Agnico Eagle Mines Limited (NYSE:AEM) Virtual John Tumazos Very Independent Research Conference June 21, 2022 11:00 AM ET
Company Participants
Conference Call Participants
Operator
Question-and-Answer Session
Operator
Good morning. We’re very pleased to have Area Deliveroo [ph] the Director of Investor Relations at Agnico Eagle. There’s many developments. So without further ado, please give us the updates.
Unidentified Company Representative
Thanks, John. I’m happy to be here today to provide an overview on Agnico Eagle. Before I start the presentation, I just want to make note that we have forward-looking statements in this presentation. So please make note of that.
So to begin, the merger of equals with Kirkland Lake Gold made headlines as we created one of the highest quality senior gold producers. We continue to have a simple, consistent, disciplined and proven approach to value creation. Agnico has a high-quality portfolio is a leader in terms of ESG stewardship and is expected to continue to generate superior long-term returns to shareholders.
Starting with the high-quality portfolio to the left of the slide, we have a strategy of growing production per share, and we do this by operating regions where we can operate for decades due to the geological potential in that region and are also in places where we can actually do business with supportive governments and communities.
In 2022, we are expected to produce between 3.2 million ounces and 3.4 million ounces with stable gold production in future years. This robust production profile with low cash costs are expected to be in the 725 to 775 per ounce range and is expected to generate strong margins and cash flows at current gold prices.
There also continues to be growth opportunities near mine sites, and we also have a pipeline of high-quality exploration and development assets. We’ll go through some of these key value drivers we are in the presentation.
We also have the opportunity to add value through synergies from the merger with Kirkland Lake Gold. There’s opportunities to generate lower cost as well as generate more gold production, which I’ll also go over a more detail later in the presentation.
In terms of ESG stewardship, for 65 years, we’ve been on a journey to build a high-quality business for the benefit of all. As we are a partner of choice within our industry, we are committed to fostering positive and collaborative relationships with local communities.
As early as possible, we seek to engage and partner with local stakeholders, indigenous groups and to assess the level of social acceptability and potential impacts of the project within the community.
At Agnico, we appreciate the need and overall benefit of supporting local businesses and maximizing local procurement. Our approach is focused on establishing mutually beneficial cooperative and productive relationships.
We also continue to be recognized for leading industry practices by independent ESG rating agencies. We are already recognized – we are already recognized leaders in the environmental performance with some of the lowest water consumption intensity and GHG emissions in the mining industry.
Our last section on the right-hand side of the slide relates to generating long-term returns for shareholders. Agnico has a strong financial position and at the end of the first quarter of 2022, the total liquidity position was $2.3 billion with net debt of approximately $500 million.
We continue to focus on growing per share metrics metrics with a disciplined capital approach. This strategy has enabled us to have a long history of capital returns to shareholders. In fact, 2022 marks 39th consecutive year of paying dividends. We also announced a share buyback earlier this year that was initiated this quarter.
Now taking a closer look at the regions in which we operate, Agnico has operations in premier mining jurisdictions. We currently have 11 operating mines in 4 countries: Canada, Mexico, Finland and Australia, and we are currently the third largest gold producer and by far, the largest gold producer in Canada.
Our high concentration – a high concentration of our mines are shown on the right-hand – top right-hand box and are located in the Abu tube [ph] greenstone belt of Northeastern Ontario and Northwestern Quebec. This region is where we see the majority of the synergies expected to be generated from the merger with Kirkland Lake. And as previously mentioned, we’ll go over this in more detail later in the presentation.
While we do have 11 operating lines, our asset portfolio continues to be low risk and manageable. As mentioned, our 4 mines are concentrated in 4 countries and 5 top-tier mining jurisdictions. So we continue to run a very manageable business due to the regional concentration of our assets. As shown on this chart, our business is less complex and in less risky mining jurisdictions when compared to our peers.
Moving on to ESG. Our ESG strategy is built on 4 key pillars: engaging with our communities and indigenous partners, pursuing innovation with the adaptation of new technologies and embracing outside-the-box thinking, identifying and eliminating or mitigating risk to protect our operations, employees, communities and the environment; and lastly, adapting to new realities evolving to meet new and evolving to meet new challenges.
One example of this was dealing with the COVID-19 pandemic, particularly in Enova [ph] In December 2021, due to the increased spread of the Omicron variant of COVID-19, we made the decision to send homes an innovate based workforce as a precaution to protect an inovomiat and local residents. This decision was made in collaboration with the innovate health story. As the COVID-19 situation improved in Q1, the NUNAVUT workers was back fully integrated in the operations this past April.
In terms of ESG reporting, yesterday, we published our 2021 sustainability report. It marks the 13th year that we’ve produced a detailed account of our health, safety, environmental and social performance. While our merger with Kirkland Lake was not completed until February 2022, we included information relating to the legacy Kirkland Lake operations in the report. This report can be found on our website.
Already, we are recognized leaders in environmental performance with some of the lowest energy intensity and GHG emissions in the mining industry, as mentioned previously. We are committed to achieving net zero carbon by 2050 or sooner, and we are mapping out key milestones to achieve our carbon neutrality goals. An update on our climate strategy is expected later in 2020.
