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Agnico Eagle Mines Ltd (AEM) Q1 2021 Earnings Call Transcript | The Motley Fool

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Agnico Eagle Mines Ltd (NYSE:AEM)
Q1 2021 Earnings Call
Apr 30, 2021, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Rain, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle First Quarter Results 2021 Conference Call. [Operator Instructions] I would now like to turn the call over to Chief Executive Officer, Mr. Sean Boyd, You may begin your conference.

Sean BoydVice-Chairman & Chief Executive Officer

Thank you, operator, and good morning, everyone, and welcome to our First Quarter 2021 Results Conference Call. We’re moving through our slide deck, and in that slide deck will be forward-looking information. So please review the cautionary language that is in our PowerPoint material. What I’d like to do is just review a bit of the sort of an overview of the strategy, touch on the progress we’re making on ESG, in greenhouse gas emission and what our plans are there going forward in terms of additional investment, particularly in the north; review the results of the quarter; talk about our exploration, which is a real push for us with a huge increase in our budget this year. So if we look at the quarter, again, we essentially were able to build off the momentum and strength that we saw in the second half of 2020 with the second consecutive quarter of record gold production. We did that strong operational performance with probably the most employees we’ve ever had and extremely good safety performance.

So not only we’re producing more gold, we’re doing it very safely. Our costs were slightly better than forecast in the quarter. Financial position remains strong. We’ve declared a cash dividend again. So that keeps our track record going. We’ve been paying, as you know, a cash dividend since 1983. The focus continues to be on growth and execution of our brownfield opportunities and project pipeline. We’re still looking for 24% growth in production from last year out through 2024. As we said, we’ll touch on exploration. It’s a big part of the story. In terms of gathering information on the brownfields opportunities, we’re seeing extremely good results at LaRonde, good results at Meliadine. We featured some results here at Canadian Malartic and Hope Bay. We’ll talk a little bit more about that. We plan to have a more fulsome exploration update later on in the second quarter. What we decided to do is not pile it all into a quarterly release like we did last time.

There was just too much information last February. So we’ll be able to break it down and provide some forums with our exploration team to be able to discuss the progress we’re making on exploration in a number of areas. Having said that, Guy Gosselin, who runs our exploration group, has been with us for 20-plus years, is on the call here, and he’s available to answer questions on exploration. So no change in the strategy. It continues to be focused on optimizing the existing assets through taking advantage of the ability to convert more resource to reserve, extending the mine lives of our key mines. That’s a low-risk, high-quality strategy given that those are high-quality ounces near existing infrastructure. And also, we continue to be focused on ESG. We score very well on ESG. We’re recognized as one of the leaders in the industry in terms of ESG by a number of external independent rating agencies and research agencies on ESG. We put out our sustainability report. Our Annual Meeting is today. So we make that available around Annual Meeting time. So that is out today, and we’re adopting a net 0 emissions target for 2050, and we’ve begun the disclosure of Scope three emissions. We’re fortunate. And we look at our business because a lot of our production is powered by electricity, over 50% of our production.

So on a relative basis, we have very, very low greenhouse gas emission intensity within the peer group. In Nunavut, we are required to use diesel to power those mines. So as we move forward to achieve our targets of reducing and getting to net 0, that will require investments in renewable energy. And we’re — as we’ve talked many times before, we continue to work with the governments on alternatives like wind power and also a power line from Northern Manitoba up into Nunavut. In fact, at Hope Bay, the government has given the OK for a wind turbine there. We still have some work to do on that. So we have made some pretty good progress there. We talked about safety earlier, continues to be a priority. We have achieved one of the lowest combined lost time accident records in our history, and we continue to win a number of safety awards at several of our mines. One of the highlights, though, over the last year, it’s been challenging for many, but our teams have really stepped up in the communities. They’ve done a real professional job, a real classy job of not being asked to help but stepping up and taking the initiative to provide food in certain areas, to provide medical assistance in certain areas.

As you know, our Nunavut workforce is still at home. It’s been over a year. We’re getting closer as more vaccinations are being put into people’s arms. In Nunavut, they were able to start the vaccination program there earlier. So we’re getting to the — we’re getting closer to the point where we can welcome our Nunavut-based employees back, and we look forward to having them back. As far as the quarter goes, record production for the second consecutive quarter, as we said. Without Hope Bay, it was 505,000 ounces, which is a record. That sets us up nicely to beat our guidance but also to produce two million ounces for the first time in our history, over two million ounces. That’s over 300,000 ounces more than we produced in 2020. So we continue to make very good progress. Our capex estimate continues at a little over $800 million, and we talked about the declaration of a quarterly dividend of $0.35 a share. As we look at the quarter, we’re pleased and happy to be delivering strong cash flows, strong earnings, good cost, record production. I think the real value driver, though, is — continues to be exploration. We saw the beginnings of this about a year ago at several projects.

We highlighted, as we said, a few of our exploration results in the quarter in this release. East Gouldie, the extensive step out there, is potentially significant because essentially, what East Gouldie has done is turn what was a very marginal underground project into what will become Canada’s largest underground gold mine, which we announced last February. We have always said from the start that given the location of East Gouldie in a totally different rock package than what the main structure is along that main break in that region, it opens up potential. And we have over 20 kilometers of ground covering that major structure. So to have a step-out over 1,000 meters to the east is important. We believe it just demonstrates the immense potential of that area to find additional gold. And as you recall in our study, which we put out in February, we only assumed that we would mine about seven million ounces of an overall envelope, which is currently known to be in excess of 14 million ounces. And here, we have a step-out 1,000 meters to the east of the East Gouldie mineralized envelope. So that’s why we view it as potentially significant. It’s close to the boundary of the Rand Malartic property, which we acquired a couple of years ago.

