in consolidating that. You heard Mark talk about it. You'll hear Peter talk about it next.

Western Australia, and we're not in Western Australia and we're not in Nevada. But Western Australia is a fantastic place to mine for gold. We are in Australia, we like Australia, we're looking at Australia, but in our humble opinion the best place in the world that meet that criteria is the Abitibi in Ontario and Quebec. It's produced more gold than the other two, it's had more discoveries in the last 10-years than the other two and we think it has the best potential.

So now I'm going to switch a little from Agnico to Agnico in this environment of $2,500 gold. Investors invest in us, because they want a view on gold. Why would you invest in Agnico or Barrick or Goldfields or Newmont if you didn't have a strong view in gold? So then you ask yourself the question, why on earth would they invest in a gold mining company rather than the gold ETF? Because the gold ETF by definition has less risk. The only reason you shouldn't invest in a gold mining company is if it gives you more leverage. Leverage in that if the gold price goes up you control your costs and you get a higher proportional increase in your margin than if you own just gold, and leverage in production per share.

And so I want to talk a little bit about both of those. In our last two calls, in an environment where the gold has been higher than it's ever been before, we focused on costs. That was the message we gave our owners and you know why? Because in the last 20-years the industry hasn't done a good job in delivering the leverage. Again some numbers. You know, I came in this industry in 1999, gold was $280. In the last 20-years, a lot of people don't know this, the gold price is up 9.4% compounded, outperforming the S&P 500 at 8.2% for 20-years. People have hated gold the whole time and we've had the longest run in the equity market in the history of the market and gold has outperformed. So that's the good news.

The bad news is the XAU is up 2.5%, because we have not been delivering the leverage that we -- that our shareholders expect. Agnico by the way we have actually outperformed not just the S&P 500, not just the XAU, we've also outperformed gold. When you put the dividend into account, our returns been about 11% compounded over the last 20-years. It kind of makes sense because remember the two ways you give leverage is production per share and I talked about it we've increased that by 2.5 times over that same period and by giving leverage to costs.

So if you take a look at this chart here on the left you see production fair enough our productions been good, it's been growing, it's reliable, but take a look at the yellow line, costs. That's what we're focused on. We've never been more focused on it, because if we want our investors to stay with us and if we want the generalists to come in, we've got to control costs. You don't want CEOs coming up here and saying, look, the world just doesn't understand us. The world understands us. We haven't been delivering the margin. We have to deliver the margin, which means we have to control costs. We've been doing it.

If you look at the middle chart, our all-in sustaining cost, our margin is 52%. That's pretty good. That's the kind of thing that people pay attention to. That's the kind of thing that generalists pay attention to. And we've done, you know, quite well at it. Why have we done better than most of our peers? Our peers are doing well too. They're at around 30%. The reason we've had better control on costs, again, I think, I know, at least from our perspective, is because of this regional focus. You know, we -- low turnover, reliable production, reliable suppliers, reliable contractors, reliable First Nation partners, reliable community partners.

And if you look, our free cash flow is coming up. It's delivering. So first, you have to get that leverage for your shareholders, and then what do you do with it? Well, this chart shows, you know, we're generating about $1.5 billion or maybe a little bit more, in net free cash flow. This is after continuing to grow our business. I'll talk about that in a moment.

But the main point I want to put out is 95% of that, 95% about 90% of that free cash flow is being returned to shareholders. It's about $800 million in dividends, about another $70 million, so far in share buybacks, and $900 million in a reduction in net debt. That's what our investors want. When the gold price goes up, they want us to control our costs and they want us to make sure that they get some of that money. Again, that's the real emphasis. Very quickly, so and I do tend to go on, sorry Raj.

When we talk about growing production per share, in the near-term, most of you know this, I'll go through it quickly, Canadian Malartic transitioning from Canada's largest open pit mine to Canada's largest underground mine, Detour Lake mill optimization, in the last few years, that mill has gone from 23 million tons a year to 28 million tons a year with minimal capital input. Meliadine mill expansion completing metal bank life extension.

The middle column is interesting because this is sort of medium term and bigger numbers. Canadian Malartic, we are now looking at a second shaft. So when Canadian Malartic transitions from open pit to underground, it'll be producing about, let's call it 600,000 ounces a year roughly, but the mill utilization will go from 60,000 tons a day to about 19,000 tons a day, which means we have 40,000 tons a day of capacity. If we put in a second shaft, let's call it 7,000 or 8,000 tons a day, at those grades that's about another 250,000, 300,000 ounces a year.