And lastly, we are recognized for our leading industry practices in ESG by independent rating agencies, as shown in the table on the bottom right. We are also proud to be recognized by Corporate Knights as one of the top-ranked mining companies on its list of the 2021 Global 100 – most Sustainable Corporation and is part of the best 50 Corporate Citizens in Canada.
Taking a look at the next slide, as we mentioned, Agnico has a track record of adding value per share. Our focus continues to be on creating value per share. With the merger completed in the first quarter of 2022, Q2 will be the first quarter of production from Detour, Macassa and Fosterville, which is expected to drive earnings and operating cash flow in the remainder of the year.
We are expecting steady growth from the midpoint of guidance for the next few years, and it’s being anchored by 6 cornerstone assets that produce more than 300,000 ounces per year. These mines are Detour, Fosterville, Malden, LaRonde, Meadowbank and our 50% share of Canadian Malartic.
To further support growth and value creation, 2022 marks a record exploration budget of $324 million and growth capital of $700 million.
Unidentified Company Speaker
Development capital mean total CapEx?
Unidentified Company Representative
No. It’s actually just the – what we call growth capital. There is sustaining capital, which is also about $700 million. So our total capital for the year is $1.4 billion.
Unidentified Company Speaker
We expect…
Unidentified Company Speaker
Or exploration will be written off?
Unidentified Company Speaker
No. So about $130 million of the $324 million is capitalized and the rest will be expected.
Unidentified Company Speaker
So cap spending, as we see it, will be about $15.30.
Unidentified Company Speaker
Unidentified Company Speaker
Yes, that’s correct.
Unidentified Company Speaker
Could you explain whether the 3 or 4 biggest chunks of the $324 million exploration budget?
Unidentified Company Speaker
Yes. So the biggest chunk would be – actually, there’s probably 4 areas that create – that have a big component of the exploration budget, first being Fosterville. So we’re looking to – our objective is to find a higher grade zone at Fosterville.
Also at Detour, we have a significantly large budget at Hope Bay, which is now focused on exploration. There’s a substantial budget there, and we also have a decent sized budget at Macassa as well.
Unidentified Company Speaker
So both Bay and Hot in the northern territories, each legacy company idle production to focus better on exploration and underground development and to have a big enough resource critical mass to produce properly and efficiently.
Long do you think these pauses are practical? And is there a specific time horizon where the exploration to restart phase sort of has a deadline where it’s not practical to water on carriers forever.
Unidentified Company Speaker
Yes. So I guess one of the most recent mines that we put on care and maintenance to focus on exploration is Hope Bay. We’ve committed to exploring for the next 2 years, and we’re looking for a larger production scenario. I’ll talk a little bit more about that later on in the presentation.
But really, what we’re looking for there is scale. So it’s just a matter of being able to get the work done, having the drillers available in order to get the drilling that we want done there.
As far as time line goes, it would just basically be a matter of exploration re-enter if you see there’s continued potential there. So I would say there’s not a necessarily set time line, but as time goes on, it obviously makes it a little bit more difficult to restart operation.
Unidentified Company Speaker
So the exploration the philosophy of Agnico from the days before Sean, back even in the Paul Penna days, was very patient. And I remember, Paul, giving the geologists $1 million and telling them to go look after they gave up on projects, where Kirkland was more focused on their 3 big assets and seem to deemphasize things as immaterial.
So maybe 3 years ago at PDAC, there was a core shack with a drill core from the lander zone. They had a BG particle as big as a nickel. And there was a test mining, and it was shut down as immaterial in the Australian geologists at the PDAC booth next year couldn’t explain why it was shut down. It’s not an example of a situation where maybe at Nico would be more patient in the vein of Paul Penna [ph] how is the issue of materiality now that we’re a bigger company, could we continue to like little projects that can get bigger…
Unidentified Company Speaker
So even though we’re a larger company, our focus is still on the drill bit. It’s still on starting small and growing deposit – so that has not changed with the merger. What has changed is now we have a lot more projects to allocate our resources to.
So it’s just a matter of the exploration team taking a look at how they want to balance their budget and where they want to allocate their resources to the priorities…
Unidentified Company Speaker
Excuse me for interrupting.
Unidentified Company Speaker
Not a problem, not a problem. So moving on to the next slide. Here, we’ve outlined 4 key value drivers. The first value driver that we have on this slide is the Odyssey project, which remains on schedule and on budget. This project is considered an employer of choice in the Abitibi region, so recruitment for the project is overall going well.
During the first quarter of 2021, underground development was generally in line with the plan and the headframe and waste room construction continued to progress. Shaft sinking is expected to begin in the fourth quarter of 2022 and first production from the underground is expected in the first half of 2023 via the ramps.
Next, we have Detour. — technical evaluation is currently underway, and that evaluation is focused on converting resources to reserves, updating the life of mine and including mill optimization projects that are designed to increase the mill throughput to 28 million tonnes per year by 2025.
