Agnico Eagle reports fourth quarter and full year 2013 results - Strong operational performance yields record annual production
Stock Symbol: AEM (NYSE and TSX)
(All amounts expressed in United States dollars unless otherwise noted)
Agnico Eagle reports fourth quarter and full year 2013 results - Strong operational performance yields record annual production
TORONTO, February 12, 2014 - Agnico Eagle Mines Limited (NYSE:AEM, TSX:AEM) today reported a quarterly net loss of $453.3 million, or a net loss of $2.61 per share for the fourth quarter of 2013. This result includes, a non-cash after tax impairment loss of $436.3 million ($2.51 per share), a non-cash deferred tax charge (primarily related to a new Mexican mining tax law enacted in the fourth quarter of 2013) of $47.2 million ($0.27 per share), a non-cash impairment loss on available for sale securities of $10.2 million ($0.06 per share), a non-cash stock option expense of $4.3 million ($0.02 per share), other non-recurring expenses of $5.7 million ($0.04 per share), and a non-cash foreign currency translation gain of $6.2 million ($0.04 per share). Excluding these items would result in adjusted net income of $44.2 million ($0.25 per share) for the fourth quarter of 2013. In the fourth quarter of 2012, the Company reported net income of $82.8 million or $0.48 per share.
Fourth quarter 2013 cash provided by operating activities was $135.9 million ($144.7 million before changes in non-cash components of working capital), this compares to cash provided by operating activities of $106.0 million in the fourth quarter of 2012 ($169.3 million before changes in non-cash components of working capital). The decline in cash flow before changes in working capital during the current period was largely due to a lower metal price environment as the Company's realized gold and silver prices were down 26% and 35% respectively, period over period.
"Despite a challenging time in the gold market, our employees delivered record operating and safety performance for 2013. This allowed us to exceed both our production and cost guidance for the second year in a row. Over the next three years, we expect further production growth and stable costs", said Sean Boyd, President and Chief Executive Officer. "Despite the strong operating results, and solid production growth ahead from our existing assets, we have decided to reduce our quarterly dividend to enhance our financial flexibility in the current lower gold price environment ", added Mr. Boyd.
Fourth quarter and full year 2013 highlights include:
- Continued strong operational performance leads to record annual gold production - record full year payable gold production1 of 1,099,335 ounces at total cash costs2 of $672 per ounce for the year, compared to guidance of 1,060,000 ounces at $690 per ounce
- Record fourth quarter production helps drive lower costs - payable gold production of 322,443 ounces at a total cash cost of $623 per ounce in the fourth quarter of 2013
- All-in sustaining costs3 for 2013 of $952 per ounce - below third quarter 2013 guidance of $1025 per ounce
- Record annual gold production at the Meadowbank Mine - 430,613 ounces at a total cash cost of $774 per ounce
- Forecasting 16% projected production growth through 2016 - production is expected to sequentially increase to approximately 1,275,000 ounces in 2016
- Year-end 2013 gold reserves, net of production stand at 16.9 million ounces with 11% improvement in average grade to 3.51 grams per tonne (g/t) - gold reserves remain strong despite using $1,200 per ounce gold price rather than averages of $1,350 per ounce and $1,495 per ounce for year-end 2012
- Achievement of commercial production at Goldex and commissioning of La India mines - both projects expected to provide further production growth in 2014
- Quarterly dividend of $0.08 per share declared - the reduction (was $0.22 per share) in the quarterly dividend reflects current market conditions as gold is trading approximately $100 per ounce lower than the Company's realized price in 2013.
_____________________________________ 1 Payable production of a mineral means the quantity of mineral produced during a period contained in products that are or will be sold by the Company whether such products are shipped during the period or held as inventory at the end of the period.
2 Total cash costs per ounce is a non-GAAP measure. For a reconciliation to production costs, see Note 1 to the financial statements contained herein. See also "Note Regarding Certain Measures of Performance".
3 All-in sustaining cost is a non-GAAP measure. For a reconciliation to production costs, see "Reconciliation of non-GAAP Financial Performance Measures" below. See also "Note Regarding Certain Measures of Financial Performance". The Company's methodology for calculating all-in sustaining costs may not be similar to methodology used by other gold producers that disclose all-in sustaining cost. The Company may change the methodology it uses to calculate all-in sustaining costs in the future, including in circumstances where the World Gold Council adopts formal industry guidelines regarding this measure.