That’s a property where there is a 2% NSR but we have the ability to buy it all back for, I think, $7 million. So we just like that area. And I think as you recall, we said many times, one of the reasons that we got involved in this back in 2014 is the fact that we were on that — in that region for decades, and we felt that there was the potential for significant underground opportunity, and that’s unfolding as we had hoped. So stay tuned for more results there. At Hope Bay, steady pace of work. We’ve got our team in place from Agnico that’s augmenting the team at Hope Bay. We’re making improvements in the operations.

They are focused on the Doris deposit. Exploration is largely focused on Doris. We think we can extend that part of the operation while we continue to drill Madrid and the Boston deposits. And at Upper Beaver, we had the best reported drill hole intersect ever on that property, over 60 grams, almost 1% copper, a little over 16 meters at a depth of 1,200 meters. So we continue to drill and work on our analysis of the Hope Bay — of both the Hope Bay and the Upper Beaver opportunity. The next slide is really just a long section of Canadian Malartic. There’s 10 rigs going, $30 million program, split 50-50 with our partner, Yamana. As we said, the structure is wide open and covers 20 kilometers. You can see on the right, the Rand Malartic property boundary. That’s a property that hasn’t had much exploration on it, and that’s why we say the structure is totally wide open.

And that will be a main focus of our exploration program because it’s the thickness and grade of East Gouldie, which really drives the entire Odyssey underground mine opportunity. We also see on the next slide a long section of the Doris deposit, the Hope Bay mine. Just to remind you, the program is $16 million, approximately 70,000 meters of drilling. About 30,000 meters of that is delineating Doris. And 40,000 meters, we’ll be exploring targets around Doris, Madrid and Boston. From an operational perspective, we see improvement in recoveries at Hope Bay to over 90%. So step by step, making it a bit better. But the real prize we feel here is the two large geological belts, 80 kilometers long. It’s going to take some time to drill them. We’re not in a hurry here. While we optimize an approval we have at Doris, we’ll be really focused on what is the overall size of the mineralized deposits on these two large trends. And that will form the basis for our analysis to look at how we can expand the production capacity at this operation at some point in the future. As far as operating results, we got really good contribution from several of our big producers.

We’ll start with LaRonde. The key to the quarter was really excellent productivity in the West Mine area and at LZ5. At the West mine area, we were able to produce more than our forecasted mining rate as we did also at LZ5. In LZ5, we had record production averaging over 3,100 tonnes a day, which was well above the forecast. And that was really driven by ongoing improvements and optimizing the usage of automated equipment. And we’re also seeing that at the main LaRonde deposit. We continue to make steady progress, as we said, at LaRonde. 26% of the mucking was done from surface at the LaRonde deposit. And at LZ5, 21% of the production mucking was automated, hauling done from surface. So good, solid progress there. We continue the exploration program. We’re going — we’re developing three exploration drifts to explore areas below LZ5 from one kilometer to three kilometers below surface, which essentially Barrick and Lac, prior to that. We didn’t do much exploration on. That’s the same rock package. It’s hold sold the deposits on LaRonde, so it’s wide open. So excellent exploration potential. And that type of program is really a key component of our full potential program to understand how we can continue to optimize these large cash flow generators and extend the mine lives. And we see potential to do that at several of our mines, including LaRonde. Goldex, steady progress, 35,000 ounces, good cost performance, largely driven by the continued outperformance of the Rail-Veyor system.

It was above target at over 7,000 tonnes a day on average in the quarter. So that technology, the teams have done an excellent job in not only looking at how they can apply it at Goldex, but actually ramping up and improving its productivity. We continue to explore that deposit, particularly around the South Zone, which is higher grade. So good solid performance coming out of Goldex. At Canadian Malartic, again, good contribution, producing almost 90,000 ounces or half of that operation. We had record tonnes mined in January. Mill performance was above target, averaging over 58,000 tonnes a day on a 100% basis. So good performance there. We talked about the Odyssey drilling, and that will be a key part of this project as we look forward. What we saw in February, as we said at the time, was basically what we would call the first cut. This will be optimized continually as we go forward, particularly as we understand how much gold exists in Pontiac’s sediments, which host the East Gouldie deposit. So this could have a meaningful impact on the valuation of that opportunity in Canadian Malartic. Kittila set records in March for monthly gold production and tonnage milled. They’re also making good progress on autonomous production both in drilling and haulage. Trials were under way in Q1. That will be important for that mine as it looks to expand further. We are impacted by COVID there in terms of the Kittila shaft and delays there because the team that was doing the work is out of country. And so there are travel restrictions going in and out of Finland, which has held us back.

We’ve been transitioning into local employees there. That doesn’t really impact our ability to do the ounces because we can simply take them from the ramp system. It’s just a little bit more costly to be using the ramp. But we’ll get the shaft in place second half of next year, about six months behind schedule. Meadowbank, steady improvement, produced about 80,000 ounces They set a record in March for long-haul trucking performance. So good, steady, solid improvement there with good production coming, particularly in March, which allowed them to post a quarter of about 80,000 ounces. At Meliadine, when you add in the Tiriganiaq ounces, Meliadine produced more gold than any of our other lines for the first time, producing 96,000 ounces. So we have made major advances in terms of productivity. We processed 4,600 tonnes a day, which was the target over the last year or so, gradually working up to that target. We expect to be at 4,800 tonnes a day by the fourth quarter of this year and ultimately continue to expand to 6,000 tonnes a day by 2025. This is another project which will be long life.