In 2021, Detour Lake processed a record 24 million tons, and in 2022, we’re expecting to process approximately 26 million tonnes. We expect to provide an update on the results of the current study with the second quarter results in July.
On the exploration side, drilling continues to intersect mineralization to the west of the pit and also mineralization has been encountered at depth, which could support future underground mining. An evaluation is also being planned to assess the potential for an underground operation and the expansion of production to 32 million tonnes per year.
At the McKasson [ph] mining hub, work is ongoing on the underground ramp from Macassa to reach the 8-K deposit, which is the AK deposits previous was — is a property that was owned by legacy Agnico, and it’s very close to the property boundary of Macassa and lies within a few hundred meters of the existing Macassa underground infrastructure.
At Q1, the ramp was extended by 224 meters and drilling has begun. We could expect ore from the 8-K deposit that could be processed at the Macassa mill as early as 2024. Also at Upper Beaver, which is located about 27 kilometers from the Macassa Mine, exploration drilling is underway to investigate for new mineralized zones at depth and a long strike laterally.
Infill drilling continues to intersect significant mineralization and appears to have encountered a new zone of mineralization, 500 meters south east of the main mineral live zone. We continue to review project development scenarios for Upper Beaver. And lastly, we have whole bank. This project was acquired from TMAC Resources in February 2021, and the focus is now on exploration, which is expected to continue through 2023. We are looking to evaluate a larger production scenario and to develop an optimal potential strategy around the geological potential of the land package.
Internal evaluations are underway regarding the potential to operate a 4,000 tonne per day mine that could ultimately produce 250,000 ounces to 300,000 ounces per year at reasonable capital costs and capital spending levels.
For at least – we’re looking for a period of at least 12 operating period for at least 12 to 15 years. We’ve also – we’re also evaluating whether or not we can — we should retrofit the doors mill or build a new mill closer to the Madrid deposit.
Unidentified Company Speaker
How much production might come from Odyssey in 2023 or 2024…
Unidentified Company Speaker
We are – so the majority of the production will actually start once the shaft sinking has been completed in 2029. From the period of 2023 to 2028, we’re looking at about 930 ounces that come from Qantas.
Unidentified Company Speaker
Or a little over $100,000 a year.
Unidentified Company Speaker
Yes. It’s going to ramp up. So it will be a little bit less at the beginning, but yes, roughly speaking.
Unidentified Company Speaker
So in terms of us gold in 2029, I was in Quebec and American Thanksgiving week in November. And the Eastgate head frame appeared to be 20 stories high and built. Is it possible this 2029 schedules a little conservative?
Unidentified Company Speaker
It’s – we’re doing a phased approach. Like the shaft head frame is well shaft sinking is not beginning until Q4. It’s going to be a shaft that can call about 20,000 tons per day. It’s quite a big shock. So it will take some time in order to get down to a level that we needed to.
Unidentified Company Speaker
Why was the head frame erected a year before the shops thinking it would seem not capital is. It would seem like it’s better to say that shaft out and get to the gold.
Unidentified Company Speaker
It was just the timing of how the engineers decided to structure the project.
Unidentified Company Speaker
Okay. Excuse me.
Unidentified Company Speaker
But we will because the first 600 meters of the deposit is being mined via Ram. And then the under 600 meters is being mined through the shop. So we are still getting production in those first 3 years while the shop seeking is taking place.
So in addition to our focus on the key value drivers, an important component of the work that’s ongoing since the merger with Kirkland Lake Gold is on synergies and optimization. We expect about $2 billion of pretax synergies over 10 years grouped into 3 separate buckets that are outlined on this slide.
First, we have corporate synergies, operational synergies and strategic optimization. Beginning with corporate synergies, which are the primary driver of the realized synergies in the first quarter of 2022, to date, we’ve achieved $45 million in corporate synergies from a reduction in personnel costs, service and insurance costs and also a reduction in office spaces.
That being that we only need one lawyer or one auditor and one consolidated office space for our head office. We are now anticipating that corporate synergies are in the range of $40 million to $50 million per year higher than the previous estimate of $35 million per year. On operational synergies, we are targeting savings of about $130 million per year, which is approximately $30 to $40 per ounce. Items not flow into this category include procurement and taking advantage of economies of scale with a larger company.
And other examples include operational improvement and a centralized control room in the Abitibi region. Lastly, we have strategic optimization. An example of this is mining from the 8-K deposit that was discussed on the previous slide. This project could add approximately 400 — sorry, could add approximately 40,000 ounces on average per year and could see production as early as 2023. A 1.3-kilometer exploration ramp in the near surface area is being developed this year in order to access and infill drill the AK deposit. Permitting work is continuing and a production decision could be reached later in 2022.
Overall, work on synergies and optimization has been better than expected, with the 2022 relayed synergies expected to be in the top end of the $40 million to $68 million range. We’ll be providing a further update on synergies with our Q2 2020 results — now taking a look at growth in operating margin. As previously mentioned, Q2 will be the first full quarter of production for the legacy Kirkland Lake assets Detour Fosterville and Macassa. The production growth from these assets as well as our legacy Agnico assets are expected to drive significant free cash flow at current gold prices. Estimated mine operating profit is shown on this chart.