For the full year 2013, the Company recorded a net loss of $406.5 million, or a net loss of $2.35 per share. In 2012, Agnico Eagle recorded a net income of $310.9 million, or $1.82 per share. Compared with the prior year, 2013 earnings were primarily negatively impacted by a non-cash impairment loss, significantly lower realized metal prices (gold and silver prices were down 18% and 29% respectively year-over year), non-cash deferred tax charges (primarily related to the new Mexican mining tax law enacted in the fourth quarter of 2013) and non-cash impairment losses on available for sale securities.
For 2013, cash provided by operating activities was $438.3 million ($496.9 million before changes in non-cash components of working capital). This represents a decrease over 2012, when cash provided by operating activities totaled $696.0 million ($716.5 million before changes in non-cash components of working capital). The decrease was primarily due to significantly lower realized metal prices in 2013.
In the fourth quarter of 2013, strong operational performance continued at the Company's mines, which led to record quarterly and annual production. Once again, Meadowbank was a key contributor with increased throughput, better than expected gold grades, and strong mill recoveries.
Payable gold production in the fourth quarter of 2013 was a record 322,443 ounces compared to 236,535 ounces in the fourth quarter of 2012. A detailed description of the production and cost performance of each mine is set out below.
Total cash costs for the fourth quarter of 2013 were $623 per ounce versus $769 per ounce for the fourth quarter 2012. The decrease in total cash costs per ounce in the fourth quarter of 2013 is mainly due to higher production and continued cost control at several of the operations, in particular the Meadowbank mine, which more than offset lower byproduct metals revenue.
For a second straight year, Agnico Eagle has reported record annual gold production. The Company's payable gold production for the full year 2013 was 1,099,335 ounces at total cash costs per ounce of $672. This compares to the full year 2012 level of 1,043,811 ounces at total cash costs per ounce of $640. The improvement in gold production in 2013 was a result of strong operating results from all of the mines, particularly Meadowbank. The increase in total cash costs per ounce in 2013 was primarily due to the impact of lower byproduct revenues when compared to 2012, which was only partly offset by the positive impact of higher gold production for 2013.
All-in sustaining costs for 2013 were $952 per ounce, which is below guidance given in the third quarter 2013 of $1025 per ounce.
Review of Asset Values and Gold Reserves at a Lower Gold Price
Using a $1,300 per ounce gold price to conduct impairment tests has resulted in a non-cash impairment charge of $537.2 million ($436.3 million after tax). The impairments are comprised of $269.2 million ($194.5 million after tax) at the Meadowbank mine, $200.1 million at the Meliadine development project (where the impairment was all related to goodwill), and $67.9 million ($41.7 million after tax) at the Lapa mine.
Gold reserves were calculated using a $1,200 per ounce gold price. This resulted in a 0.7 million ounce reduction in reserves before 2013 production. Reserve life remains robust at approximately 15 years (based on the 2014 production rate) while the average reserve grade has increased by 11% to 3.51 g/t gold from 3.16 g/t gold. Several key properties saw meaningful increases in the average reserve grade: LaRonde from 4.54 g/t to 5.00 g/t, Meadowbank from 2.82 g/t to 3.27 g/t, Pinos Altos from 2.21 g/t to 2.46 g/t and Meliadine from 6.98 g/t to 7.38 g/t.
Quarterly Dividend Declared
Agnico Eagle's Board of Directors has declared a quarterly cash dividend of $0.08 per common share, payable on March 17, 2014 to shareholders of record as of March 3, 2014. The reduction in the quarterly dividend payment reflects current conditions in the gold market and management's decision to conserve cash for longer-term development and growth of its asset base. With the reduction in our dividend payment, cash outflow will be reduced by approximately $20 million per quarter. Agnico Eagle has now declared a cash dividend every year since 1983.
Conversion to International Financial Reporting Standards
Agnico Eagle has decided to convert its basis of accounting to International Financial Reporting Standards ("IFRS") to enhance the comparability of its financial statements to the Company's peers within the mining industry. The Company has commenced the process to convert its basis of accounting from US GAAP to IFRS with a transition date of January 1, 2013. Agnico Eagle anticipates reporting under IFRS for interim and annual periods beginning in the third quarter of 2014, with comparative information restated under IFRS. Additional disclosure regarding the IFRS conversion is included in the Note Regarding Conversion to IFRS section of this news release and will be included in the Company's Management's Discussion and Analysis expected to be filed in March 2014 in respect of the year ended December 31, 2013.