If we bring in Wasamac, another 3,000 tons a day producing 150,000 to 200,000 ounces a year, Canadian Malartic goes from one of the top 10 gold mines in the world to one of the top five gold mines in the world. And by the way, three of those top five, one's in Uzbekistan, one's in Indonesia, one's in Russia. So Canadian Malartic has the potential to be in excess of a million ounce producer just through the shaft, the second shaft, just through Wasamac for multiple decades in the best mining jurisdiction in the world.

Detour Lake underground, we believe by going underground that mine will go from about 700,000 ounces a year to an excess of a million ounces a year for multiple decades from one of the top 10 gold mines in the world to another top five gold mine in the world. So we could have two of the top five or six gold mines in the world producing an excess of 1 million ounces a year for multiple decades in safe jurisdictions. And by the way, operating in difficult places becomes more perilous as the price of the commodity goes up. It just does. The Hope Bay project, if that comes into being, which it's looking pretty good, another 350,000 to 400,000 plus ounces a year for multiple decades in an 80 kilometer greenstone belt in a region where we have a competitive advantage.

In Nunavut, 3.5 times the size of France, 40,000 people for Agnico Eagle, we are a third of the economy. Every single contractor there we help them start their business. That's a competitive advantage. San Nicolas, another roughly equivalent 200,000 ounces a year. And then some long-term projects.

So in finishing, we're going to have the same strategy we've always had, focus on good regions, focus on per share metrics, try to be the best in the places you are through building a competitive advantage, and always, always focus on per share metrics, return on capital. And by the way, every single one of those projects I talked about, every single one of those are assets we already own in regions we've been for decades and in most cases leveraging off existing infrastructure.

And I'll finish by saying sort of where I started on the what we owe to our owners the best return on capital you ever get is by utilizing existing capital in place and the best risk adjusted return on capital is by being in areas that you know well.

And with that, Raj, I hope we have a couple of minutes at least.

Question-and-Answer Session

Q - Raj Roy

So given the time we have, we'll focus on two key questions. First one, you highlighted some of your development opportunities. You also have Upper Beaver and Wasamac, expansion of Macassa. From a capital discipline point of view, how are you looking to evaluate all these opportunities?

Ammar Al-Joundi

Well, all of the projects, so from capital discipline and all of you in the audience, that's your job to allocate capital. The most important thing is information. Do you have the right information to assess where you should be putting your money? Every single one of those Raj as I mentioned, they're our own projects. They're not going to a place I've never been before, hiring construction people that I've never met before. So we have all the data to be able to rank it and frankly we go with the projects that make the most money and priority.

And also we spread it out, not just to spread out the CapEx, But we do this stuff ourselves. It's our own engineers, our own construction people. So we're very confident in the projects we have. And we've been pretty open with how much CapEx it's going to be. And every single 1 of those projects that we talked about is going to be internally, our expectation is, internally funded, while we are also returning capital to shareholders. So not only do we expect increased production per share, we expect to do that while returning capital to shareholders.

Raj Roy

Now, I'm going to ask you the same question that I asked Mark, and I want to get a bit of a debate going here. You seem to agree with Mark in how he outlined his capital allocation strategy with the discretionary cash that we expect to see from the sector? Do you think in an environment where interest rate is 5%, if you look at the diversified some of the other resource sectors being 7%, 8% dividend yield, if I annualize the first-half share buybacks and dividends for the gold sector it's 3%. Do you think the gold sector needs to do better in terms of the capital returns from where we are today?

Ammar Al-Joundi

Well, I mean, I'll start with -- I think what is logical. You always want to return capital to shareholders and we've paid a dividend for 41-years. We've never missed a quarter. That's pretty good in a cyclical business. But you never want to pay more capital than you actually have. And so Raj, I think your question is a good question, but to me it's not the, you know, should it be 8% or should it be 3%, it's -- do you have an underlying business that generates good return on capital and from that you want to balance your reinvestment growth and pay it to shareholders. And I would say that Mark, I think, said exactly the same thing.

Raj Roy

We're out of time for the questions, but I still want to ask this. Agnico today is paying as a -- is trading at a premium to its peers. What did you say to investors that the upside from here is?

Ammar Al-Joundi

You know, I've been with the company 11-years. Sean Boyd, my predecessor, has been with the company 30-years. And he says, he gets that question every single year for the last 30-years. You know, I have a great job, I work for a fantastic company. I respect my owners. The last thing I want to say to my owners is, look, the market doesn't understand us. The markets are usually pretty good. They value things the way they are. We've, knock on wood, We've had a good year. Our margins are up over 50%. Our production is good. Our growth is all internal. It's all organic. And I think the market is rewarding us for that. And I think we're going to keep doing what we're doing.

Raj Roy

Well, Ammar, with that, we're out of time for questions. But thank you very much, and all the best.

Ammar Al-Joundi

Thank you. Thanks, Raj.