Agnico has its mines humming along

The message out of Agnico-Eagle Mines (AEM-T, AEM-N) headquarters after the second quarter is one of stability and efficiency.

The company says the first half of the year was all about optimization at its five mines and with the process moving steadily along it finds itself on solid footing.

“We now have less risk than we did a year ago,” Agnico’s chief executive Sean Boyd said on a conference call. “We have less operating risk and less technical risk. We’ve now gone through a major mine building phase and growth will come from these new mines.”

With the past technical problems of the Goldex mine in Quebec in the rear view mirror, Agnico is moving forward on the back of five operating mines that are unencumbered by the political risk that other producers are having to contend with.

“Our hallmark has always been to maintain a low political risk profile,” Boyd says. “It works for us and we have no desire to change it. We think political risk will be a more important consideration in the future in a rising gold price environment.”

Freed of political risk headaches and riding more stable assets Agnico was able to boost production at its five mines by 34% compared to the same period last year.

Its Pinos Altos mine in Mexico led the way with record production of 63,356 oz. of gold and low US$358 per oz. cash costs.

Meadowbank also reached record production as it turned out 98,403 oz. of gold with the mill managing to process 9,901 tonnes per day.

The success at Meadowbank is particularly satisfying given the technical and logistical obstacles the company has had to overcome at its Arctic mine.

“We did struggle last year at Meadowbank,” Boyd says. “We had to totally re-visit it and come up with plan to lower risk and focus on predictability.”

One of the key evolutions at the mine was to minimize the movement of waste and achieve more conservative factor of dilution.

“The key point is that we are showing consistency in the operation and demonstrating an ability to mine and process high volumes,” he says.

With the new mine plan performing well, Agnico will now focus on cost reductions while looking to extend the mine life.

Over at the former company maker, the La Ronde mine in Quebec, Agnico concedes that the mine is going through a challenging transition time as it moves from the upper to the lower section of the mine.

The greater mining depths bring the challenge of heat congestion and the tonnage hauled from the lower mine was 5% lower than expected while costs were 7% higher than expected.

The swing to higher cash costs was largely driven by a combination of less by-product production in the lower mine and lower prices for those by-products.

Despite such obstacles, Agnico says it is still on target to reach gold production guidance.

Staying in Quebec, Agnico’s Lapa mine continues to be a steady performer with roughly 25,000 oz. of gold production per quarter.

The company’s focus at the mine is to extend its mine life to 2016 in the near term, and beyond that further out.

Across the pond at its Kittila mine in Finland, anticipated maintenance shut down of the autoclave had the mill closed for 18 days. Agnico says it expects to close the mine for another 20 days in the second half in keeping with its scheduled 44 days of shutdown for the year.

Outside of maintenance the mine continues to perform well. So well that Agnico is pushing ahead on studying an expansion of the mine that would increase production by 25%. It expects to have a study on the expansion out by the end of this year.

The motivation to expand is being spurred on by solid exploration results coming out of an area to the north of the deposit.

Kittila’s operating profits jumped to $80 million this year which is a 70% increase over last years results.

Boyd chalked the improved profits up to the mine becoming more a more stable and consistent operation.

“We can see something that may parallel La Ronde’s development over last 25 years,” Boyd says, “in that it’s shaping into a world class deposit that may undergo a number of expansions funded by the cashflows generated from the mine itself.”

And while operations in the north of Europe and Canada are humming along nicely, it is the company’s more tropical asset, Pinos Altos in Mexico that was the largest cashflow generator for the quarter.

“Our experience in Mexico is exactly what shareholders are looking for in the gold business,” Boyd says. “We paid $80 million for the project in 2006, spent $400 million in building it and generated almost $150 mill in just 6 months for an annualized profit of $300 million. So the payback period in Mexico is quite quick.”

As for the much maligned Goldex mine in Quebec — the mine was shuttered after severe flooding and wall instability — Agnico says mining the affected zones is at an indefinite stop.

But that doesn’t mean the mine has generated its last dollars for Agnico shareholders.

The company has been exploring satellite zones on the property and has decided that they are economic enough to build a smaller and higher cost mine than Goldex, but one that will still generate a return with above the company’s hurdle rate.

It expects to have production out of the satellite M and E zones in 2014.

Agnico maintained its production forecast of 975,000 oz. of gold for the year.