Conference Call Tomorrow
The Company's senior management will host a conference call on Thursday, February 13, 2014 at 11:00 AM (E.S.T.) to discuss financial and operating results.
Via Webcast:
A live audio webcast of the meeting will be available on the Company's website www.agnicoeagle.com.
Via Telephone:
For those preferring to listen by telephone, please dial 416-644-3416 or Toll-free 1-800-814-4860. To ensure your participation, please call approximately five minutes prior to the scheduled start of the call.
Replay Archive:
Please dial 416-640-1917 or Toll-free 1-877-289-8525, access code 4661689. The conference call replay will expire on Friday, March 13, 2014. The webcast along with presentation slides will be archived for 180 days on www.agnicoeagle.com.
Liquidity - Existing Cash and Credit Facilities Provide Flexibility
Cash and cash equivalents increased to $170.0 million at December 31, 2013, from the September 30, 2013 balance of $141.7 million. During the fourth quarter of 2013, the Company drew down an additional $50 million on its bank facilities as part of the normal course of fund flows.
Capital expenditures in the fourth quarter of 2013 were $133.1 million including $28.9 million at Kittila, $17.2 million at Meliadine, $17.5 million at La India, $17.2 million at Goldex, $16.8 million at LaRonde, $16.6 million at Pinos Altos, $8.3 million at Meadowbank, $5.5 million at Lapa, $3.0 million at Creston Mascota, and $2.1 on other Canadian projects. For the full year 2013, capital expenditures totaled $577.8 million, which was below expected levels of $621 million announced in the first quarter news release on April 25, 2013. This decrease in capital spending is a reflection of capital and cost reduction initiatives that have been ongoing through the second half of 2013.
As of December 31, 2013, the Company had drawn down $200 million on its credit lines. This results in available lines of approximately $1.0 billion.
With its cash balances, anticipated cash flows and available bank lines, management believes that Agnico Eagle has adequate funds to advance its pipeline of mine expansion and gold exploration projects in Canada, Finland, Mexico and the USA.
Three Year Plan Outlines Continued Production Growth
The Company is announcing its production and cost guidance for the three-year period of 2014 through 2016. Anticipated production through 2016 is expected to increase by approximately 16% from 2013 levels.
In 2014, payable gold production is expected to be within the range of 1,175,000 ounces to 1,205,000 ounces. Total cash costs per ounce in 2014 are expected to be in the range of $670 to $690. The 2014 guidance reflects anticipated increases in gold production and reductions in total cash cost per ounce guidance over the 2013 forecast for 2014 of 1,120,000 ounces at a total cash cost of approximately $700 per ounce.
Approximate impact on total cash costs per 2014 Commodity and currency price assumptions ounce
| Silver ($/oz) | 20 $1 / oz change in silver price | $3 |
| Copper ($/mt) | 7,100 10% change in copper price | $3 |
| Zinc ($/mt) | 2,000 10% change in zinc price | $1 |
| C$/US$ | 1.11 $0.01 change in US$/C$ | $5 |
| US$/EURO | 1.36 $0.01 change in Euro$/US$ | $1 |
| MXP/US$ | 13.25 1 peso change in US$/MXN | $4 |
LaRonde, Goldex, La India and Meadowbank are Key Production Drivers Over the Next Two Years
At LaRonde, commissioning of the cooling plant is expected to have a positive impact on operating flexibility and production at the mine. Furthermore, as LaRonde ramps up production in the deeper portion of the mine, the Company expects the gold grade at the mine to increase gradually over the course of the year.
Agnico Eagle also expects to have significant production growth from Goldex (due to a full year of operation) and La India (expected to achieve commercial production in the first quarter of 2014).
In 2014, Meadowbank is expected to have strong production in the first half of the year (about 60% of the yearly forecast) as higher grades are sequenced in the mine plan at the Portage and Goose deposits. Strong operational performance is expected to continue in 2015 as well.
In 2015, further production growth is expected from LaRonde and Pinos Altos (due to anticipated improving grades), Goldex, La India and Kittila (due to completion of the mill expansion) with aggregate payable gold production expected to be approximately 1,250,000 ounces.
