Agnico Eagle Mines Limited
Q4 2020 Earnings Call Transcript

Published: 12 Feb 2021

[Operator:]

Good morning. My name is Venice and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Fourth Quarter Results 2020 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. Thank you.

[Sean Boyd:]

Thank you, operator and good morning everyone and welcome to our fourth quarter and 2020 full year results conference call. Before we get started with the slides, just want to remind everybody that this presentation does include forward-looking statements and we have that material in the slide deck. Just to start off in terms of how we closed the year and how we're positioned for moving forward over the next several years, we had a record quarter in terms of production, which drove record cash flow. But more importantly, we posted our best ever safety performance, so although we're pushing more volume than ever. And we have more employees than ever. We're operating more safely than we've ever done in the history. So a big thank you to our employees. It's a testament to their focus and the fact that they show up to work every day, looking to make a contribution and caring about their work environment and the people they work closely with. As a result of that performance on the operating side the business in the full year 2020 generated operating cash flow of 1.2 billion. So that continues to improve our financial position, good liquidity, declared our quarterly dividend of $0.35 per share. Also got an additional credit rating agency to rate us as investment grade, we've got Moody's to do that recently. So it just shows you the strong financial position which continues to strengthen as we grow our production over the next several years. We expect to grow output off of the 2020 amount by 24% as we move through 2024 and that's supported by record reserve position, so lots of records as we close the 2020. The reserve growth is supported by exploration results. So this is really not just a story about production growth, but also being able to improve the quality of our asset base, growing deposits at our existing mines, as we move forward. As a result of that, we've increased our exploration budget by over 40% to 160 million, so very much still a focus on exploration. And we'll talk about how that fits into the strategy in a minute, the key part of the story. The strategy is going to remain the same. It's consistent. It's really to grow production per share by focusing on the geological potential of our asset base, by optimizing our existing mines as we said through exploration and then building out our project pipeline. We can see visibility at LaRonde, at Goldex in terms of additional conversion of resource into reserves, which will extend those lives of those assets as well as bringing new projects into the production base of the company with the announcement of Amaruq underground and Canadian Malartic underground. A big part of the strategy is to keep the business low risk to manage political risk, stay in those jurisdictions that we know well, but also to continue our leadership and excellence in ESG, which we continue to do. We're AA rating at MSCI. Corporate Knights just ranked as number 73 in the world, not just in mining, but of all companies in ESG. So we continue to be recognized for our leadership in ESG.

[Q - Unidentified Analyst:]

Good morning. Thanks for taking my question. We had a question on Amaruq I guess for - in '23 you're kind of guiding to total production at Meadowbank of like around 415,000 ounces with around 100 from the underground and then a little 300 or so from the open pit. And I guess post 2023 I think you're guiding to the underground being a little around 120,000. What does the open pit I guess look like in '24 and beyond? Is it kind of stay around 300,000 ounces or should it - should ease a little bit?

[Sean Boyd:]

Dominique, do you want to help us with the split between underground and open pit at Meadowbank as we go beyond 2023.

[Dominique Girard:]

Yeah, the Amaruq underground is going to bring 100,000 ounces, 140,000 ounces to the game. That's going to bring overall Meadowbank getting - they're going to reach over 500,000 ounces, which is going to be our biggest operation in those years 2024, 2025.

[Unidentified Analyst:]

Great, that's helpful. And then just I guess final question, as the free cash flow is really strong in 2020. When you look to 2021 outside of sort of earnings and CapEx, are there other - any items like I guess taxes or something like that could sort of have an impact on the free cash flow profile this year?

[Sean Boyd:]

Well, cash taxes will be slightly higher than 2020, because of the 300,000 ounces of additional production, which is going to be more profitable, or add to the total profit. So cash taxes will be up a bit, but not significantly higher.

[Unidentified Analyst:]

Great, thanks so much.

[Operator:]

Your next question comes from Fahad Tariq with Credit Suisse. Your line is open.

