Agnico’s two pearls in Nunavut

Baker Lake, Nunavut – It’s been a tough and ambitious foray in Canada’s Arctic for Agnico-Eagle Mines (aem-t, aem-n), to say the least, but one that holds much promise.

It was only four years ago when the company scoured the continents for new deposits and scooped the Meadowbank gold asset, and then last year acquired the Meliadine gold project in Nunavut. Both are in the Kivalliq region, or what Agnico’s president and COO, Ebe Scherkus, likes to call the company’s oyster. 

The Meadowbank mine is 300 km west of Hudson Bay and 70 km north of the hamlet of Baker Lake, the nearest community. 

Some 290 km to the southeast, Agnico is developing the Meliadine project, which is 25 km north of Rankin Inlet.

While flying to Baker Lake to the Meadowbank mine via Rankin Inlet, you may be taken aback by how flat and serene of a place it actually is. Once on the ground, the camp facilities dominate the landscape with little else to see. But the feeling that you’ve ventured into one of Canada’s remote and isolated corners fades quickly once you enter the bustling facilities.

“We really believe there is a lot of potential in the Arctic,” said Scherkus during a presentation at the mine in late June. “We believe that the early bird will get the worm.”

To date, the Meadowbank mine and Meliadine project contain nearly 29% of Agnico’s growing gold reserves and more than 38% of its gold resources, which says a lot for a company with five other producing gold mines in Quebec, Mexico and Finland.

Scherkus adds when both mines run at full capacity, they would account for 35-50% of Agnico’s annual gold production.

Prime Minister Stephen Harper after he visited the Meadowbank mine in late August echoed the message of the area’s prospectiveness.

“Canada’s North is full of economic potential and innovators continue to unlock development possibilities that bring with them real economic benefits and long-term jobs for local residents,” stated Harper in a news release.

At the end of July, 289 full-time workers or 39% of Meadowbank’s staff was Inuit. A number the company is quite proud of.

“It’s a tough number to hit and an exceptional number that we were able to achieve,” remarks Scherkus.

Before Agnico-Eagle swooped into the region, unemployment at Baker Lake was hovering at 40% and now it’s at 4.5%.  

Along with providing jobs for residents of Baker Lake and other local communities, the company used northern-based supplier for 41% of the $1.26 billion it spent building and running Meadowbank during 2007 and 2010.

 It also shelled out $10 million in royalties to Nunavut Tunngavik, the Inuit land claim organization in 2010/11.

More importantly, the Conference Board of Canada notes that Nunavut’s gross domestic product jumped by 11% in 2010 largely because of the Meadowbank mine.

But to get the mine online, Agnico had to clear many hurdles. Most of them were tied to building the open-pit mine and bringing it into commercial production in March 2010. But the challenges didn’t end there.

This year the company braved a hellish winter, a costly kitchen fire, and lower than expected grades due to dilution in the pit, which dampened the company-wide performance for the second quarter. Compared to a year ago, Agnico’s company-wide production was down 8% to 239,328 oz. gold at cash costs of US$565 per oz. for the quarter.

“It hasn’t been easy for a number of reasons, but there is tremendous optimism,” Scherkus concedes. “We believe we are on the cusps of turning this operation around.”

One of the major setbacks for the first half of this year was the kitchen fire that started on March 10.

“Let me tell you it was a lot more than a grease fire in a frying pan,” recalls Scherkus. With 460 employees on site, and a bone-chilling -60 degrees outside, Agnico evacuated 315 employees within 17 hours, and kept a skeleton crew of 175 onsite. 

Scherkus congratulates his staff during the presentation for containing the fire, and preventing the whole camp from going up in flames. During the wee hours of the morning, the crew bulldozed the burning kitchen and dining facilities to safeguard the rest of the camp.

  Afterwards, Agnico increased its remaining crew to 230 and ran the mill from the low-grade stockpile, however, became concerned as the stockpile started dwindling. Open-pit mining, construction, drilling, and other activities were curtailed, says Scherkus, so the short-handed crew could manage.

Three weeks after the fire, Agnico flew in a temporary kitchen from Phoenix, Ariz., and installed it in early April. It then converted a third of the gym into a dining room.

The company, which kept all its employees on payroll during the debacle, saw a full staff return to work by the end of April.