We have continued to explore it, starting exploration drilling back about 18 months ago once we got into commercial production. We continue to get good intersections at Pump South and Wesmeg, which indicate that the deposit continues to be wide open at depth as we drill it. So in Mexico, steady performance, good cash generation there. La India, a little bit of an issue with water. We would expect to be able to ramp up production in the second half of the year there. But when you add it all up, pre-Hope Bay, 505,000 ounces approximately, which was a record. That generated good earnings, good cash flow per share of $1.47, which is a strong quarter. Our financial position remains strong. We paid cash for Hope Bay, including the buyback or buy-down of the royalty that was on that property. So as we move forward, we’ll continue to rebuild that cash position as we generate strong net free cash flow. So just a quick summary. As we said, second consecutive quarter of record production.

We continue to be focused on delivering the growth of 24% from last year out through 2024 as we focus on brownfield opportunities and our project pipeline. As we get more information on these opportunities through our expanded exploration budgets, we can provide updates on that. Our focus is still on low geopolitical risk regions. We think that’s extremely important as we look at the business going forward. These are places we’re very comfortable being in. We’ve operated in them for a number of years. A big part of our strategy is synergies and being able to transfer technology but also knowledge and experience between these operations to help keep our costs down but also to help us understand new opportunities that we find through exploration and how we build them into the project pipeline. So I think what I’ll do, operator, is open the line for questions. We’ve got our full team here, and we’d be happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Fahad Tariq from Credit Suisse. Your lines open.

Fahad TariqCredit Suisse AG — Analyst

Hi, good morning. Thanks for taking my 2 questions. Maybe first on Nunavut. You talked about, in the release, at least starting to have discussions with local authorities about reintegrating the local workforce. Can you remind us what that would mean from a cost perspective? I know there’s a number of initiatives that Agnico spent on while those employees were unavailable. But as they come back, can you just remind us from a quarterly basis what that means from maybe a cost savings perspective?

Ammar Al-JoundiPresident

Hi, Tariq. It’s Ammar here. We will end up saving money when they come back. As I think we’ve expressed before, the additional cost — we’re still paying those employees 75% of their salaries. So that works out to about $1 million a month. There’s a lot of work that’s gone into transitioning them back, mostly about safety for the communities as well as the employees. But yes, there will be a savings of about $1 million amount as they come back into the workforce.

Fahad TariqCredit Suisse AG — Analyst

Okay. And then — I’m sorry, just a follow-up on cost as well. So I know one of your peers talked about like the stronger Canadian dollar having an impact on, obviously, the Canadian exposure or Canadian exposed costs operations, 32% of your exposure, I think, in 2021. Any color on — if FX rates stay where they are today,for the rest of the year, what does that mean for maybe annual cost guidance, including capex?

Ammar Al-JoundiPresident

Yes. On — it’s about — sorry. Dave, did you want to take that? Or should I take it?

David SmithSenior Vice President of Finance & Chief Financial Officer

Go ahead, Ammar.

Ammar Al-JoundiPresident

Okay. It’s about — as you mentioned, it’s about 32% hedged. The sensitivity we’ve been able to offset, obviously, you saw in the first quarter. We dealt with that. The dollar right now is — was averaging about 1.26 versus our budget of 1.30. So we were more than able to offset that. But it is something that we’re on top of all the time with regards to mitigating it. Right now, we haven’t adjusted our guidance even with the movement in the currency.

David SmithSenior Vice President of Finance & Chief Financial Officer

I would just add — sorry, Sean, what were you going to say?

Sean BoydVice-Chairman & Chief Executive Officer

No, I was just going to turn it over to you, maybe just give some color on your thoughts on hedging and what’s in place.

David SmithSenior Vice President of Finance & Chief Financial Officer

Yes, absolutely. Thanks for the question, Fahad. It’s an interesting time because with the Canadian dollar lower than 1.23 at the moment and the guidance was set at 1.30, you get into the interesting situation where you probably end up trying to protect things like 1.28 that you probably wouldn’t have considered previously. But there does seem to be some strength in the Canadian dollar. The Canadian government is making some noise about raising interest rates. The U.S. government is not making noise about raising interest rates. So I think that has contributed to the strength of the Canadian dollar. And one of the things we just talked about a couple of days ago was to perhaps use some more exotic instruments to try and benefit the company but pay a little bit more attention to the volatility and really pick our moments here. Because we — with the addition of TMAC, I would say we’re feeling a little bit underhedged. We would normally be around 50% hedged for the current — for CAD on the year at this point. And so it’s something that we’re looking to add to opportunistically. And I think there’s always volatility. So I believe we’ll get our chance.

Fahad TariqCredit Suisse AG — Analyst

Okay great. Thanks for the color.

Sean BoydVice-Chairman & Chief Executive Officer

Thanks.

Operator

Your next question comes from Tyler Langton from JPMorgan. Your line is open

Tyler LangtonJPMorgan Chase & Co — Analyst

Good morning. Thanks for taking my question. Just a follow-up question on costs. I mean are you seeing — outside of the exchange rate pressures, are you seeing anything with sort of labor, labor tightness, like other materials? Just any concerns there for the cost guidance?

Sean BoydVice-Chairman & Chief Executive Officer

I’ll start, and then I’ll turn it over to Dominique Girard. In terms of labor tightness, that’s been pretty stable in terms of what we see as sort of annual increases in our wage costs, particularly in Canada, which is the biggest part of our business, which has been sort of 3% or so a year. We don’t see any sort of pressure on that as we look forward. As far as inputs, I’ll turn that over to Dominique Girard who’s on the call on the input price side.