[Fahad Tariq:]

Hey, good morning. Thanks for taking my two questions. The first on Hope Bay, I know you mentioned over the next few years, you don't expect to spend significant CapEx. Beyond that timeline, as you think about Hope Bay versus some of the other projects, can you just provide some color on how you're thinking about what it's competing against? Is it competing against Upper Beaver and Hammond Reef? Or is there already a priority among those projects that already set out even before you've done more work on Hope Bay?

[Sean Boyd:]

No, it's competing with the two you mentioned. So those would be the ones that we're still studying. I would say Upper Beaver has the upper hand, let's say, given our familiarity given its location. Hope Bay is a work in progress. I think what we liked about it was the 80 kilometer greenstone belt. We've had big success with geological belts when we can control them a 100% in adding ounces, so we believe this will get bigger. But basically, we have to step back on this one, because everybody understands we need a new processing facility. So the question will be what and where? And the where will depend on the exploration results as we move forward. So there's still work to do. That's why we're not in a rush here. We've already had our top crews up there recently. They spent a week there, our project development team and some of our senior team at Nunavut. So we've begun the process of putting people from our technical service group to look at various expansion scenarios. And again, the whole concept with our strategy is to stage and spread these projects over time. So it's just going to require us applying some of our key project development teams working with our technical service group and the operating teams in those jurisdictions to optimize the project studies and compete for the capital.

[Fahad Tariq:]

Okay, great. That's really clear. My only other question, on Kittila, I'm just trying to understand that the shaft sinking contract issues is the right to - do I understand this right that now all of that will be done in house or is it still being contracted with some additional local personnel. I'm just trying to get a sense of what's going on there?

[Sean Boyd:]

Dominique?

[Dominique Girard:]

Yeah, we're going to continue to contract it. Of course, we're looking to mitigation now to introduce more local worker, training local people. But still, the Shaft comes - that shrinking construction phase is contracted. The challenges are really with the travelling issue we have with - or challenges we have with the COVID. So people need to be get evaluated and tested. So that's bringing some challenge on having a Canadian contractor going there. But the teams are looking for mitigations to minimize that with better conditions for the guys as well as training more local people.

[Fahad Tariq:]

Okay, got it. So that's different than terminating the underground development contract. That's different, right?

[Dominique Girard:]

Yeah, that's different. Let's say the overall project is completed at 80%, 90% if we're talking about the rock line and all the work done to be ready to operate the shaft. The only critical path which is the shaft sinking. This is the area where we struggle, and there are some delays. At the end of the day that will not impact the production because we're able to mine it through the ramp. It is just more costs each month that we do it to the ramp compared to the shaft, but that will not affect the production rate at Kittila.

[Fahad Tariq:]

Okay, great. That's it for me. Thank you.

[Operator:]

Your next question comes from Ralph Profiti with Eight Capital. Your line is open.

[Ralph Profiti:]

Hi there. Good morning, everyone. Sean, I have a question on Canadian Malartic exploration, but specifically for open pit or sources in the context of filling up that mill capacity right, especially post 2026. Is now the time that this becomes a more of a strategic priority?

[Sean Boyd:]

I would say that the focus before that is really on - no, this is the first cut of the study, it's just optimizing that study rather than looking at outside additional sources of ore, so it's really an optimization effort if we can sort of reduce the dip in production in those years during the initial transition from the open pit to the underground. But what we won't do is rush the build out here. Now this is a 17 plus year life. It doesn't need to be rushed. If there's a different production, there's a different production. That's not the end of the world. So we'll just try to manage and build the most effective project, but Guy from an exploration standpoint, or Dominique from a production sourcing standpoint in the pit, is there any color you can add on that?

[Guy Gosselin:]

Yeah. So it's Guy here. So we also control a large property over there and over that - out of 20 kilometer of ground we control we continue to investigate and reassess the potential of order nears or face ore body either towards the west of the Canadian Malartic pit with the western porphyry for its east MB former operation, and at the same time to the east of the Odyssey project, while we still controlled another 10 kilometer towards the east that we are continuing to assess. So that's one of our plans to continue to test for both shallow and an extension of the East Gouldie and see if we can integrate them eventually in the mine plan.