Estimated Payable Gold 2015 Estimated 2016 Estimated 2013 Actual 2014 Estimated Production Mid-Point Mid-Point Mid-Point
Northern Business
| LaRonde | 181,781 | 215,000 | 245,000 | 285,000 |
| Lapa | 100,730 | 80,000 | 75,000 | 45,000 |
| Goldex | 20,810 80,000 | 100,000 | 90,000 | |
| Kittila | 146,421 | 150,000 | 160,000 | 170,000 |
| Meadowbank | 430,613 | 430,000 | 375,000 | 385,000 |
| 880,355 | 955,000 | 955,000 | 975,000 |
Southern Business
| Pinos Altos | 181,773 | 145,000 | 165,000 | 170,000 |
| Creston Mascota | 34,027 | 40,000 | 40,000 | 40,000 |
| La India | 3,180 50,000 | 90,000 | 90,000 | |
| 218,980 | 235,000 | 295,000 | 300,000 | |
| Total Gold Production | 1,099,335 | 1,190,000 | 1,250,000 | 1,275,000 |
2013 Actual 2014 Estimated Total Cash Costs Per Ounce Mid-Point
Northern Business
| LaRonde | $763 | $671 |
| Lapa | 678 | 850 |
| Goldex | 782 | 799 |
| Kittila | 601 | 759 |
| Meadowbank | 774 | 629 |
732 692 Southern Business
| Pinos Altos | 412 | 532 |
| Creston Mascota | 485 | 754 |
| La India | n/a | 743 |
424* 615 Total $672* $678 *Does not include the cost of non-commercial production from La India and Goldex in 2013, and costs related to the Creston Mascota shutdown in Q1 2013 and the Kittila shutdown in Q2 2013. For 2015 and 2016, total cash costs per ounce are expected to be at a slightly lower level than expected for 2014.
In an effort to provide more transparency, Agnico Eagle is providing guidance with respect to its all-in sustaining costs. In 2013, the Company calculated all-in sustaining costs as:
Total cash cost per ounce of gold produced + sustaining capital expenditures + general and administrative expenses (net of stock options) + exploration and corporate development expenditures (excluding greenfield exploration).
To reflect the full cost of gold production from current operations, development capital for new projects was not included in the calculation. The all-in sustaining cost is divided by the gold production to obtain the all-in sustaining cost per ounce.
Based on the recommendations of the World Gold Council in 2013, Agnico Eagle has modified its calculation of all-in sustaining costs for 2014 to be:
Total cash costs + sustaining capital (including capitalized exploration) + general and administrative expenses (including stock option expense) + reclamation remediation expense.
All-in sustaining costs for 2014 are expected to be approximately $990 per ounce. In 2015 and 2016, the goal is to further reduce the all-in sustaining cost below the level forecast for 2014.
Improvement In the Three Year Gold Production Forecast
Since the prior three-year production guidance of February 13, 2013 ("the Previous Guidance"), there have been a number of key operating developments, resulting in changes to the overall three-year production profile. Descriptions of the major factors that contributed to these changes are detailed below.
Northern Business
| LaRonde Forecast | 2013 | 2014 | 2015 | 2016 | ||||||
| Previous Guidance (oz) | 177,000 | 215,000 | 250,000 | n.a. | ||||||
| Current Guidance (oz) | 181,781 (actual) | 215,000 | 245,000 | 285,000 | ||||||
| LaRonde 2014 Forecast | Ore Milled ('000 tonnes) | Gold (g/t), Mill Recovery | Silver (g/t), Mill Recovery | Zinc (%), Mill Recovery | Copper (%), Mill Recovery | Minesite Cost Per Tonne4 | ||||
| 2,132 | 3.37, 93.2% | 22.8, 65.8% | 0.55, 66.8% | 0.3, 80.1% | C$100 |
_____________________________________ 4 Minesite costs per tonne is a non-GAAP measure. For reconciliation of this measure to production costs, as reported in the financial statements, see "Reconciliation of Non-GAAP Financial Performance Measures"
At LaRonde, the commissioning of the cooling plant late in the fourth quarter of 2013 has helped reduce heat and congestion in the lower part of the mine and has provided additional flexibility in the mining plan. As a result, production from the deeper areas of the mine is expected to ramp up substantially through 2016. In 2014, total cash costs are expected to be slightly lower than last year primarily due to increased gold grades.
