Agnico Eagle's Big Bet
Agnico Eagle’s taken a $1 billion loss on Meadowbank, Nunavut’s lone operating gold mine, which opened in June 2010. And with the mine slated to close in 2017, some might see it as a big mistake.
But don’t tell that to CEO Sean Boyd. Meadowbank’s given Agnico a base in the region, he says, allowing it to build local expertise and relationships as it continues to explore the Kivalliq. This year alone, the company is prepared to spend up to $130 million on its two most promising Nunavut ventures: the encouraging Amaruq deposit, just 50 kilometres north of Meadowbank, and the Meliadine project near Rankin Inlet. All this at a time when many companies aren’t exactly rushing to fund exploration programs.
Right now, Agnico’s trying to find out just what exactly it has at Amaruq, which might one day supply ore to the Meadowbank plant. If initial results are good, the company could spend up to $50 million this year to drill at Amaruq. And then there’s Meliadine. Recently approved by the federal government, Agnico could spend up to $80 million there this year to better understand the complex deposit, as it decides whether the $1 billion project should be built. It’s safe to say Agnico’s betting big on Nunavut in 2015: as the drills started turning at Amaruq, a month before the Nunavut Mining Symposium in April, I talked to Boyd to find out why.
Let’s start with Meadowbank. You had record production there last year. What’s it looking like this year?
The best year was 2014 and we’re looking at another solid year in 2015, but as we see it now, it is set to close in Q3 2017. We’re looking at ways that we can extend it. There is a possibility that we can extend mining in the Vault Pit and that’s largely because the Canadian dollar exchange rate has improved and the diesel price has gone down. The second phase [of the extension would] need a higher commodity price in Canadian dollars than the first.
The second pushback means moving more waste: if you move more waste, it means it’s a lot more money. We don’t want to lose money moving that rock. If we can break even or generate some cash and keep the mine running, that’s probably what we’re going to do.
Meadowbank has done a really good job getting their costs down. There’s a really good skillset there. We clearly want to continue to utilize that skillset in Nunavut. The best opportunity to do that is Amaruq.
Tell me about Amaruq.
It’s a satellite deposit. The only way that it can work, based on what we know now, is to truck the material to Meadowbank. It’s still early, but it has the potential to continue our business at Meadowbank, to preserve all those jobs, to continue to use all those skills and allow us to use a lot of that Meadowbank equipment because it fits the type of mine that would begin potentially at Amaruq, a larger open pit. We couldn’t use any of the things at Meadowbank for Meliadine, because Meliadine is going to start as an underground mine.
We have our best people focused on trying to find opportunities in the North. Amaruq looks good because my experience tells me if that team and the leaders of that group—Alain Blackburn and Guy Gosselin—are excited, then we should be excited.
Our biggest dilemma now is, if we follow the general timeline of getting things moving in Nunavut, we’re going to have a production gap. That’s no good. What we’re trying to do is work at it from the Meadowbank end and see if we can extend the life maybe a year. There are no guarantees; we have to do the analysis. Then we’ll need everybody to really focus on Amaruq as an opportunity so that we don’t get bogged down and create this large gap, because we don’t want people to not have employment there. We want people to seamlessly move from one to the other because that’s going to benefit everybody.
Is that projected gap based on Meadowbank’s 2017 end of mine life?
Even if we pushed it 12 months, there’s still a potential gap.
How much are you spending at Amaruq this year?
Our plan is to spend $20 million there, but we have the ability to more than double that based on results. If we get the results we hope to get in March, April and May, we would look to increase that budget because we want to know what we have this year so we can start the process of trying to make it dovetail with the end of Meadowbank.
Essentially, we’ve pulled out all the stops here. We have the potential to have eight or nine drills turning on Amaruq. Last year we had three. This is the largest single component of Agnico’s exploration budget. If we do spend $40 million or $50 million, it will be our largest annual exploration budget ever.
Our founder, Paul Penna, used to always say, “If the gold isn’t there, we can’t put it there. But if it’s there, we’re going to find it.” If the gold is there, we have the budgets and the experience to find it and that’s what we’re focused on doing. Because the sooner we know what it is, the sooner we can start moving and work with stakeholders, communities, the Government of Nunavut and the federal government so we don’t have a gap in production.
The Nunavut Impact Review Board, the territory’s regulatory agency, has been public about its funding shortages. An increase in its core funding is pending. Is that something you’d like to see?
That would be great. We have no complaints with that whole process, but when you have a situation potentially like Meadowbank and Amaruq, it shines a spotlight on the process, that maybe it takes too long. Really, what we would be asking for at Amaruq is no different than what we’ve already done there in the region: we’d be looking at building a road and we’d be looking at building an open pit.
We’re not complaining about the process, we’re not complaining about the level of standards that are expected of us. We’re prepared to do all that. We’re just saying that the process could move faster because we see it move faster in other jurisdictions, and I think it can move faster if we apply more resources and give the people that are doing the review more resources to do it. Because it’s not just us, and the groups tend to get overwhelmed with a lot of things coming their way. Our biggest question is, whether it’s to the federal government, the Government of Nunavut, or any of the review boards, if you need resources, let’s talk about that and let’s get the resources in place so we can get things looked at on a timely basis.
And what about Meliadine?