[Ralph Profiti:]

Okay, thanks for that. Yeah, that's good color. Sean the economies are starting to show some light on Hammond Reef right, then we have some good first cut numbers. But it doesn't seem like it maybe meets the technical investment criteria right here with this study in terms of IRR. First of all, do you think it could get there? And particularly with respect to the CapEx number of $1 billion, is this something you'd be open up to partnering up on?

[Sean Boyd:]

Yeah, or selling it. Yeah, we're open minded on that one. What we like about it is it was a troll in, in the fiscal deal in 2014. And we bought the other half for $12.5 million. So we've had a lot more value than what we paid for and so the only question now is, how do we realize on that value? So we're open minded with respect to Hammond Reef.

[Ralph Profiti:]

Got it, well said, thanks very much.

[Operator:]

Your next question comes from Josh Wolfson - RBC Capital Markets. Your line is open.

[Josh Wolfson:]

Thanks, got questions first on the capital. I know the number that's been outlined is really just indicative of that 750 to 800. We have some details in the release on Amaruq underground and Malartic. But the indicative guidance, I guess, implies roughly $400 million on the project side. And sorry I have a Great Dane crying next to me. And then I guess I just want to fill the gap in terms of what - where the rest of that could come from as the release said there was no hope in there either?

[Sean Boyd:]

Well, we've just put sort of a hold on things because we expect at some point, we'll advance Upper Beaver, so all that is sort of a bookmark to allow us to move those projects forward that are in the pipeline in a very steady and staged manner.

[Josh Wolfson:]

Okay, I'll follow up maybe directly. Another question is for LaRonde. Guidance for the year looks somewhat lighter versus what the operation has already been doing the last couple of quarters. Is that just conservatism that's been incorporated or is there a change in sequencing?

[Sean Boyd:]

Not really a change. I think it's just being generally conservative there. We did have an upgrade in the west mine area in Q4. So we don't have that all factored in.

[Josh Wolfson:]

Okay, thank you very much.

[Operator:]

Your next question comes from Jackie Przybylowski with BMO Capital Markets. Your line is open.

[Jackie Przybylowski:]

Thank you very much. Good morning, everyone. I guess a couple of questions. I'll start with Hope Bay. It looks like you're planning to run it through this year and work on the longer-term expansion option. Is the plan still to sort of take a step back close the operation down for an extended period of time, like should we expect that sort of announcement for 2022? And I guess maybe if you could give us just a little bit of a guideline as to how long you think that exploration studies, all that stuff might take and when we might see it come back into your production profile?

[Sean Boyd:]

Yeah, it's still too early to sort of make a decision on do we put it on care and maintenance. As we said, it's not leading money, I think, which is important. So we can continue to run it, optimize it, drill it and complete the studies. We'll have a much better idea, this time next year, after doing all the study work through 2021 while we continue with the drill program. As to what it looks beyond 2022, that's still to be determined based on the results of the drill program and the study.

[Jackie Przybylowski:]

Okay, got it. So we'll wait and see. And hopefully next February, we'll have a better have a clearer picture. That sounds great. A similar question maybe on the Malartic underground, we've been waiting for this study, and I think the detail you give us was really helpful and it looks quite positive. Where's the next information flow? Or where's the next or data point that we should be watching for from here? It kind of feels like we're going to be in a period of drilling, ramp development, that kind of thing, is there more news flow that you're expecting to release in the market in 2021?

[Sean Boyd:]

But I would expect, as you said, Jackie, it's more exploration detail. As we said, we have the combined partnership budget, there's $30 million, with 24 of that on East Gouldie, which is wide open. So we would expect the news flow to be on those exploration results on East Gouldie and as we drill the structure along the trend. And we'll continue to always optimize and revisit the study and look for ways to improve and look for ways that maybe we can minimize the production depth during that transition from the open pit to the underground. But there's no timeline for information flow on that. But there will be on exploration because of the size of the budget and the fact that there's 11 drills going on the site.