While sitting in the temporary dining room during lunch, Scherkus says the fire cost the company more than US$20 million, of which US$16 million went towards replacing the kitchen, while the rest was used to maintain the payroll.

Agnico says the new kitchen and dining room will arrive in August, and should be up and running by year end.

But those millions of dollars lost during the fire, didn’t account for the lost of production.

To add to the problematic second quarter, the company experienced lower grades in the open-pit. The dilution estimated at 20-30% was partially due to the moving of more ore and waste during the production blasts. 

However, the producer says it’s revising the blasting sequence, so it’ll be more similar to the methods used at the Pinos Altos mine in Mexico.

Due to the staffing-related slowdown in April, and the lower grades, Meadowbank achieved an expected lukewarm quarterly performance.

It mined 59,376 oz. gold for the period at cash costs of US$910 per oz., compared to a production of 77,676 oz. at cash costs of US$663 per oz. a year ago.

Agnico says during the first six months of 2011, the grades at Meadowbank dropped by 34% because of dilution and the scheduled mining of lower grade ore.

For the latter half of the year, the company anticipates higher throughput and grades at Meadowbank because it installed a permanent secondary crusher in mid-June. For July, the mill averaged 9,257 tonnes per day grading 3.08 grams gold per tonne. 

“Meadowbank is really a key driver on a couple of fronts,” says Sean Boyd, Agnico’s vice-chairman and CEO. “One certainly is to boost production as we move into the second half and that comes from increased tonnage.”

For the latter half of the year, Agnico forecasts gold production at Meadowbank to increase by 50% and costs to decrease by 15% to $80 per tonne compared to the first six months of the year.

And if things go to plan at Meadowbank, Agnico expects company-wide production for that period to grow by 20% and total cash costs per oz. to decline by a similar percentage.

Since acquiring the property from Cumberland for US$750 million in 2007, Agnico invested a further US$710 million on preproduction and another US$30 million on exploration, for a total of US$1.5 billion.

During the first two years, it underwent a massive construction phase, which included building a 110-km all-season road from Baker Lake to the site. Despite the rigid regulatory environment in Nunavut, the miner completed the permitting process in three years, pouring its first gold in late February 2010.

“The federal government still has a huge umbilical cord tied to Nunavut,” says Scherkus. “There’s a lot of duplication and a lack of clarity.” But he adds things on that front are significantly improving.

Some of the hoops the producer had to jump through during the first few years at Meadowbank include: building a new management team, tricky logistics, and an unforgiving climate.

While Agnico was preparing Meadowbank, it also had five other mines in various development or production st
ages on its plate: LaRonde, Goldex, Lapa in Quebec, Kittila in Finland and Pinos Altos in Mexico. The Lapa, Kittila and Pinos Altos mines all came online in 2009.

At Meadowbank, before the 2009 recession hit, Agnico, which didn’t inherit anyone from Cumberland, began a hiring spree. It grew from a staff of 1,000 to over 5,000 in two years. Agnico hired a mix of English, French and Inuit workers to fire up its Meadowbank mine.

The metallurgy and processing at Meadowbank was quite straightforward, notes Scherkus. But he concedes logistics and dyke construction were difficult for the gold deposit which lay mostly underwater.

Agnico used an in-water dyke construction method to allow for mining under shallow lakes. The company first built two dykes to close off the North Portage pit area. Some 16 million litres of water was pumped out before stripping and mining started at the pit.

The Portage pit began producing in late 2009, and is expected to generate ore until 2014.

Goose Island is anticipated to produce from 2013 to 2015, following the dewatering and overburden stripping of the Bay-Goose dyke in 2013.

The miner says the Vault pit, following the dewatering of Vault Lake, could be mined from 2015 to the end of the mine’s life in 2019.

Although, the company has another year and half of dyke construction to do, it believes it is largely over the hump.

The three current and planned open pits at Meadowbank are all within 7 km of a processing plant. 

Gold mineralization at the deposits is often associated with intense quartz flooding, and the presence of sulphide minerals. The Meadowbank trend hosts the Goose Island, Portage, Cannu and Vault deposits, while the Pipedream Lake trend hosts the PDF deposit. 

Despite the chilly climate, Agnico operates the Meadowbank mine year-round using conventional drilling, blasting, truck and shovel methods.

To make operations more efficient, the company has modified its mining equipment to withstand the harsh weather that caused hydraulic system failures, oil viscosity and hose breakage this winter.  