Dominique GirardSenior Vice President of Operations Canada & Europe

Yes. We start to see some increase of, let’s say, in the coming time, mainly steel, concrete and also tires. But what we’re doing, our procurement team is well attuned on that and tried to take some opportunity on that. Let’s say, when we give a contract, people start to be hesitant a bit to give a price because it is really volatile. So far, price are still into our range. But again, this is — as everybody have the situation in our own life, that we see pressure coming. And maybe on the workforce, as Sean mentioned, this is still well. We’re in good position, except on the drillers where we see a bit more competitivity into Canada and Europe. But other than that, this is still OK.

Tyler LangtonJPMorgan Chase & Co — Analyst

Okay. Great. And then just I think the cash costs in the quarter was around $628 an ounce, and I think that’s a decent amount below the annual guide of around $730, $740. Can you just talk about, I guess, what — and you talked about good productivity. But was there anything else in the quarter and just kind of how you think about costs for the remainder of the year at the mine?

Dominique GirardSenior Vice President of Operations Canada & Europe

Well, on cost per ounces, we produce more ounces. So that’s the main driver. We have a better grade into the mines with a good productivity. I think an interesting look at the cost, if you look to the — I think it’s Slide maybe 17 or 18, where you see the Nunavut operation cost per tonne in Canadian going down. So that trending is still continuing with the, let’s say, optimization at sites, more productivity, better control on costs. I think we’re going to just continue to see that in the coming quarters.

Tyler LangtonJPMorgan Chase & Co — Analyst

Okay. Great. Thanks so much.

Operator

Your next question comes from Anita Soni from CIBC World Market. Your line is open.

Anita SoniCIBC Capital Markets — Analyst

Question on cost — on the unit costs. Across the board, the unit costs seem to have been better than what you had put out for guidance in February. Can you just give me a like rundown some of the assets and some of the main drivers and try to get us to — get me to understand why those costs would maybe revert to what you were guiding to? Or do you expect those unit costs to continue to outperform?

Sean BoydVice-Chairman & Chief Executive Officer

Well, maybe I’ll start. And as Dominique said, a lot of it was a few more ounces in the quarter, which certainly helped from a unit cost perspective. But in terms of the drivers, we will see some impact on FX. I think some of the input prices we can offset just through productivity. Will we be able to lower that cost guidance? I wouldn’t think so, given that the FX continues to be volatile and unknown to us. So that’s why we felt that it was sort of premature to make any sort of longer-term call or extend our view on the cost performance going out. We do have opportunities at some of the mines to produce a bit more gold. We’ll see how that unfolds as we get through the next quarters. As we said in the release, Q2 is a bit less. We have planned shutdowns at LaRonde, Goldex. Kittila had some work being done as well, Meliadine. So there’s several of the operations that are down for a few days, which puts a little bit lower production in Q2, but that comes back strongly in the second half. So if you look at achieving the guidance, we’re looking for really strong Q3, Q4 from an ounce perspective. So that will help the unit costs at the back end of the year.

Anita SoniCIBC Capital Markets — Analyst

Okay. So maybe on the Canadian dollar costs, they would be the same. But if we’re looking at the U.S. — with the stronger dollar, the overall per ounce guidance on U.S. dollars would be the same. And then second question would be with respect to the TMAC acquisition. So the Hope Bay — I noticed you had some pretty good grades for TMAC. I mean I had the pleasure of covering that before you bought them out. So 10.8 gram per tonne material is pretty good grades. What can we expect? Is that like similar with similar throughput levels? Or will it be variable with variable throughput and variable grade?

Sean BoydVice-Chairman & Chief Executive Officer

Dominique, can you handle that one?

Dominique GirardSenior Vice President of Operations Canada & Europe

Yes. I could take that one. The throughput is, let’s say, between 600 tonnes per day to 700 tonnes per day. And the grade is going to vary, I don’t know, 9, 10 grams per tonne, which bring us to the 18,000 to 20,000 ounces per quarter. In the first part of the — let’s say, in the first quarter, we were more in the BTD Zone, which is more higher grade. Through the year, we’re going to move to the DCN Zone, which I think it’s around 7, eight grams per tonne zone, so a bit lower grade but with a bit more tonnes. So that’s really the plan. It is honestly very interesting grade. And it’s good to see progress at the mill, reaching 91% recovery in the first quarter. We’re a bit higher than that Q2 up to date. Let’s see if we could maintain that, but that’s interesting. And if the mine is able to produce more with optimization, we have room at the mill. So it’s encouraging to see the continuous improvement there.

Anita SoniCIBC Capital Markets — Analyst

And then just to follow up on that, the development work, when do you expect like the capital levels that you were spending this quarter that was probably maintained for the course of the year? I think I saw in your guidance, but as we move forward into next year and the year after, when will you have to invest to really get — to continue to produce these ounces?

Dominique GirardSenior Vice President of Operations Canada & Europe

You mean in 2021 or?

Anita SoniCIBC Capital Markets — Analyst

Like looking into 2022, 2023. Should we expect a similar capital levels for going in longer term?

Dominique GirardSenior Vice President of Operations Canada & Europe

I don’t have answer to that question yet. The team is revising a new base plan because now we’ve put the Madrid orebody in care and maintenance. We’ve postponed that. That’s have helped for the capex because we avoid some costs at the short term. We still need to do some thinking to really put the right position for the ramp in the infrastructure. And from that new baseline, which is going to be ready in 2022, we’re going to have a better view. of — I think in Q2, we’re going to have a better view. But — so the spending right now is approximately $10 million per quarter, I believe, that we’re doing in terms of capex at Hope Bay.