[Jackie Przybylowski:]

Got it. Thanks very much. One final question, I know 2020 was a challenging year for your operations with COVID. Certainly, we're not out of the woods yet. It sounds like there's still some lingering effects in terms of travel restrictions and things. I guess mostly related to your more remote operations in Nunavut, how are you coping at the moment with COVID? Are you starting to think about bringing the local workforce back? Is there any increased risk of COVID up there at this point or are things getting better? Can you maybe just give us a broad update in terms of the operations?

[Sean Boyd:]

Yeah, the vaccine is there now in Nunavut, I think which is important. So that bodes well and that will be sort of a key part of the decision on bringing the workforce back. So we've been very patient on that because of the risks to the community. As we said from the start that we wanted to make sure that technically wasn't causing or bringing virus up to Nunavut. But I should say in Canada, we've got five testing labs going now. So we started testing early. We've continued to expand our testing capabilities and we're using that to help us manage sort of COVID now.

[Jackie Przybylowski:]

Okay, that's perfect. I'll leave it there. Thank you very much, Sean.

[Sean Boyd:]

Okay.

[Operator:]

Your next question comes from Greg Barnes with TD Securities. Your line is open.

[Greg Barnes:]

Yeah, thanks, Sean. I just want to get a clear picture of Amaruq and Meadowbank complex. Costs will remain high for next couple of years and come down as the underground comes on. The underground I think mines out in 2026. Just what happens near-term, medium-term and longer-term at Amaruq both production and cost?

[Sean Boyd:]

Yeah, I think from a production standpoint, it's still a relatively short life mine compared to our other mines and that's why the focus is on exploration in and around Meadowbank and Amaruq looking for preferably additional open pit material, because that would extend the underground with our ability to mix. But maybe Dominique on the cost side, you can give us some sense of sort of strip ratios and the impact of that on costs over the remaining mine life.

[Dominique Girard:]

Yeah, we're going to see some fluctuation on the costs. And it's a lot driven by the stripping ratio in the grade to the sequence. 2021 strip ratio is going to be more around 7-ish better than 2020, where we were more around 11. So that's going to - it's going to be helpful. But the impact is when strip ratio is lower, you're building stockpile that sells and when stripping ratio is higher than you need to consume stockpile. So that's impacting the cost. But overall, the Amaruq underground is going to bring - is bringing a positive impact. It is higher grade material. And all the fixed costs are already paid. So that's going to improve the costs at the site. And also, we've launched a new optimization, let's say, we'll call it the strategic optimization at the site where this beef stock the team to look at a different way to improve it mainly on the contractor side, rental side, on the logistic, inventory. We've been through a - the Nunavut both divisions has been through an expansion phase now in last year. Now they're doing their units. So that's the first step. Now, as this is more stable, we're really transferring to an optimization site. And I think there is room to improve there. We're going to see. We just need to let the team some room to optimize their operation.

[Greg Barnes:]

So we have a big bump in production and '24, '25 and then '26. After that is Amaruq finished, after 2026 at this point?

[Dominique Girard:]

Yeah, at this point, we go up to 2026. As Sean mentioned, we still have good resources underground under the permafrost because we keep the mining in the permafrost for the let's say Amaruq Phase 1 - Amaruq underground Phase 1 exploration. And maybe Guy could give a flavor on that. But the exploration are still ongoing. The best dream will be to find another pit that we could - we have all the infrastructure to manage that and to continue to mine there with the higher grade coming from underground. But up to now this is where we have the resources reserve at Amaruq.

[Greg Barnes:]

Okay and just secondarily on Upper Beaver Sean. It does sound like that slipped up the queue. Effectively, it looks like it's going to be the next operation after the Malartic underground, timing on studies or any kind of decision on that one?

[Sean Boyd:]

Well, it'll be later this year when we get the study. So decision would be sort of maybe this time next year depending on the results of the study.

[Greg Barnes:]

Okay, great. Thank you.

[Operator:]

Your next question comes from Carey MacRury with Canaccord Genuity. Your line is open.

[Carey MacRury:]

Good morning, everyone. Sean, as you mentioned, you said the PA resources about half of the total resource outlined there, is that more of a function of drill spacing or the economics from other people or potentially?

[Sean Boyd:]

You're referring to Canadian Malartic underground?