| Lapa Forecast | 2013 | 2014 | 2015 | 2016 | ||
| Previous Guidance (oz) | 97,000 | 96,000 | 65,000 | n.a. | ||
| Current Guidance (oz) | 100,730 (actual) | 80,000 | 75,000 | 45,000 | ||
| Lapa 2014 Forecast | Ore Milled ('000 tonnes) | Gold (g/t) | Mill Recovery | Minesite Cost Per Tonne | ||
| 555 | 5.82 | 77% | C$134 |
At Lapa, 2014 and 2015 are the last two years of full production based on the current life of mine plan. Production in these two years is expected to decline due to lower grades. The Company expects that the Lapa mine will only operate for a portion of 2016. Additional exploration results from the Zulapa Z8 zone could extend the mine life through 2016.
| Goldex Forecast | 2013 | 2014 | 2015 | 2016 | ||||
| Previous Guidance (oz) | 15,000 | 49,000 | 85,000 | n.a. | ||||
| Current Guidance (oz) | 20,810 (actual) | 80,000 | 100,000 | 90,000 | ||||
| Goldex 2014 Forecast | Ore Milled ('000 tonnes) | Gold (g/t) | Mill Recovery | Minesite Cost Per Tonne | ||||
| 1,898 | 1.42 | 92.4% | C$37 |
The Goldex mine successfully started operations at the M and E zones in the fourth quarter of 2013. The increase in production over previous guidance levels, largely relates to the earlier than expected start-up of the mine and to an expected increase in throughput from 5,500 tonnes-per-day (tpd) in the fourth quarter of 2014 to 6,000 tpd in 2015. A portion of the additional tonnage is forecast to come from the proposed development of the MX and E2 satellite zones. Minesite costs per tonne are expected to remain stable or to slightly decline with the higher expected throughput rates. Exploration is continuing on several other satellite zones, including the deeper D zone, which has the potential to extend the mine's life.
| Kittila Forecast | 2013 | 2014 | 2015 | 2016 | |||
| Previous Guidance (oz) | 165,000 | 165,000 | 160,000 | n.a. | |||
| Current Guidance (oz) | 146,421 (actual) | 150,000 | 160,000 | 170,000 | |||
| Kittila 2014 Forecast | Ore Milled ('000 tonnes) | Gold (g/t), | Mill Recovery | Minesite Cost Per Tonne | |||
| 1,067 | 4.9 | 89.3% | €78 |
At Kittila, steady production growth is expected over the next three years. In 2014, there is a gradual return to reserve grade (4.64 g/t gold) once the remaining higher grade portions of the Suuri pit pillar are extracted. The 750 tpd mill expansion, which is expected to increase the throughput capacity at the mine to 3,750 tonnes per day, is expected to be completed by the middle of 2015. Increased throughput from the mill expansion is expected to offset the expected decline to reserve grade.
Minesite costs per tonne in 2014 are expected to increase slightly over 2013 levels, but these costs are expected to be reduced with completion of the mill expansion. Additional details on the expansion can be found in the Kittila operating review section of this news release.
| Meadowbank Forecast | 2013 | 2014 | 2015 | 2016 | ||||
| Previous Guidance (oz) | 360,000 | 367,000 | 350,000 | n.a. | ||||
| Current Guidance (oz) | 430,613 (actual) | 430,000 | 375,000 | 385,000 | ||||
| Meadowbank 2014 Forecast | Ore Milled ('000 tonnes) | Gold (g/t), | Mill Recovery | Minesite Cost Per Tonne | ||||
| 4,156 | 3.45 | 93.3% | C$73 |
In the third and fourth quarters of 2013, mining encountered higher than expected grades in the Portage and Goose pits, which resulted in gold production being well above expected levels. Initiatives undertaken in the fourth quarter of 2013 have resulted in a re-interpretation of the Meadowbank block models, which have largely driven an anticipated 16% improvement in the reserve grade to 3.27 g/t gold. The Company expects to continue to encounter higher-grade mineralization in the first half of 2014, which it believes will be a key driver for production for the year. In succeeding years, the increased production levels over previous guidance are being driven by higher expected reserve grades and the ability to maintain throughput levels in excess of 11,000 tpd.