And after deducting for capital, exploration, G&A, interest, cash taxes and current dividends, the rising cash flow could potentially be used for further increases in dividends to fund future growth in the pipeline and to reduce net debt. Not only do we expect strong operating margins, but we also have a strong balance sheet. We have available liquidity of about $2.3 billion.
And as of the end of Q1 2022, it comprised of $1.3 billion of cash and $1.2 billion in undrawn credit lines. Our total net debt is around $500 million. And at the end of — that was as of the end of March. And in April, on April 7, we repaid debt of approximately $125 million that matured. We have another tranche of debt of $100 million that is maturing in July, and we expect that to pay that on maturity. So we currently have very strong financial flexibility. As a result of the merger, Fitch ratings placed Agnico’s BBB rating on positive outlook demonstrating that the merger has further strengthened Technical’s balance sheet.
Unidentified Company Speaker
All right. I don’t talk to debt agencies very often. They don’t study upside. How can the debt rating be only BBB whenever the net debt is almost nothing. And there’s $3 billion of EBITDA and not a lot of interest expense. And you don’t have a lot of specific risks. You don’t have to solve problems in PNG and enza and the Lupita like Mark Briscoe, — what — why do you bother paying for these bond ratings. So they look like they’re 2 paper…
Unidentified Company Speaker
Well, so I’m not an expert in bond ratings, but I think part of it also has to do with the inherent risky nature of the mining business. We did — I mean, as a result of the merger with Cowen we merged with Kirkland Lake, they had a significant amount of cash, 0 debt. So we’re net debt position to get better with the merger, which is why we’ve put on a positive rating outlook, but it does take them time to readjust their credit ratings. But we do this — we get the debt rating, the credit ratings in order to get flexibility in terms of if we ever decide to issue public debt.
Unidentified Company Speaker
Can you to make a bid on Yamana [ph] go out and have a spending spree for one sort or another. I’m kidding you are…
Unidentified Company Speaker
Yes.
Unidentified Company Speaker
Definitely not something Agnico would do. But yes, it’s for added flexibility really is what it is.
Unidentified Company Speaker
Excuse me.
Unidentified Company Speaker
So as mentioned, we’re in a strong financial position. So this strong financial position allows us to continue to provide returns to shareholders. Our objective is to provide a sustainable dividend that can grow over time. So as previously mentioned, this year marks the 39th consecutive year of dividends paid and historically, we paid over $2 billion in cumulative dividends.
We view the dividend as an important component, and we have a competitive yield relative to our peers. In February, we announced our first share buyback in the amount of $5.2 million. We see the share buyback as the variable piece in our shareholder return policy, while the objective for the dividend is to be able to pay a sustainable dividend even in a lower gold price environment. We want to avoid a situation where we have to decrease the dividend. And so we see the share buybacks as a variable portion of our capital returns.
So just to summarize, we remain committed to our mission, which is to build a high-quality easy-to-understand business, one that generates superior long-term returns for our shareholders, creates a great place to work for our employees and contribute positively to the communities and countries in which we operate. We have a simple, consistent, disciplined and proven approach to value creation. Agnico has earned a reputation as a partner of choice within our industry of being reliable operating with respect for others for building trust and sharing opportunities with all our stakeholders.
Everywhere we operate and strive to be an admired member of the community and to be recognized as both a good employer and a good neighbor. We believe that in order for mining to work and his work for all stakeholders. We believe that environmental, social and governance considerations are not a burden, but an opportunity to improve our performance and sustain our business over the long term. We will benefit from the combined expertise technical expertise and exploration expertise of our teams and the strong regional focus in some of our — some of the best mining jurisdictions in the world.
We will benefit from our merged financial strength and our extensive pipeline of development and exploration projects to drive future growth. Lastly, we will continue to build on our long history of returning capital to shareholders. Agnico has paid a dividend since 1983. And as previously mentioned, we announced our first share buyback that was initiated this quarter.
We truly believe we are bringing together the best people, the highest-quality reserves and industry leader can ship in sustainability to build and grow our business for generation to cost. So that concludes my formal presentation. I’ll open it up to you, John, for any further questions.
Question-and-Answer Session
Operator
Unidentified Company Speaker
Sure, sure. There is, of course, the function for the audience to submit questions through the question box – so I really want to applaud the absence of business policy changes at the outset of the merger. And nothing is being destroyed in human capital and projects are being preserved.
So area as I read the appendices to the slides, it seems like there could be a 1 million ounce increase in production from existing assets even with the depletion of the Mort by 2027 in the little mines like India and Pinesonos and Goldex maybe being less than 10-year projects.
So there’s all these exploration in JVs and investments, white gold, which speaks to 1215. — or Rupert that we host a sale GoldQuest, Orla, Rian Wallbridge that we host, Maple Gold that we host, Cardiepro Catalyst.