Anita SoniCIBC Capital Markets — Analyst

Okay. Thank you for answering my question.

Sean BoydVice-Chairman & Chief Executive Officer

Yes. Anita, just on the strategy there, the strategy is sort of be cash-neutral on that as we drill and get more information. What we think, based on what we’ve seen so far, is we think there’s more at Doris, so that would extend Doris longer. As we said, we’ve stepped back at Madrid because we just don’t like the location of the ramp, particularly at the type of rock it’s in. So it’s required us to sort of rethink that. But again, as we’ve said, we’re not in a hurry — we’re in a hurry to drill it and to understand it, but we’re not in a hurry to ramp up capex. We just see this thing as very, very long term. We’re going to find more ounces there. So we’re going to take our time in terms of next big steps. But in the meantime, if we can keep it sort of cash-neutral and keep those drills turning, that’s a good objective for us.

Anita SoniCIBC Capital Markets — Analyst

Yes. I mean it looks like the focus would be on finding similar grades and more ounces there rather than necessarily improving the mill that’s running at 91%.

Sean BoydVice-Chairman & Chief Executive Officer

Yes.

Anita SoniCIBC Capital Markets — Analyst

Okay. Thank you.

Sean BoydVice-Chairman & Chief Executive Officer

Thank you.

Operator

Your next question comes from Puneet Singh from Industrial Alliance. Your line is open.

Puneet SinghIndustrial Alliance Securities Inc. — Analyst

Thanks. Good morning. Just related to Q2, are there any higher grade stockpiles that you already have at some of these assets that could potentially lower the impact of maintenance in Q2?

Sean BoydVice-Chairman & Chief Executive Officer

Dominique?

Dominique GirardSenior Vice President of Operations Canada & Europe

Yes, not really. We don’t — usually, when we have high-grade stockpile, we process them. We don’t wait for that. And let’s say, the shutdown in Q2 are there question of mill liners wearing that — it’s their lifetime is done. There is a shutdown at Kittila for the other plate where we need to do a dentist job because the scaling is built up. We need to clean it. It’s a 10-day shutdown. There’s one at the LaRonde, it is also a 10-day shutdown where we do more in-deep electrical maintenance. We use that season, that part of the year because it’s a better season to do it and also it’s prior to summer holiday. So strategically, it happens that we have more shutdown in Q2, but that’s normal operation. We’re going to see Q2 — the second half of the year better grade at LaRonde — not at LaRonde, at Meadowbank and also a good productivity everywhere. And that’s going to be a better second half, but it’s just a question of timing.

Puneet SinghIndustrial Alliance Securities Inc. — Analyst

Okay. Great. And at Meadowbank, you did really well this quarter and you’re calling for a similar production rate next quarter. Do you think you’ll still have some of that softer ore helping you next quarter? How should we think about that?

Dominique GirardSenior Vice President of Operations Canada & Europe

Yes. Let’s see, the mine is better — is producing better than planned, and the mill is also able to process more. Part of that is related to that soft ore. Part of that is related to the very good performances on maintenance availability and operation productivity. So we — there’s opportunity to do better. The — let’s say, the bottleneck remains the hauling in between the 2, the mine and the mill. We saw record numbers in March at 11,000 tonnes per day. So there’s also four other trucks coming on the barge. So that’s going to give us more flexibility for the second half of the year. If we’re able to do more transportation, there’s opportunity to do more tonnes.

Puneet SinghIndustrial Alliance Securities Inc. — Analyst

Okay. Great. Those are all my questions, thank you.

Operator

Your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open. Again, your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open.

Sean BoydVice-Chairman & Chief Executive Officer

Hello John?

Operator

At this time, that question has been withdrawn. Your next question comes from Greg Barnes from TD Securities. Your line is open.

Greg BarnesTD Securities Equity Research — Analyst

Thank you. Sean, just a big step out of Malartic, East Gouldie. Does that potentially change your development approach underground and where you would orient mining?

Sean BoydVice-Chairman & Chief Executive Officer

Yes. I think it’s too early. I’ll let Guy in a minute just to give you his color on what we’re seeing. I think that what we do know there is that there’s tremendous capacity in the plant once we transition into an underground. So I think we need to drill the Pontiac sediments and see if there’s — East Gouldie is bigger, if there’s another repeat of something like East Gouldie. If it’s on non royalty ground, then certainly, the economics could be better. So this could be — I don’t know, it’s early. It could be something like the LaRonde area, where we have multiple shafts over 20 years. So we don’t know. It’s too early. But I think when you see something like this, I think our experience tells us, you pay attention, you follow it up and you understand it and then you try to factor it in for additional development. And so I think when we look at Kittila, we always thought it was a potential LaRonde in terms of multiple shafts over time given the size of that deposit. We continue, as we move to the north — continue to see that deposit grow as we go deeper. We continue to see that deposit grow. LaRonde was the example of multiple shafts over 30-plus years.

Could the Malartic area be something like that? I think what’s interesting to us is here you have an underground mine and area that was mining initially in 1950 was shut down. And then the Osisko team as astute enough to get the open pit up and running. And that gives us an opportunity now to build what we see as being Canada’s largest underground mine. How long does it go? I think that’s the question. And the other question, as you just said is, is there an ability because of multiple sources of ore that we don’t know of yet to actually have more tonnage coming from underground. I think that’s the question we have to answer. Guy, can you provide some of your caller I know you’re probably feeling lonely there. We [are not going answer] questions without exploration.