Due to its secluded location, Agnico ships in its fuel, equipment, bulk materials and supplies for Meadowbank. All bulk materials are sent from Becancouer, Que., or Hudson Bay port facilities via ships and barges into Baker Lake during the short summer access period. The port is accessible for two and half months starting at the end of July each year.

Agnico says careful planning is needed to ensure everything is delivered for mining until the next shipment. “Our planning has to be meticulous to say the least,” notes Scherkus.

To have some flexibility, the company has built a 1.3-km-long gravel airstrip at the mine to transport air cargo and to fly in and out employees who work a 2-week on and 2-week off rotation.

The company has adapted to the longer delivery times for supplies and machinery parts. “For parts – in the Abitibi we are spoiled – we can go to our local Caterpillar dealer and pick up the part, and off we go. Here the parts had to be flown in,” says Scherkus. 

As Agnico continues to fine tune Meadowbank’s operations and processing, it has increased its land position.

Over the year, it has doubled its foothold from 38.7-sq.-km to 76.9-sq.-km, says Guy Gosselin, Agnico’s vice-president of exploration. “That’s a big playground that we are talking about.|” Along with increasing its presence in the region, the company is expanding the known lenses and the mine’s resources and reserves.

Meadowbank has reserves of 34.1 million tonnes grading 3.2 grams gold per tone for nearly 3.5 million oz. It has another 25.8 million tonnes at 1.7 grams gold per tonne for 1.4 million oz. in the indicated category, and 10.2 million tonnes at 2.2 grams gold per tonne for 707,000 oz. inferred. 

 “Meadowbank is the foundation, not just the infrastructure but really the people that will allow us to create value for Meliadine,” remarks CEO Boyd. 

The company will apply everything it learned at Meadowbank to help develop Meliadine. It will spend US$129 million to bring the project to a decision point in 2013. Boyd believes the sizable and high-grade deposit has the potential to become the company’s largest gold mine.

Agnico took its first bite of the Meliadine project in 2008, by buying a 15% stake in Comaplex Minerals. Two years later, it took out Comaplex in an all-share deal valued at about US$708 million and became the sole owner of Meliadine.

The project hosts six known gold deposits. The largest one is the Tiriganiaq deposit, which means grey fox in Inuktitut. The other deposits include Wesmeg, Discovery, F zone, Pump and Wolf zones.

Currently Agnico has 138 people working at Meliadine. “It’s a big advanced project,” says Gosselin.

A US$65-million exploration program is underway at Meliadine, with a focus on delineating the Tiriganiaq zone and revisiting the initial feasibility study. The study was completed earlier this year and looked at a 3,000-tonne-per-day scenario. However, the company is reviewing the feasibility and contemplating a 6,000- to 15,000-tonne-per-day scenario.  The miner also plans to take a bulk sample at Tiriganiaq because it’s looking to mine Meliadine using both open-pit and underground methods. At the Wesmeg zone, Agnico aims to expand the current resources

The 80-km long, 520-sq.-km project has reserves of 9.5 million tonnes grading 8.5 grams gold per tonne for 2.6 million oz. gold, all in the Tiriganiaq zone. It has an indicated resource of 8.8 million tonnes at 5.2 grams gold for 1.5 million oz., plus an inferred resource of 11.8 million tonnes at 6.9 grams gold for 2.6 million oz.

Gosselin reckons it’ll be easier to develop Meliadine because the nearest community, Rankin Inlet, is only 25 km away. So Agnico would only have to construct a 27-km road instead of a 110-km road as it did for Meadowbank. As well as, the growing community of nearly 3,000 people has an existing airport, and can provide various services and supplies to the site. 

The company plans to boost the exploration budget at Meliadine next year to quickly prepare it for development.

“We are going after Meliadine fairly aggressively,” says Boyd. Agnico aims to submit a ramp proposal for the project to its board shortly to open up the high-grade portion.  “We want to know what we own as quickly as we can,” says Boyd. “There’s no sense knowing how big this deposit is five or six years from now. We want to know in the next two or three years for planning purposes.”

Agnico’s CEO adds that Meadowbank and Meliadine are going to be the company’s focus for quite sometime.

“This is going to be an anchor for Agnico for many years: Meadowbank combined with Meliadine.”