Then we’ve got these 5 big projects that add up to almost 1 million ounces, opaperBemfer amoneaniTrudis, Odyssey Ranaldi extensions. And of course, Odyssey and East Goolewill pretty much replace the omarit. So – how are you going to keep production down to 3.3 million ounces…
Unidentified Company Speaker
Well, while we have a lot of pipeline projects and development opportunities, we are looking to stage our capital spending. So we’re not looking to just grow as big or as fast as we can. We’re looking to keep capital spending levels in the $1.3 billion range. Half of that would be — sustaining half of that would be growth. So we would be staging our growth capital, and we wouldn’t be building all of these opportunities at the same time.
At the same time, the timing of all of these opportunities are not necessarily all aligned at the same time as well. So our objective is not to be the biggest. It’s sort of to run a sustainable, stable business and our focus is on growing per share value for the shareholders.
Unidentified Company Speaker
Of all these different projects that him and Reef, the only one that’s $1 billion magnitude or maybe Hammond Reef plus the Malartic underground, but the 2 partners will share the alerted capital?
Unidentified Company Speaker
Those are the big ones. A lot of our projects are brownfield projects that are near mine site and add existing infrastructure so that we wouldn’t expect them to be large capital outlays. So you’re correct that those are the 2 big points.
Unidentified Company Speaker
In your investments, Walbridge and Maple are a little north, not really on the main drag. Maybe they could be $1 billion projects if they find over 5 million ounces and Walter seems to be there and beyond.
Unidentified Company Speaker
There is potential, and we do invest in these companies to learn more about their exploration, let them kind of do the work on their end. So it’s not a guarantee when we make these toeholds that we will eventually purchase these projects, but we do make these investments, keeping in mind that perhaps one day we could open…
Unidentified Company Speaker
So I just check for questions from the webcast. There are some — with Agnico doing to remove political barriers to using gold and commerce such as treating U.S. cold Eagle coins as property instead legal tender money face amounts of the coin provided by U.S. law. I guess somebody wants to turn the U.S. into the gold standard. They think Sean and Mario…
Unidentified Company Speaker
Yes. I mean at this time, we sell our gold typically to the banks, and we’re not involved in sort of what happens after a sweep.
Unidentified Company Speaker
In the past, there have been gold companies and poor gold markets that kept a little bit of their gold, it didn’t sell it. Do you think that’s something that Eni or might do to increase the leverage of too?
Unidentified Company Speaker
We typically sell all our production. We don’t hold it for opportunistic purposes, and we also don’t hedge any of our goals. So we’ll continue with that policy. We, of course, do have a little bit of gold inventory in terms of like for example, we — if we had — in Nunavut, we have sort of a golden up shock that will hold. I think very small amount of ounces, nothing material that we would actually hole sell all our ounces…
Unidentified Company Speaker
Sorry, there’s a phenomenon in the silver market where silver bars and silver coins and private transactions in the U.S., seem to sell for 10% to 50% more than Comex prices. There are advertisements to buy bars and coins by dealers, 10%, 20% over market — do you ever second guess the market price? There’s some evidence that silver price on the exchange doesn’t reflect the market or in other markets, Oreanaluminum, there’s a $0.30 to $0.40 Midwest premium. In the nickel market, there’s premium for purity. But there — sometimes there’s a question as to whether the exchange prices are accurate…
Unidentified Company Speaker
Right. So we — I mean we don’t change who we sell our goal too. We’ll sell them to the banks, and it is at the market price. We accept in our industry that we’re price takers. So we manage our business by managing our costs our production, adding that financial flexibility. But we’re not looking at seller gold to other markets…
Unidentified Company Speaker
It’s not going to be a one-off Paul Penna [ph] d coin or a one-off Shan-Boyd silver coin or $0.10 an ounce or a crime.
Unidentified Company Speaker
Right.
Unidentified Company Speaker
Not that we would be looking to sell and market no. We may have them maybe a member to purposes, not one from me personally, but yes, otherwise, it wouldn’t be for the sale to third parties.
Unidentified Company Speaker
In terms of the JV and investment portfolio, it would seem like collectively, these properties could be worth almost $1 billion. Does the company think of these as a long-term exploration asset? Or is there ever a voice in the company to monetize them and harvest the NPV to sell something?
Unidentified Company Speaker
It would depend on the project and the situation. We often enter into these JVs or we’ve known exploration projects because we see the potential in them if there comes a point where we realize what we expect to see there is not what is there, we would then consider potentially divesting our interest in those assets…
Unidentified Company Speaker
In terms of — the big projects like ham and reef. In the last year, what has developed with that project aside from any obvious inflation to the diesel price and potentially construction capital.
Unidentified Company Speaker
Yes. So the project metrics remain the same. But as you mentioned, yes, there could be some adjustments to inflation, that kind of thing. At this point, it’s really just a fit on where it would be in the sort of production profile. And given that when we just merged with Kirkland Lake pool, there’s still a lot of assets that we need to evaluate at this point…
Unidentified Company Speaker
In terms of the — two Nunavut producing mines, Amaruq and Meliadine. It’s quite commendable that the costs haven’t changed a lot this year given the escalation in energy prices. How long does it take the oil price to work into your cost structure, given that you buy oil and maybe you ship seasonally and you have some hedging. So is there a 6- to 12-month lag in your northern operations between the spot oil price and your cash cost.