[Carey MacRury:]

Yes.

[Sean Boyd:]

Yeah. Well, the bulk of its East Gouldie and so the balance of it would be East Malartic and Odyssey north and south which are lower grade. So we fully expect that as we optimize the plan that we'll be able to add some additional ounces to it. And also, we would expect East Gouldie to continue to grow. So as we said, this is the results of the sort of first study, let's say and which remains to be optimized as we look at adding additional resources to the mind plan.

[Carey MacRury:]

And then maybe just again on extending the open pit, I know your reserves are at 1250 like three years down the road for $2,000 price environment. Is there a bigger pit shell potentially at the open pit or is it sort of not that sensitive to the gold price?

[Sean Boyd:]

At Malartic?

[Carey MacRury:]

Yes.

[Sean Boyd:]

Yeah, I don't think there's much room to expand the open pit. The future there will be the underground and so certainly a higher gold price bodes well for some of the lower grade material in the old east Malartic area. So we'll certainly be looking at that as we continue to drill it and as we continue through the construction phase. But the underground infrastructure I think will be important. That's what was really something that turned LaRonde from a small mine into a large mine is the underground ramp and shaft gave us access to drill the deposit. So I think we'll probably see in this instance, getting better access to drill. It gives us the potential to add more resources and do more effective conversion of the resource to reserve. Some of that resource is only drilled at 150 meter spacing. So as you said in your question, part of why it's not in the plan is we still need to do some more drilling and tighten up the spacing.

[Carey MacRury:]

And then maybe just one more for me, what did the processing cost look like when you're running at 19,000 tons a day versus today at 55,000 tons or 57,000 tons and G&A per ton. Can you give some color on the unit cost?

[Sean Boyd:]

Dominique, do we have a breakdown? I don't have the breakdown in front of me on processing costs per ton, when we're at full production at 19,000 tons a day?

[Dominique Girard:]

No, we've given there the cash costs, but I don't have - no I don't have the details. We could come back on that.

[Guy Gosselin:]

We'll get that.

[Sean Boyd:]

Yeah, we'll get that for you.

[Carey MacRury:]

Okay, great. Thanks.

[Operator:]

Your next question comes from John Tumazos with Very Independent Research. Your line is open.

[John Tumazos:]

Thank you very much for taking my question. Concerning Hope Bay, as the original Gekko mill up to Agnico's standards? I know they're not as - they weren't as well financed as your team. And how much of the issue with the plant is the 80 kilometer trend in figuring out where the center of gravity is?

[Sean Boyd:]

Yeah. No, the mill is not up to our standards. Not even close. But we knew that sort of going in. So it does need a new plant. And the question is largely location now based on the size of the geological belt and the distance between the deposits. And that's what we're really trying to nail down over the next year or so as we continue to sort of look at it and assess it.

[John Tumazos:]

If I can ask a second one and I'm sorry to ask a big company question. The southern business in Mexico as the other businesses in north grow is getting close to 10% of the prospective mix. Is it worth keeping because of the value of the heap bleach, low capital cost simpler mining and the exposure to the Sonora, Sierra Madre, Southern belts as well as Latin America and heap bleaching in the southwestern US? Is it getting to be too long of a plane flight? And would the company be better have less admin and be tighter if it was just the northern business?

[Sean Boyd:]

Well, that's a good question. We ask ourselves those questions all the time. Our best asset there is our people and their ability to do business in that country. So we think it's worth keeping based on that skill set and based on its proximity, as you said to those geological belts. And so we'd like to have something else for them to build. We still believe Santa Gertrudis is a buildable project. Again when? We don't know. So right now we're just mining satellite deposits and developing satellite deposits to generate cash and we've got decent exploration budgets going. But we still like Mexico as a place to do business. It's still a pro-mining country despite what you may see or read in the news. We haven't had any issues that sort of changed our view on wanting to invest in Mexico. It's competitive. There's no doubt about it. But we think we have a competitive advantage just based on the skill set there. So it's so important for us, but it clearly needs a pipeline that it doesn't have that the northern business does have. And from a management perspective, it's not difficult to manage because it's almost self-managing. The leadership team there has done an exceptional job and it's not something that eats up a lot of senior management time.