Guy GosselinSenior Vice President of Exploration

So no, I think — no, it’s a pretty good question. But when you look at it, it certainly doesn’t move the center of gravity of the orebody yet because the — with the core part of East Gouldie that has — that 6.4 million ounces and more with good grade. And you see also that we’ve provided result from the tight fill — the infill drilling within the main orebody. So that is not changing the center of gravity of something that is already quite sizable with the total 40 million ounces. So I think that from that perspective. But as Sean mentioned, our team basically when we were looking at the ore body because the ore body at East Gouldie is quite predictable. It is simple like we say plywood shape. And we’ve basically looked at that structure, and let’s say, well, using the known geometry, projecting it, the kilometers to the East, we were adding some ongoing drilling at the Rand Malartic.

We’ve extended those — the hole. And even the week before we got to the zone, our team told us, “Well, we should get into the zone at 2,250 meters on the hole.” They got into the zone 10 meter off from their predicted target. So they got into the structure right where it was supposed to be with exactly the same type of ore, cut and paste of what we see within East Gouldie. And we were quite amazed that we were able to project and predict the location of the orebody a kilometer to the East and get into it, right, where it was predicted. But yet we — well, that first drill is interesting in terms of the fact that the zone is predictable and where it was supposed to be and are we yet in the best part of the deposit that these things or a lot more drilling will be planned moving forward to better understand at that East, where the center of gravity is. And are we — as we see in the known part of East Gouldie, there will be higher grade. The grade varies from two grams to eight grams with an average of about 3.5, 4. So pretty interesting.

Greg BarnesTD Securities Equity Research — Analyst

So I understand the hole was drilled from the Rand Malartic property. Are you hitting mineralization higher up in the hole on that side of the property boundary?

Guy GosselinSenior Vice President of Exploration

Yes. We usually within the Rand Malartic, there are known porphyry intrusion like porphyry 12 that owes the Odyssey, but with some one gram, 2-gram over 10, 50-meter. But at the end of the day, we’ve used that drill hole, and we’ve pushed it way deeper, enter into the Pontiac for 600-meter to retrial for the East Gouldie. So we have multiple target in every single of those drilled holes. So we usually start quite far to the north, get into the entire volcanic sequence of the Piche, the Cadillac break and then keep going into the sediment to the south.

Greg BarnesTD Securities Equity Research — Analyst

Great. Thank you.

Operator

Your next question comes from Tanya Jakusconek from Scotiabank. Your line is open.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Hi, good morning everybody [Indecipherable]. I have a couple of questions if I could come back just to, again, the cost structure. I just want to — back on just a couple of things on inflation and currency. Maybe just, Dave, just on the sensitivity for the Canadian dollar, I just want to check and if this number is still holding. But a 10% move from the 1.30 mark having an impact of about $50 per ounce on your cost structure, is that still a reasonable assumption?

David SmithSenior Vice President of Finance & Chief Financial Officer

Yes. When we put that number out, though, we didn’t have the exposure from TMAC yet. So it’d be a little bit different than that. The way I think about it is we can still protect that 1.30 if we’re able to do the same amount, I’d say, 1.28. So what we think now with the TMAC is probably $5 or $6 for 1% change or 100 basis points, pardon me.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. That’s helpful, thank you. And just coming back on to the inflationary pressures, and maybe it’s Dominique that’s going to take this one. But you mentioned steel, concrete and tires. Are you seeing anything in freight, any inflation there or in cyanide?

Dominique GirardSenior Vice President of Operations Canada & Europe

I don’t have the detail for cyanide, freight. I would say most probably. But the — again, we don’t see challenges to meet our guidance so far. And let’s say, the mines’ productivity are offsetting those increase. But we keep — let’s say, we keep an eye and keep under the radar mainly on delivery time. And if we see something, for example, in tires that creep up, we could take decision to put more into inventory if needed. So that’s the type of thing we’re doing a close follow-up. The barge season, a lot of the material, let’s say, if I took the north as an example. A lot of the materials have already been ordered because that needs to be at Becancour for June, July when we start to do the shipping. So all those one have been protected. But now we’re starting to look, OK, what could happen in — for 2022 and maybe to take some position if needed.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. So you’re protected for this year. It’s just more for next. Okay. Perfect. And if I could come back to — I know Guy has been feeling lonely and maybe, Sean, from a bigger picture on the exploration side. So I just want to understand just the strategy for you this year in terms of reserve replacement. I mean you’ve got a lot of interesting exploration targets and success. Maybe just review some of the assets for us where you think you’re going to be able to replace reserves or the strategy of move — of increasing –.

Sean BoydVice-Chairman & Chief Executive Officer

Yes. Guy, can you take that one?

Guy GosselinSenior Vice President of Exploration

Yes. Yes, certainly. I’ll go over the main asset. I guess, LaRonde, LaRonde, as you know, is — some of those mines are — they know where they come in sequence until we kind of demonstrate the concept, extend the production. Last year was a good year at LaRonde, where we’ve been adding more reserves at LZ5 with the continued success this year. I do not anticipate, let’s say, for example, at LaRonde specifically, that we’re going to replace completely what we’re going to mine, although there is drilling ongoing. We are positioning ourselves, let’s say, for LaRonde. The more important thing this year is that we’re positioning those exploration drift beneath the Bousquet, but it’s more kind of a long-term payoff. So we may this year and maybe not completely see a complete replacement. And eventually, down the road, we’ll get some more ounces showing up down the road. Same thing in Malartic. Malartic, quite sizable deposits. As you know, we — our share are depleting 350,000 ounces roughly a year. Well, until we get the study to bring East Gouldie into research, we won’t see a replacement. So right off the bat, if we’re not replacing Malartic, so from the existing mine, those two have those specificity that they’re going to come. Further down the road, there will be — should be addition of reserves. On the other hand, you have something like Goldex where we see a complete replacement. We see Kittila, where we see a complete replacement. Kittila, it’s more again — now we’re having the shaft.

