Agnico PEA projects $1B capex to go underground at Detour Lake

Agnico Eagle Mines (TSX: AEM; NYSE: AEM) has posted a preliminary economic assessment (PEA) for underground development at its Detour Lake open pit gold mine, in northeastern Ontario that pegs initial capital costs at US$1 billion.

As visualized, underground development has the potential to bring annual production up to 1 million oz. of gold, and life of mine production up to 22 million ounces — up 27% over the previous mine plan released in 2022.

The PEA gives the underground project and mill optimization at Detour Lake a net present value of US$1.2 billion and an internal rate of return of 18%, based on a price of US$1,900 per oz. gold. Sustaining capital is estimated at US$864 million.

“We have adopted a phased and disciplined approach to develop this potential, with the approval of a US$100 million investment over the next three years to further study and de-risk the underground project, including the development of an exploration ramp and the collection of a bulk sample,” said president and CEO Ammar Al-Joundi. “With the development of an underground mine to complement the existing open pit mine, we see the opportunity to transform the asset into one of the top five gold mines in the world by output.

“We believe the underground project has relatively low execution risk and has the potential to generate a strong risk-adjusted return on capital while maintaining exploration and production upside for decades in one of the best mining jurisdictions in the world,” he added.

BMO Capital Markets analyst Jackie Przybylowski said in a note on Wednesday that the planned mill expansion puts Detour Lake in a rare class of gold mines, such as Freeport-McMoRan‘s (NYSE: FCX) Grasberg mine in Indonesia, and Polyus’ Olimpiada in Russia that produced more than 1 million oz. per year in 2023.

“Detour is located in an attractive jurisdiction, the expansion is building on existing infrastructure (small expansion – conveyor, paste plant, ramp), and Agnico Eagle has skilled teams both in Detour’s operations and in project execution,” she said. “The transition to underground will leverage Agnico Eagle’s in-house operational expertise, as mining methods similar to those employed at Goldex and Odyssey are planned.”

Development details

The PEA assumes an underground annual mining rate of about 11,200 tonnes starting in 2030, combined with a mill expansion to 79,450 tonnes per day starting in 2028. Annual gold production from underground will add 300,000 oz., bringing the total to 1 million oz. per year from 2030 to 2043. That represents an increase of 43%, compared to the 2024 to 2029 period. Mine life is extended by two years to 2054, and there are ample exploration opportunities that may lead to an even longer mine life.

Underground infrastructure will include a 2-km conveyor ramp to a depth of 270 metres, a portal, and an ore stockpile near the mill. It will include developing a mobile shop and maintenance area for large equipment. Rock hammers and a jaw crusher will also be installed. High intensity drilling and bulk sampling will be conducted in 2025 and 2026.

Underground mining will be carried out with bulk methods, namely 40-metre sub-level transverse mining. Backfill will consist of mainly cemented paste fill.

To boost mill capacity, the secondary crusher will be improved. Retention time in the semi-autogenous grinding (SAG) mill will be increased, and the ball mill will undergo optimization. Advanced process control is also planned for the mill. 

Agnico is basing its underground plans on an indicated resource of 1.2 million oz. gold and an inferred resource of 7.1 million oz. gold in-situ. This is based on 53 million tonnes averaging 2.46 grams gold per tonne, in an unspecified category.

Proven and probable stand at 818.6 million tonnes grading 0.75 gram gold for 19.7 million ounces. Measured and indicated resources total 669 million tonnes grading 0.64 gram gold for 13.8 million ounces. And inferred resources add 136.4 million tonnes of 1.76 grams gold for 7.7 million ounces.

Agnico shares traded for $88.57 apiece on Wednesday, valuing the company at $44.1 billion. Its shares traded in a 52-week range of $59.36 and $96.20.