Southern Business
| Pinos Altos Forecast | 2013 | 2014 | 2015 | 2016 | |||
| Previous Guidance (oz) | 159,000 | 136,000 | 161,000 | n.a. | |||
| Current Guidance (oz) | 181,773 (actual) | 145,000 | 165,000 | 170,000 | |||
| Pinos Altos 2014 Forecast | Total Ore ('000 tonnes) | Gold (g/t) Recovery | Silver (g/t) Recovery | Minesite Cost Per Tonne | |||
| 1,945 | 2.45, 94.7% | 73, 44.8% | $61 |
At Pinos Altos, the new production forecast for the three year period 2014-2016 is higher than previously estimated, as a result of expectations that the strong operating performance in 2013 will continue and support higher mill throughput. Year-over-year variances in guidance for 2014 and 2015 are attributable to mine sequence and ore grade, and higher mill throughput.
| Creston Mascota Forecast | 2013 | 2014 | 2015 | 2016 | |||
| Previous Guidance (oz) | 32,000 | 52,000 | 55,000 | n.a. | |||
| Current Guidance (oz) | 34,027 (actual) | 40,000 | 40,000 | 40,000 | |||
| Creston Mascota 2014 Forecast | Total Ore ('000 tonnes) | Gold (g/t) Recovery | Silver (g/t) Recovery | Minesite Cost Per Tonne | |||
| 1,563 | 1.3, 61.2% | 13.4, 7.2% | $20 |
Operations at Creston Mascota resumed in April 2013 after a temporary suspension for leach pad modifications. Production since this resumption has met Company expectations and was in line with guidance. The lower annual production from 2014 through 2016 is a reflection of anticipated lower ore grades. Construction on the Phase 3 leach pad at Creston Mascota is expected to be completed by the end of March 2014. Minesite costs in 2014 are expected to be higher due to the commissioning of an agglomerator, higher strip ratios and the startup of the Phase 3 pad.
| La India Forecast | 2013 | 2014 | 2015 | 2016 |
| Previous Guidance (oz) | n.a. | 40,000 | 81,000 | n.a. |
| Current Guidance (oz) | 3,180 (actual) | 50,000 | 90,000 | 90,000 |
| La India 2014 Forecast | Total Ore ('000 tonnes) | Gold (g/t) Recovery | Silver (g/t) Recovery | Minesite Cost Per Tonne |
|---|---|---|---|---|
| 3,173 | 0.84, 58.2% | 3.6, 21.8% | $12 |
Pre-commercial production at La India in 2013 was 3,180 ounces of gold. The Company expects that production will continue to increase at La India for the next several months as the active leach pad area expands and solution volumes increase to steady state operating levels. Crushing plant throughput continues to increase, and stacking rates are currently averaging approximately 12,000 tpd. Commercial production is anticipated at La India in the first quarter of 2014. Production guidance for La India has been increased slightly over last year's guidance due to the mine's earlier than planned startup. Operating costs in 2014 are forecast to be higher than in subsequent years due to the production increase.
Continued Capital Discipline Expected in 2014
At current spot input prices, Agnico Eagle expects to fund this year's capital expenditures, which are estimated to total approximately $416 million, from operating cash flow. The Company's goal is to continue to work at reducing capital expenditures in order to generate more free cash flow.
The estimated capital expenditures for 2014 include approximately $227 million of sustaining capital at the mines and $166 million on new projects and expansions, as set out in the table below. Additionally, approximately $23 million is estimated to be spent on capitalized exploration and approximately $51 million on expensed exploration, project evaluation and corporate development. Capital expenditures in 2015 are expected to decline slightly from 2014 levels.
Estimated 2014 Capital Sustaining Development Capitalized Expensed Expenditures Projects Exploration Exploration
(millions of $)
Northern Business
| LaRonde | 68 | 13 | 1 | |
| Lapa | 16 | 3 | 1 | |
| Goldex | 16 | 13 | 2 | |
| Kittila | 56 | 65 | 4 | 3 |
Meadowbank 34 Meliadine 42 5 3
190 133 15 7
Southern Business
| Pinos Altos | 29 | 29 | 3 | 1 |
| La India | 2 | 4 | 4 | 3 |
| Creston Mascota | 6 | 1 | ||
| 37 | 33 | 8 | 4 |
Project Eval/Corp Dev 21 Other Exploration 19 Total Expenditures $227 166 23 51
Development/Expansion Projects - Future Optionality with Low Capital Commitment
The current three year plan sets out estimated annual gold production which increases each year through 2016 to approximately 1,275,000 million ounces. However, these forecasts do not include the expansion and development projects set out below, which have not yet been approved for construction.