We’re having a case that we can get 500 meters below the shaft limit. We’re more looking at the long term because we know that there’s still mineralization a kilometer below the bottom of the shaft. So now we’re moving more into put some more business on the resources and reserve beneath the bottom of the shaft. So I think for the near term, we can expect that Kittila will replace what they’re going to mine for the upcoming 2, three years. After that, it’s going to have to come with, let’s say, a plan to convert a bigger part at depth. In Mexico, Pinos Altos, I think we’re in good shape to replace a fair part of what we’re going to mine. La India, it’s more of a — we’re mining the oxide until we get a plan to do something with the sulfide. So we will see a net depletion at La India. Santa Gertrudis will come further down the road. I guess we’re getting good results, good signs. So eventually, we’ll come out with a reserve. Will it be in two phase? Will it be the oxide first and the sulfide further down the road? So we’re working on it. And then you enter into the project. Obviously, we’ve been drilling a lot at Upper Beaver, and we anticipate that potentially next year. At the February update, we’ll be able to come out with an updated study. We will come with some addition of reserve in line with the good results we’ve been seeing. And we’re currently looking at — to the resources to make up our mind about what we’re going to do with those historical reserve and resources, integrating it into our business for year-end.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. So that I know — so just so I understand, so I should think of more LaRonde and Canadian Malartic and maybe Hope Bay as more resource growth for year-end, and the other mines you’ve given me in terms of reserve replacement, would that be a fair way of looking at it?

Guy GosselinSenior Vice President of Exploration

LaRonde and Malartic, yes. Hope Bay, not sure, we’re still under review of our plan over there.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. That’s helpful. And if I could just add just on Meliadine, Sean. Just on the — what — the saline water pipeline, just maybe a little update there in terms of where we are with the public hearings, which had to be postponed and just getting the permit.

Sean BoydVice-Chairman & Chief Executive Officer

Yes. Dominique, you’re involved with that one.

Dominique GirardSenior Vice President of Operations Canada & Europe

Yes, I can take that one. Yes, the — related to the COVID breakout in Nunavut, the public hearing had been postponed. But we don’t have an issue because mainly we — with our good performances on grounding practice, we see that the inflows are 50% lower than what we planned. Plus the mining rate into the pit is going also better than planned. So we have enough room capacity. It’s not an issue. And we’re going to continue to follow the process for the hearing. We don’t have news yet when it’s going to happen. Again, everything is — it’s going to depend on how it’s going to go with the COVID, but we stay tuned on that.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. Thank you so much.

David SmithSenior Vice President of Finance & Chief Financial Officer

Tanya, before you go, I just want to clarify one thing on the hedging. When we give guidance on the sensitivity to currencies, we do not consider the impact of hedging. And because we have hedged CAD for 100 basis points move from budget, so CAD1.30 to CAD1.20 would not be the full $50 per ounce on all-in sustaining cost. Because of the existing hedges, it would only be about $30 per ounce. I just wanted to make sure you understand that the guidance doesn’t include any impact of hedging.

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Okay. No, that’s really helpful because that’s meaningful. Thank you.

David SmithSenior Vice President of Finance & Chief Financial Officer

Yes, it is meaningful. Yes. Thanks.

Operator

Your next question comes from Ralph Profiti from Eight Capital. your line is open.

Ralph ProfitiEight Capital — Analyst

Good morning. Thanks for taking my question. Sean, I wanted to come back to the East Gouldie step-out with two quick questions. First one, it doesn’t sound like there’s going to be an impact on the planned or target positioning of this initial shaft. But when does that definitive decision have to be made in terms where it goes? And then my second question is how flexible is the permitting process if we run into a situation where we have successful drilling to the east over time and sort of the mine plan can become a little bit more dynamic?

Sean BoydVice-Chairman & Chief Executive Officer

As far as the shaft location, we’ve essentially selected the shaft location there. So that shaft will continue. The question is, is there additional ore that’s found through exploration, which causes us to add additional underground access. So I think that’s the real question here. So we’ve always looked at this as being large and long life. And so I think what we’re seeing is that if we were to incorporate much more than seven million ounces of the 14, this would go well beyond 2039. I think what the drilling has suggested is there’s a possibility that it’s longer life, but is there now a possibility for additional sources of ore? Because that’s essentially why this is now a successful project because East Gouldie gave us that additional thick, higher-grade source of ore that allowed us to pull it all together. So I think — although it’s early, I think we need to sort of drill that entire length of the Pontiac sediments and do it systematically but initially follow up on this drilling that’s been done from Rand Malartic to see what’s around this latest drill hole. And that may start to change our thinking in terms of additional investment going forward. So we have to certainly do that in conjunction with our partner. But what we see so far, we like. And as you heard from Guy, it matches up perfectly where you would expect it to be given the orientation of East Gouldie and how it plunges.

As far as permitting, maybe Dominique or Guy can talk about sort of permit process there. It’s pretty straightforward because we have an existing operation. So it’s not like we need — we’re starting from scratch there. So the authorities are pretty amenable to that, and it helps that it’s underground. But is there anything else Dominique or Guy on the permit side, if we decided that we had to initiate additional underground access at some point to increase the underground mining rates?