We’ve been working really hard. Meliadine isn’t easy: there’s a lot of gold, but it’s a very complex deposit. We spent $50 million there last year. We’re going to spend $70 million there this year—maybe $80 million—so we’re still making a major commitment without having made the big decision yet. We still haven’t said we’re going to spend $1 billion to build Meliadine. We haven’t even brought that to the board yet, because what we’re still doing is trying to put all the pieces together. There’s an 80-kilometre structure that we’ve only drilled 10 per cent of. And on 10 per cent, we’ve got a reserve of 3.3 million ounces and a resource of 6.8 million ounces. But the challenge is that the deposit underground is complex, so it’s very costly to build. We’re hopeful we can put numbers together that will allow us to build a project to get a production base established, and then over time scale it up, because we firmly believe that there’s more gold to be found there.
If we were thinking that there’s a problem with this thing, we wouldn’t have spent $50 million last year and we wouldn’t be spending $70 million this year. The only reason we’re spending those dollars is to complete our analysis, to really allow us to open up the underground ramp system so we can get a better feel of the complexity of the deposit.
With the early staffing issues at Meadowbank, do you anticipate problems being able to operate two mines in the region at once?
We’ve got a great base already at Meadowbank. We still don’t know how big Amaruq is. That will determine how many people are required there. But we think there’s more than enough people if Amaruq and Meliadine are going together. It’s going to take some work though for training, but I think one of the things that Agnico has done well is we didn’t just focus on Baker Lake when we built Meadowbank; we reached out to other communities and got them involved.
We see the positive impact Meadowbank’s had not just to [provide people with] a job, but the potential career opportunities young people see there. We have trades schools, but we think it’s important to have another alternative for people that want to go to university so that they don’t have to move away from Nunavut. It’s a passion of our chairman, Jim Nasso. He’s spent some time in Nunavut and he said early on, “They’re missing a university,” a place that, as younger kids go through school, they can say, “Hey, I can go to university and I don’t have to move far from home. I can actually do it here.” Jim’s been very public on saying Agnico’s prepared to put up $5 million to get that ball rolling. We don’t have any details on where that’s headed, except to say we’d love to see it happen.
How do you make a billion-dollar decision when the gold price can swing over the course of an afternoon?
It’s tough to plan! That’s why it’s risky. People say, “Meliadine is looking better.” Yeah, the reserve grew, the resource grew, but you’re asking us to make a commitment for $1 billion when no one can tell us what that gold price looks like five years from now. We have to be hopeful that, if the gold price does go down, the opportunity is so robust—maybe through future exploration success—that we can maybe find higher grades that improve our economics. We weigh and measure all of that.
The biggest single driver of what the resource business looks like five or 10 years from now in Nunavut is the Canadian dollar gold price. Not the U.S. dollar gold price—but what it is in Canadian dollars.
How’s Nunavut as a mining jurisdiction?
If governments are able to invest in training, ports, roads, power, then it just opens up that area. And if we’re successful in an environment where not a lot of that stuff is in place, then a lot of other investors are going to take a look at it as more infrastructure comes in, largely because of the exploration potential. The last thing you want is an industry where it’s good for five years and then it’s non-existent for five years, because that’s not helping the communities or workers. It’s not helping small businesses or the government either.
We’ve been in Quebec for almost 50 years. We expect to be in Finland, north of the Arctic Circle, for 40 years. We’ve got a business in Mexico that also looks like it’s multi-decade. What we’re trying to do now is determine whether Nunavut for us is one of those platforms that could be multi-decade. We believe it is, but we’ve still got a bunch of work to do.
Has Agnico spurred new businesses, local entrepreneurship in the Kivalliq?
I would say it’s still developing. That’s why Amaruq is timely from so many perspectives, because you can’t develop a business by stopping and starting all the time, particularly in Nunavut. It’s pretty hard for a small businessman, when he’s looking at Meadowbank, to say, “Boy, they’re telling me it’s going to end by 2017. They say they may extend it a year. They’re hopeful about this new discovery. We don’t know much about it.” That creates uncertainty, and we’re asking people to make commitments. I think the more certainty we get around Meliadine and Amaruq, then that will give people some more confidence to start up their own businesses.
What will Agnico’s legacy in Nunavut be?
If you actually take a snapshot of Meadowbank right now, Agnico Eagle’s lost $1 billion. We went for $1 billion, so we can’t afford to lose $1 billion on another project. For us, the Meadowbank story—there’s no final chapter yet until we understand Amaruq, but it’s good because it’s shown that Meadowbank is spawning other opportunities. I think that’s going to be the case in Nunavut for decades. You need companies that have a production base up there doing quality exploration. We’re the only producer up there. There are lots of juniors, but juniors have a hard time getting funding, getting the broad range of technical skills you need to manage in Nunavut. We have it all.
What we’re seeing is really telling us from a strategic point of view that Nunavut should be a big part of our business going forward. Why? The gold industry is struggling to find parts of the world that have mineral wealth that you’re also able to do business in. That’s why we’re prepared to continue to make investments there. But we have to do it smartly, because we have a business to run.We’re operating in other parts of the world, we have a lot of requests for capital from other parts of our business.
The story’s not finished yet. We haven’t left. As long as we haven’t left, you should measure us five years from now, 10 years from now. Why don’t you measure us 20 years from now, and then tell us whether Meadowbank was a success? Because Meadowbank is the shepherd of everything else up there that we’re doing. Without Meadowbank, Agnico’s not up there. It may not look great at the moment, but who knows, Amaruq may be bigger than Meadowbank. Wouldn’t that be something?