Unidentified Company Speaker
Yes. So we do barge all of our fuel that’s required for the next year in the July, August season of the prior year, so there is a 1-year lag. So this coming July, August will be our next season to send up any of the diesel that we need for our Nunavut operations. We are about 40% hedged on fuel for upcoming purchases in the year. So that mitigates that a little bit, but there is about a 1-year lag in terms of
Unidentified Company Speaker
24 crude diesel cost is going to reflect the current economics in full in 2023 might only represent 60% of the current economics in view of the foresight to hedge.
Unidentified Company Speaker
Yes. That’s correct.
Unidentified Company Speaker
Are there any of your other operations that have such a long time lag for cost, for example, detour and have the TV region in Quebec, that must be more contemporaneous for you to barge one year at a time.
Unidentified Company Speaker
Yes. So it’s really just our innovate operations and it’s from a logistical perspective because it’s difficult to get fuel up there in the winter months. So it’s really just the nimit operations that will be subject to this kind of timing lag in purchase of…
Unidentified Company Speaker
If a Nico were to be so radical as to enter another jurisdiction, a fifth or sixth country — how big does the gold deposit have to be to justify that?
Unidentified Company Speaker
So at all, it would depend on the geological potential. So it wouldn’t necessarily need to be there in terms of a resource that we currently see, but we would have to see that there’s a potential to be there for decades. We don’t go to countries to just operate one mine. It’s to operate several mines, and we want to be there for decades. And obviously, the political risk component is an important factor for us whether we decide to go into any region.
Unidentified Company Speaker
So in terms of the 5 larger projects you’re highlighting, 4 of them are in Saada in provinces where you already are and the fifth is seeing a detrition Mexico — in terms of your highlighted investment portfolio, the Barsele JV in Sweden and Gold Quest the Dominican Republic are the only ones that are in countries where you aren’t already, which country is catalyst…
Unidentified Company Speaker
Sorry, which entry is?
Unidentified Company Speaker
Catalyst minerals, metals.
Unidentified Company Speaker
I’m not actually familiar with that one.
Unidentified Company Speaker
It’s in your
Unidentified Company Speaker
I can get back to you on that…
Unidentified Company Speaker
Your call.
Unidentified Company Speaker
Yes. Okay. I’ll get back to you on that one.
Unidentified Company Speaker
By Sweden and DR would look like there are one opportunity domains and not a region like Quebec or Ontario…
Unidentified Company Speaker
Yes. And those 2 that you are mentioning, we have the JV with Barsele, but the Dominican is a toll bold investment. So it is something that we’re still learning about. So it’s not necessarily a guarantee that we would purchase that project…
Unidentified Company Speaker
In the past, Vico’s had projects in Brazil or Colombia, — can we read into that, that you had a taste of those countries, but they don’t quite stack up with Quebec and Ontario?
Unidentified Company Speaker
A lot of it — it has to do with, as I said, some of it is the geological potential that we see with those projects that we were invested in. Some of it relates to the state that they form in. So just because that one particular state doesn’t work out, it doesn’t mean that we wouldn’t go to a different statement in the country. So it doesn’t necessarily rule out any us ever operating in those countries.
Unidentified Company Speaker
Are you looking at accretive M&A in the Abitibi region to add additional gold ounces in the medium term?
Unidentified Company Speaker
So we’re always looking at various projects in all the regions we’re operating in. And of course, if there’s an accretive project in the region, and it makes sense for us, that would be definitely something that we would take a look at.
Unidentified Company Speaker
Now that we’re 3.3 million ounces. Is there a minimum target threshold of like 5%, 170,000 ounces or 10% 330,000 ounces…
Unidentified Company Speaker
In terms of like the type of projects that we would look at.
Unidentified Company Speaker
Yes.
Unidentified Company Speaker
It depends on the region. Like for example, in Nunavut, you really need scale in order to operate a profitable mine there, which is why we’re hoping we for a larger production scenario there. So it would depend on the opportunity. It depends on how close it is to one of our mine sites. Could it just — can we just supplement some additional ore at one of our mills. It would really depend on the opportunity and we’re…
Unidentified Company Speaker
So you’re looking at rate of return first, where you need size and now of it to have a shot that if you’re in the core of your infrastructure in Quebec or Ontario, 50,000 of on like a mad Kirkland is just wonderful.
Unidentified Company Speaker
Yes, exactly.
