‘Culture de coeur’ sets Agnico-Eagle apart

SITE VISIT

Val d’Or, Que. — “The gold, it doesn’t rot, it doesn’t eat; it just sits there and waits.”

This nugget of wisdom from the late Paul Penna, founder of Agnico-Eagle Mines (AEM-T, AEM-N), explains better than any financial analysis why Agnico is entering a period of strong growth. There are pockets of untapped gold mineralization underlying the company’s northwestern Quebec properties that — at the right price — offer plenty of exploration and development potential.

And lately, the price has been just right.

Thanks to gold’s climb to the US$650-per-oz. level, projects that have lain dormant are springing back to life in the Val d’Or camp of northwestern Quebec, where Agnico operates the 18-year-old LaRonde gold mine, a 250,000-oz.-per-year money-spinner that had cash costs of minus US$709 per oz. in the third quarter of 2006 as a result of silver, zinc and copper byproduct credits.

During a recent tour of the area, the concrete was still drying on new headframes at Agnico’s Goldex and Lapa projects, while development was at 2.2 km and getting deeper at LaRonde II, an extension of the original mine at depth.

Projected capital spending for the trio of projects is US$435 million, a significant investment in a region where the other major employer, forestry products, is struggling. Agnico’s Quebec workforce has jumped from a couple of hundred employees a few years ago to 1,200 (including 300 contract miners) and growing.

Goldex and Lapa will add about 300,000 oz. gold to Agnico’s annual production by 2009, while LaRonde II will boost production from the flagship mine to 320,000 oz. in 2011 and extend the mine life by 10 years to 2021.

A fourth mine in Finland, Kittila, is expected to begin production in 2008, providing 150,000 oz. per year. If the company’s Pinos Altos property in Mexico also pans out, gold production could top 900,000 oz. anually by 2011.

This phenomenal growth story makes Agnico a prime candidate for a merger or acquisition, but vice-chairman and CEO Sean Boyd says not a chance.

Culture de coeur

“We don’t need anybody else’s people and we don’t need anybody else’s money,” Boyd told an audience of about 100 analysts and investors who had flown into Val d’Or on jets from New York and Toronto. “We don’t want to negatively impact our culture, because that’s what makes us special.”

Boyd’s emphasis on Agnico’s “culture de coeur,” as the enthusiastic mayor of Val d’Or calls it, is more than just lip service. On the tour, The Northern Miner noted a high level of mutual respect among managers and miners. Employees we spoke to — including many highly trained professionals — seemed deeply satisfied with their work, a sentiment supported by a waiting list of applicants.

This ability to attract and retain employees gives Agnico a significant competitive advantage in today’s tight labour market.

The most significant risk to the development projects is the gold price. A combination of deeper ore (at LaRonde II) and lower grades (at Goldex) make the proposed operations relatively expensive compared with the flagship operation: LaRonde II is expected to operate at cash costs of US$230 per oz., Goldex at US$225 per oz. and Lapa at US$210 per oz. Byproduct credits will contribute much less to LaRonde II than the current operation — where cash costs at longer-term metal prices are about US$50 per oz. — and will be non-existent at Lapa and Goldex.

The first stop on the recent tour was Goldex, 60 km west of LaRonde on the periphery of the town of Val d’Or. The Goldex deposit was discovered more than 20 years ago and considered for production in 1997, but it wasn’t until 2005 that the economics justified building a mine. Goldex — one of the largest undeveloped gold deposits in northwestern Quebec — contains 1.6 million oz. gold in probable reserves of 21 million tonnes grading 2.4 grams gold per tonne, good for a 10-year mine life. It remains open to the east and at depth.

Development and shaft-sinking at an estimated capital cost of US$135 million was under way during the tour, with the project on budget and on schedule to begin production in the second half of 2008. Daniel Racine, vice-president of operations, says the football-shaped ore zone is the easiest of all the company’s deposits to develop because the geometry is simple and the mining method — long-hole shrinkage — straightforward.

A stockwork of pyrite-bearing quartz-tourmaline veins, the main type of gold mineralization, could be seen snaking through the granodiorite host in several directions at 730 metres underground. The new shaft, which had reached about 135 metres, will extend to 860 metres.

Tour participants also took a 6-minute elevator ride down 2.2 km at LaRonde to witness the challenges of building a winze infrastructure deep underground to access the LaRonde II ore.

“We have a lot of engineering work to do now, but we are lucky because we have a ramp to surface, so most of the equipment can be transported down the ramp and doesn’t tie up the (Penna) shaft,” Racine said. “The most important thing to us is not to interrupt production from LaRonde, because it’s the only Agnico mine that is operating right now.”

LaRonde II has probable reserves of 18.8 million tonnes grading 6 grams gold per tonne, or 3.6 million oz. and remains open at depth. The US$210-million project will take advantage of existing infrastructure and trained personnel to develop down to at least 3,000 metres, making LaRonde one of the deepest mines in Canada.

At that depth, production will drop to 6,000 tonnes daily from 7,000 tonnes per day currently. But the lower production rate will be offset by higher grades and lower dilution, while tweaking at the mill will boost copper, zinc and silver recoveries.

High pressure

Racine says the company has learned from experience how to deal with the rock bursts that have plagued LaRonde in the past, even as pressures increase with depth. Forewarning is provided by a series of underground sensors that record seismic events and care is taken to alleviate pressures before they reach critical levels. In early 2003, a 30,000-tonne collapse in two production stopes resulted in lower annual production, though no one was injured.

The tour also visited the US$90-million Lapa project, 11 km east of LaRonde, run by Carol Plummer, one of only two female mine managers in Canada (the other, Heather White, manages Voisey’s Bay). The shaft is currently under construction in preparation for production in the fourth quarter of 2008 and will eventually extend 1,350 metres below surface.

Lapa contains probable reserves of 4.1 million tonnes at 10.2 grams per tonne, or 1.1 million oz. gold, good for a 7-year mine life with an exploration upside. Recently, Agnico intersected a high-grade extension zone west of the existing reserve, including an intersection of 9.7 metres grading 14 grams gold. The new zone has been traced over a strike length of 50 metres and a height of 200 metres.

Further exploration in the region may reveal even more pockets of mineralization that are economic at today’s gold prices. But for the near future anyway, Agnico will be focusing on development.

“Our general strategy is to get the mines built, and then we will have time to explore,” says president and CEO Ebe Scherkus. “There are already exploration ideas on the table for when the dust settles at Goldex.”

— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).