[John Tumazos:]

Thank you. Congratulations, Paul Pena's up in heaven doing a backflip Sean, great job.

[Sean Boyd:]

Okay. Thank you. Thank you, John.

[Operator:]

Your next question comes from Anita Soni with CIBC World Markets. Your line is open.

[Anita Soni:]

Hey, guys. Good morning. So just a few questions, so firstly, just as I understand it, if we're going to model this 750 to 800 CapEx for the next three years, we should probably also be modeling potentially Upper Beaver, like that includes the capital for that or some of the capital obviously?

[Sean Boyd:]

Yes, but we don't have that defined. All we're really saying is that this is also for internal discussion for our teams is, look, this is the envelope we're prepared to spend. You do the analysis on the projects, and we'll decide whether it meets the investment criteria and whether it meets the risk profile to invest in it. So all we're saying is we've left room in the event that we have a positive production decision for something like Upper Beaver.

[Anita Soni:]

Yeah, and then also just sort of financial question, just to confirm that does include your capitalized stripping number right as well? Sorry, capitalized exploration, I keep doing that, so capitalized exploration.

[Sean Boyd:]

Yeah.

[Anita Soni:]

All right and then the second question LaRonde grade. So I noticed when I did my sort of reserve analysis and depletion that you actually added even higher grades again, and overall the mineral inventory went up at higher grades. So can you talk about exactly where you found that exploration success at LaRonde?

[Sean Boyd:]

Yeah, Guy, can you help us with that?

[Guy Gosselin:]

Yeah. So basically, as we discussed over the last couple of quarters with the high grading effect, we were seeing at LaRonde mine. So we've been investigating on our reconciliation, and basically found out that we were a bit too conservative where applying too low caffeine limit to the high-grade assays we're getting into deposits. So we basically loosen a bit our capping and even still, I think we've been running a couple of assumption and even with that higher assays capping approach, we still cannot reconcile. We're getting more gold than what our predictive model. So we've taken a little bit of that plus with the success we're having at LZ5 we've been extending the resources beneath the previous limit that was around 400 meter. We've extended the limit now do close to 700 meter below surface at LZ5 due to the success. So it came from those two modification of LaRonde that we've more than replaced what we've mined this year and that you've seen an increase of the grade for the LaRonde portion.

[Anita Soni:]

Okay and then that leads me to a little bit on the byproducts. Have you - use the same kind of parameters on the byproducts? I mean, I've noticed you guys are - always tend to do a little bit better than what you say at the beginning of the year for your byproducts. I'm wondering if it's suffering the same kind of capping.

[Guy Gosselin:]

No, no change to the byproduct estimation, neither any of them though the only change was on the gold.

[Anita Soni:]

Okay, Alright. And then just in terms of the Canadian Malartic royalty, so understanding that your partner reports their total or their unit cost a little differently. So that 5.5% royalty that should be on just the Canadian Malartic under - or the Odyssey project underground material, right. And then if we were to just look at the Barnett and Canadian Malartic pit, you would kind of take the cost that you got it to on a unit cost basis for that material, but not have to include a royalty, is that correct?

[Sean Boyd:]

Yeah, I'm not sure I follow that. The royalty is in the cash cost on all the current production and will be on the underground production as well.

[Anita Soni:]

Yeah. I guess what I'm asking is, I saw my - so my understanding was that the way you guys report your unit costs, you already include the royalty within the unit costs for the open pit, but here in the underground, you split out the royalty because the Yamana doesn't actually do it the same way as you all do.

[Sean Boyd:]

Brian, I don't know if Brian can help us with that let's see.

[Anita Soni:]

It's okay. We can take it offline. Okay. Alright, that's it for my question. Thank you very much.

[Sean Boyd:]

Okay. Thanks.

[Operator:]

Your next question comes from Matthew Murphy with Barclays. Your line is open.