Guy GosselinSenior Vice President of Exploration

No constraint from the exploration standpoint.

Dominique GirardSenior Vice President of Operations Canada & Europe

Well, as you mentioned, Sean, it’s easy to permit an underground. Let’s say, we’ve hit the first East Gouldie two, three years ago, and now we’re thinking a shaft. I guess if we have another shaft to build, that could be the same type of thinking. So go, Guy, drill that.

Ralph ProfitiEight Capital — Analyst

Understood. Thanks very much.

Operator

Your next question comes from John Tumazos from John Tumazos Very Independent Research. Your line is open.

John TumazosJohn Tumazos Very Independent Research, LLC — Analyst

Thank you. Sorry, I had the mute button on before. Sean, just in case your good technical people succeed on many fronts and everything comes up roses, Santa Gertrudis, Upper Beaver, Hope Bay, Hammond Reef and a couple of the exploration projects among the 17 on the exploration spot on your web page, would you rule out going to three million ounces or more? And should we assume that you’re just going to rank the projects by internal rate of return at a conservative gold price scenario? It sounds like there’s a lot of progress.

Sean BoydVice-Chairman & Chief Executive Officer

Yes. I think that we’ve been pretty consistent in saying that for a lot of reasons, largely due to risk and not wanting to increase the risk — underlying risk level of the business. Our preferred approach is sort of measured discipline as far as allocating the build capital. It’s OK to bump up exploration budgets, particularly when you’re getting results so that you can get information, which is kind of consistent with the approach we took at LaRonde early. People would say, “Why the heck are you drilling at 8,000 feet at LaRonde? When you’re doing it, you’re never going to get there.” And our view was, well, we want to know what we own. And I think this is exactly the approach we’re taking is that we want to know as soon as we can what we own to actually help us work through the options and the ranking — the relative ranking. And I think that’s going to be important. What we don’t want to do is build multiple projects at the same time, blow our capex budget out, eat up free cash flow. That’s not a high-quality business.

So I think that we’re comfortable with this approach. As we said on something like Hope Bay, we are literally in no rush. When we bought it, people were somewhat nervous, “Oh, my goodness, this is going to blow their capex budget up.” No, it’s not because we view it as long term. Look at how patient we’ve been with LaRonde for 30-plus years, 40 years, step by step. As the drill sort of led us to the next step, we just gradually invested in that opportunity. So this ties into the question about reserve replacement as well. When we think about it, there’s a pretty good chance our reserve number in February of next year is the same or higher. We have Hope Bay, which isn’t in our 24 million ounces of reserves. So — and Guy went through the list. And we’re getting good exploration results at a number of projects. So that’s the basis. But I think the nice thing about it, John, is we have this combination of brownfield opportunities at places like LaRonde and Kittila, Goldex, Meliadine, and then we have the pipeline.

And it’s how do we put together a mix of both brownfield and pipeline so that we can get the best bang for what will be a predetermined capital allocation pie that everybody is competing for internally. And we just find that that’s going to be the most effective approach. And a lot of that is really just — we just happen to be a gold mining business. That’s just good business. But we like the jurisdictions we’re in. We like the fact that — think about it. You know LaRonde, you’ve been there many times. We’re putting out three exploration drifts to the west into the Bousquet property, something we bought 15 years ago for CAD seven million. And there’s ounces there. We’ve got a massive sulfide zone to the east of the main ore body at LaRonde. Look at the drill results in Canadian Malartic. There’s a lot of life left here. Look at Kittila as we go deeper. I think it got lost in the February release. I think the step-out at Kittila was several hundred meters that stepped out from the main deposit there. So for us, this is all about per share value over time.

And if we’re patient and keep a lid on the share count and work to drill hard, we have some pretty smart people throughout the business that know what to do with this stuff when we find them. And so that’s going to be the approach because it’s worked for many, many years. There’s no need to change it. But I have to say, and I’ve been here 36 years, the best and most exciting part of this has always been the exploration stuff. And we never know. This whole step-out of Malartic, it may not be anything, but it may be something pretty important. And so that’s the excitement. That’s what keeps us coming to work every day to see how the teams are able to continue to grow these deposits and then turn it over to the project teams and the construction teams and the operating teams to see how they can turn it into meaningful cash flow generators. So no change in the strategy.

John TumazosJohn Tumazos Very Independent Research, LLC — Analyst

Thank you.

Operator

[Operator Instructions] There is no further question at this time. I would now like to turn the call over back to Mr. Boyd for closing remarks.

Sean BoydVice-Chairman & Chief Executive Officer

Thank you, operator, and thank you, everyone, for your attention. We have our AGM today at 11. I don’t think you’ll hear anything new. from what you just heard over the last hour or so on the conference call, but you’re certainly welcome to join us. It’s virtual. But anyways, enjoy the rest of your day, and thanks for your time and the questions. Take care.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Sean BoydVice-Chairman & Chief Executive Officer

Ammar Al-JoundiPresident

David SmithSenior Vice President of Finance & Chief Financial Officer

Dominique GirardSenior Vice President of Operations Canada & Europe

Guy GosselinSenior Vice President of Exploration

Fahad TariqCredit Suisse AG — Analyst

Tyler LangtonJPMorgan Chase & Co — Analyst

Anita SoniCIBC Capital Markets — Analyst

Puneet SinghIndustrial Alliance Securities Inc. — Analyst

Greg BarnesTD Securities Equity Research — Analyst

Tanya JakusconekScotiabank Global Banking and Markets — Analyst

Ralph ProfitiEight Capital — Analyst

John TumazosJohn Tumazos Very Independent Research, LLC — Analyst

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