Unidentified Company Speaker
That’s refreshing. Once again, there’s plenty of room for questions on the call. How long do you think it takes to digest synergies and integrate the organizations? And how much CapEx do you need to spend to achieve synergies…
Unidentified Company Speaker
So there is — there is going to be a little bit of work that leads up to achieving the synergies. As mentioned this year, we’re expecting closer to the $60 million range in terms of synergies. Most of that relates to the corporate synergy side. G&A, it’s a lot easier to reduce a lot of that. First, on the operations side, that takes a little bit more of a lead time. We could see an impact of about $10 an ounce this year. And then going forward, we’re looking at a run rate of about $130 million per year. In terms of capital spending, that’s on the projects, we’re still — most of that — most of the capital spending will relate to our strategic optimization, which would be Upper Beaver for the 8-K deposit. And those 2 opportunities are still currently being evaluated, so we don’t have a solid capital spending number yet on those. But once we’re done our valuation, we’ll have a better idea.
Unidentified Company Speaker
Two of the largest operating categories, labor and diesel or energy or electricity would probably be the same and not change so that what are examples of some of the discretionary items that are enjoying big savings. I guess there’s a smaller category of things that you save a lot of money on — so maintenance
Unidentified Company Speaker
So like — so on the corporate side, there are things where you don’t need multiple service providers. You only need one service provider, so you only need one auditor, you need one set — you need one lawyer. We’re working on consolidating office space so that we’re all in one building, insurance costs come down with a bigger company…
Unidentified Company Speaker
Are we going to be at 145 King Street East. Or…
Unidentified Company Speaker
That’s will be…
Unidentified Company Speaker
145 for street…
Unidentified Company Speaker
The same Magneto building.
Unidentified Company Speaker
Yes, we are. And then on the operating side, there are — there’s procurement. We’re a larger company. So we have the scale to be able to purchase larger orders and we’re going to save more. There’s the sharing of technical knowledge where we can benefit from and reduce some costs. So I would say it’s made up a whole lot of — in the — on the operations side, the $130 million is made out of a lot of smaller buckets in order to get there.
Unidentified Company Speaker
What’s the biggest bucket in operations?
Unidentified Company Speaker
It’s probably more on the procurement side in terms of savings.
Unidentified Company Speaker
Would it be great like buying explosives or — so electricity and diesel would be probably the same.
Unidentified Company Speaker
Yes, yes.
Unidentified Company Speaker
And yes, so there’s chemicals, there’s reagents, we’re working on some of the construction projects, some steel, that kind of thing where we could get some scale in terms of purchasing for a larger company. And most of that is probably concentrated in the Aptiv region just because of the proximity of all the mines in that region.
Unidentified Company Speaker
In the $700 million development capital category, how much is the Malartic underground? And how much is the completion of the Macassa shop.
Unidentified Company Speaker
I don’t have the exact number of the Macassa shaft, but I can tell you how much is allocated to let me just quote here because I have the detail in here. But at Canadian Marty the cable…
Unidentified Company Speaker
Yes.
Unidentified Company Speaker
So at Canadian Malartic, about $100 million of that is for the underground project. And then at Macassa, we have about $100 million as well. Not all of that is for the shop. There are some other projects that we have there, but we have the upgrade of the ventilation system there as well. But it’s about $100 million in growth capital on Macassa. So $100 million also at Canadian or…
Unidentified Company Speaker
What are the most important feasibility studies or technical studies being done inside Agnico.
Unidentified Company Speaker
So currently, the Detour technical study is being worked on. And as I mentioned, that we’re looking at a 28 million ton per annum mining scenario there. We’re expecting to provide the results of that study with the Q2 results that are coming out in July. So that’s the big one. We are doing some not necessarily in technical studies, but internal evaluations. I did mention Upper Beaver is one of them. We’re looking closer at the 8-K deposit. So there are several smaller studies that are happening internally.
Unidentified Company Speaker
When your company is doing studies looking forward, with crude oil price are you going to assume $70, $100, $130…
Unidentified Company Speaker
So that’s still being in discussion because earlier this year, the curve on the oil price was actually declining later on in the year. So that’s still in discussion on what prices being will be using. If it’s a shorter time line, we obviously will use something closer to what spot prices are. But in the longer term, it’s something that we’ve taken a look at.
Unidentified Company Speaker
So something like the Detour mine, in a higher crude oil price, does that switch the doll to going to underground mining sooner to a stripping and waste disposal.
Unidentified Company Speaker
It doesn’t necessarily mean you go to underground sooner. We are evaluating an underground mining scenario. It does obviously have an impact on what costs are looking like. But at the same time, we are looking to add additional ounces into that mine plan.
Unidentified Company Speaker
As early as Detour under Detour. There were parts of the pit with a 71% target pit wall slips and some of the exploration success has been to depth, which might suggest deeper pits, industry ratios, more pressure on the bit roll slope. The pit wall angle, I guess, is variable based on different rock conditions and falling.
Unidentified Company Speaker
But…
Unidentified Company Speaker
How large of a pit wall angle do you think is too large or unsafe?
Unidentified Company Speaker
Well, I’m not a money engineer, so I can’t actually provide a professional opinion on what I think angle would be safe. We are looking at the North Wall pit angle in terms of potentially reducing the strip ratio. So there is still some flexibility there. We — and as mentioned, we are looking at an underground mining scenario. So we wouldn’t necessarily be looking at evening we could be accessing ore from underground…
Unidentified Company Speaker
Once again, we have plenty of opportunity for questions from the audience. In terms of the $324 million exploration budget, do you think it would be larger, the same or smaller next year.