Kittila - Production Shaft and Rimpi Zone Development
A study is underway to consider the construction of a production shaft at Kittila. This shaft would provide operating cost savings and sustain long-term production at higher throughput levels from multiple zones, especially at depths below 700 metres. A shaft would also provide access for exploration and infill drilling. In addition, a study is underway to evaluate the feasibility to develop the Rimpi Zone as a potential ore source.
Meliadine - Ramp Extension provides Development Flexibility
Located near Rankin Inlet, Nunavut, Canada, the Meliadine project was acquired in July 2010, and is one of Agnico Eagle's largest gold projects in terms of resources. The Company owns 100% of the 65,000hectare property.
Activities in 2013 included infill and step-out diamond drilling, road construction, ramp development, permitting, camp operation and work on an updated technical study.
The 2013 exploration program was completed in August with a total of 79,959 metres drilled. Drilling was focused around known deposits (Tiriganiaq, Wesmeg/Normeg, F zone, Pump and Discovery) and on regional exploration targets.
Highlights of the program include new deep intercepts that have revealed potential to expand the Pump, F zone and Discovery deposits. Drilling has also delineated higher-grade shoots within the Wesmeg deposit, similar to those in the Tiriganiaq and Normeg deposits. These results were incorporated into the year-end 2013 reserve and resource statement (see below). Despite using a lower gold price in 2013, the reserve grade at Meliadine increased to 7.38 g/t from 6.98 g/t.
Construction of a permanent portal with upgraded infrastructure for the exploration ramp was completed in the fourth quarter of 2013. A significant portion of the 2014 Meliadine capital budget (approximately $42 million) is scheduled to be dedicated to further ramp development. The ramp would allow for costeffective exploration and conversion drilling of the deeper parts of the Tiriganiaq and Wesmeg/Normeg zones, which should provide a better understanding of the ore zones and help to optimize potential mining plans. Extension of the ramp would also keep the development time line on track for a potential late 2018 start up if the Company determines to build a mine at Meliadine. A portion of the 2014 budget is allocated to exploration and resource conversion drilling.
An updated technical study is progressing with completion expected in late 2014. The timing of estimating or making capital expenditures on the project beyond 2014 will be subject to Board approval and prevailing market conditions.
Additional Satellite Potential Being Evaluated at Goldex
At the Goldex mine, studies are continuing on the evaluation of other satellite zones including the Deep (top of the D Zone) and the P Zone. These zones could have synergies with the potential development of the Akasaba West deposit (see below), which could enhance production levels or extend the current mine life and reduce operating costs.
Akasaba West - Could Provide Future Mill Feed to Agnico's Abitibi Facilities
In January 2014, Agnico Eagle acquired the Akasaba West gold-copper deposit from Alexandria Minerals (AZX:TSXV) for C$5.0 million and a 2% NSR royalty on any gold production exceeding 210,000 ounces. Located less than 30 km from Goldex, the Akasaba West deposit could potentially create flexibility and synergies for the Company's operations in the Abitibi region by utilizing extra milling capacity at both Goldex and LaRonde, while reducing overall costs.
In 2014, $2.3 million is scheduled to be spent on infill drilling to verify the known mineralization and move the project towards feasibility and permitting.
Gold Reserves - 16.9M Ounces with 11% Improvement in Grade
With the recent downturn in commodity prices, the Company has used lower commodity price assumptions to calculate 2013 year-end reserves ($1,200/oz gold and $18/oz silver).
At year-end 2013, the Company's proven and probable gold reserves (net of 2013 production) totaled 149 million tonnes grading 3.51 g/t gold, containing 16.9 million ounces of gold, a decrease of 1.8 million ounces from 2012 levels (including 2013 production of approximately 1.1 million ounces). Despite the decline in overall reserves, the average reserve grade increased to 3.51 g/t gold, which is a considerable increase over last year's grade of 3.16 g/t gold.