[Matthew Murphy:]

Hi, I had a question on cost. And, I mean, you're AISC, you're going to be in the high 900, but I guess last year this time it sounded like they were going to come down near term, now it's sounding like they'll be flattish. So I guess its two parts of the question. Number one, what has changed that's keeping that elevated? And number two, if we look beyond 2024, all else equal, do you have kind of a range you want to get to on AISC?

[Sean Boyd:]

Yeah, that's really largely Amaruq. Amaruq has to high-cost years, '22 and '23 and then it goes lower. So that's what sort of drove the all-in because the cash costs go up there, drives the all-in sustaining costs up as well and they come down after that.

[Matthew Murphy:]

And do you level that you can talk about for 2025, 2026?

[Sean Boyd:]

No, we're not guiding that far out.

[Matthew Murphy:]

Okay. And I guess maybe as a related question, has the experience at Amaruq changed the way you think about satellite opportunities in Nunavut?

[Sean Boyd:]

No, I think that's a function of sort of longevity of that asset. It doesn't have the longevity that Meliadine has. So we are fortunate with the exploration success at Amaruq to provide higher grade underground ore. So it's really volumes that work well there and volumes in terms of tonnage that work well. Trucking does add costs. And that certainly - our trucking costs are a bit higher based on sort of availability and reliability of equipment. But it's really grade that's driven the unit cost. The grade's been a bit lower than what we expected it to be.

[Matthew Murphy:]

Okay, thanks Sean.

[Operator:]

Your last question comes from Tanya Jakusconek with Scotiabank. Your line is open.

[Tanya Jakusconek:]

Thank you. Good morning, everybody. I just wanted to circle back to Amaruq. I know Dominic, we talked about the mine going till 2026 and there is underground potential further there. But my understanding is that you just can't run the underground without having open pit. So maybe Guy, number one is that correct? Like 2,000 tons a day from the underground is not going to support that complex.

[Sean Boyd:]

Yeah, that's correct.

[Guy Gosselin:]

Yeah.

[Tanya Jakusconek:]

Yeah, maybe Guy, can you talk about the exploration focus for open pit material on this property?

[Guy Gosselin:]

Yeah. That something we are pursuing year-over-year, investigating, especially along the infrastructure, either the road that connects Baker Lake to Meadowbank or from Meadowbank to Amaruq. And we basically continue an old targeted application and target testing. And year-after-year we're generating good targets. Unfortunately we're not making discovery of something like Amaruq every year, but it's not a lack of effort, then the emphasis remains there at generating new targets, testing them, and we'll provide an update as soon as we hit something.

[Tanya Jakusconek:]

And what's the budget sorry for this year?

[Guy Gosselin:]

Generally speaking, we are allocating 20,000 meter to 30,000 meter for regional exploration as a - bolt for Meliadine and Amaruq and then in terms of allocation it depends out things will unravel. But you can assume that something like 20,000 meter regional, it's detailed in the news release, but 20,000 meter generating new target around Meadowbank, Amaruq?

[Tanya Jakusconek:]

Maybe for Sean or Dominique, maybe just a bigger picture, like what if we don't end up finding anything here, can your infrastructure or some of your infrastructure or some of your equipment, people be used at Hope Bay?

[Sean Boyd:]

Potentially, yes, potentially.

[Tanya Jakusconek:]

Okay, so the mill maybe could be movable and trucks and et cetera.

[Sean Boyd:]

We have to look at the specifics of that, but certainly, when you look at Hope Bay at reserves of 3.5 million ounces, resources of over 3.5 million ounces, still wide open. So it's likely going to be 7 million to 10 million ounces or so. We bought it because of its location and its geological upside and our skill sets to operate in that area. So if we can leverage off of the existing infrastructure because the mine life doesn't exist at Amaruq we'll certainly be looking to do that.

[Tanya Jakusconek:]

Yeah. Okay, good. I'll hopefully find more of the Amaruq. Thanks a lot guys.

[Sean Boyd:]

Thank you.

[Operator:]

Now, I'll like to turn the call back over to Sean Boyd for closing remarks.

[Sean Boyd:]

Thank you, operator and thank you everyone for the questions and if there's any other follow up information you require, please get in touch. We'll be happy to help. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.