Unidentified Company Speaker
We can…
Unidentified Company Speaker
Some duplication regionally in Eastern Canada between the companies.
Unidentified Company Speaker
Yes. And so while we were working on our exploration budget, we were also, at the same time, closing the transaction and working on integration. So what you could see next year is a more integrated budget, it could vary in range, but I think it’s safe to say it will be something in a similar range given the size of the company.
Unidentified Company Speaker
Obviously…
Unidentified Company Speaker
The margin is and 80% — and that serve production and reserves…
Unidentified Company Speaker
Yes, it’s probably closer to that. A big chunk of it is allocated to Canada, and we have a lot of priorities in Canada. But as I was mentioning, with the current — assuming current gold price environment remains similar, we could probably see similar levels in terms of exploration…
Unidentified Company Speaker
In terms of supervision — how do the mine managers report up to the COO and CEO, what is the reported chain of command.
Unidentified Company Speaker
So we have the mine managers that report up to the regional Vice Presidents and the Regional Vice Presidents report up to the COO of the respective regions.
Unidentified Company Speaker
So how many regional vice presidents are there?
Unidentified Company Speaker
There are one for every operating region that we have. So we have one in Nunavut, Finland, Quebec, Ontario and then we have Mexico Australia, sorry, trillion.
Unidentified Company Speaker
Yes. So all the countries in Canadian provinces.
Unidentified Company Speaker
Yes.
Unidentified Company Speaker
So the 6 regional presidents report up to how many at the next level…
Unidentified Company Speaker
So they report up just to Dominic Gerrard, who’s our COO of Nunavut, Finland and Quebec. And then the other the remainder report to Nikesh Mas, who’s COO Ontario, Australia and Mexico. So we have actually a very Sorry, the…
Unidentified Company Speaker
Is there a single corporate CEO or just a core
Unidentified Company Speaker
We have 2 COOs. We don’t have a corporate COO.
Unidentified Company Speaker
Atonic…
Unidentified Company Speaker
Yes, that’s correct.
Unidentified Company Speaker
And then the CEO is Amar?
Unidentified Company Speaker
Yes, that’s correct. So they reported…
Unidentified Company Speaker
On as Executive Chairman, who is probably not so…
Unidentified Company Speaker
He’s not stock is at? He’s Executive Chairman, yes. So he’s still involved, but he’s not involved in the day to day that would follow on to…
Unidentified Company Speaker
Executives at the top of the hierarchy, 6 regional presidents and then the mine managers.
Unidentified Company Speaker
Yes, that’s correct.
Unidentified Company Speaker
So I’d say we’re still fairly — we still have a very horizontal or flat structure. There’s not too many levels to me.
Unidentified Company Speaker
And Dave Smith is the CFO.
Unidentified Company Speaker
That’s correct.
Unidentified Company Speaker
Now explain the hierarchy of the exploration department. — who is the Chief of exploration? Is it a land backward…
Unidentified Company Speaker
So Lam has actually — he retired a couple of years ago. So he Goslin. — he’s the even team of exploration. And then Eric Kallio is also in terms of exploration, but more on the growth in project side. We don’t currently have a VP of exploration, but we do have several sort of regional managers in the…
Unidentified Company Speaker
Where would Mark Lago fit in.
Unidentified Company Speaker
Mark Legal has actually — he retired at the end of the year. So he was Head of the Southern business, but decided at the end of the year that it was time for him to retire. So now the Southern business, Luis Clips still the Vice President there, but now Natasha COO, is heading up that group.
Unidentified Company Speaker
So who would be the third and fourth exploration executives after Guy and Eric?
Unidentified Company Speaker
We currently have — we have several at the director and manager level. So I would say that if your definition is reaping up for executives, so we currently don’t have somewhat at that level.
Unidentified Company Speaker
Maybe it’s a site geologist at the 6 or 8 largest producing mines that would be the next important executives.
Unidentified Company Speaker
Yes. Yes.
Unidentified Company Speaker
I’m just trying to keep up with the organization. I might now often aware which of my findings have gone out to pasture.
Unidentified Company Speaker
Yes. There’s been a lot of changes with the merger, and there’s been a lot of retirements over the last few years. So…
Unidentified Company Speaker
So George, do is the only member of the pan. It’s a full-time employee.
Unidentified Company Speaker
Yes. So that would be correct. — correct. I was with George this morning, we hosted a conference call. So yes.
Unidentified Company Speaker
Maria, thank you for your explanation of the company and your patience with some of my questions.
Unidentified Company Speaker
No, not a problem anytime. Happy to be here. And if there are any other questions from anyone on the line, feel free to reach out to John, and we can pass on for questions.
Unidentified Company Speaker
Thank you very much, and congratulations.
Unidentified Company Speaker
Okay. Thank you. Good day.
Question-and-Answer Session
Operator
End of Q&A+
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