Kitco News: Agnico-Eagle Mines Ltd (AEM) isn’t done ramping up Gold production yet, even with 2010 output at a pace to more than double the company’s previous record output from last year.

The company expects gold production of between 1 million and 1.1 million ounces this year, and the total is projected to rise to 1.4 million ounces in a few more years, said Sean Boyd, vice chairman and chief executive officer, in an interview with Kitco News.

Agnico-Eagle added five new mines in the last 2 ½ years, three of them in Canada and one each in Finland and Mexico, to go with the flagship Canadian mine that it has operated for two decades. With these projects on line, AEM plans to increase its focus on exploration for still more reserves.

Agnico-Eagle has pursued a strategy of buying projects early and developing mines themselves.

“We have a very specific formula,” Boyd said. “We own all of these assets 100%. We have no partners. Each of these assets is in pro-mining regions.”

Furthermore, the mines are surrounded by land with potential for more discoveries.

“When we were building these assets, the focus was on building and not so much on exploration,” Boyd said. “Now, we switch gears and start to pick up the exploration effort on these properties, around the mineral reserve and resource and within the large land packages.”

The projected 2010 output of 1 million to 1.1 million ounces is double AEM’s record output of 492,972 ounces in 2009. This, in turn, was up sharply from the previous record of 276,762 ounces in 2008.

Output should rise to 1.2 million ounces next year, 1.3 million in 2012 and 1.4 million ounces by 2013 to 2014, Boyd said.

Agnico-Eagle Grows From One To Six Mines

For years, the company relied on the LaRonde mine in northwestern Quebec, initially thought to be a deposit of some 1 million ounces, Boyd said. Production began in 1988. Despite two decades of mining since, exploration efforts over the years have identified nearly 5 million ounces of remaining gold reserves, which is among the largest known reserves of any mine operating in Canada, AEM said.

Agnico-Eagle several years ago pondered the idea of merging with other companies.

“We certainly did talk to those players, but decided at the end of the day we would go it on our own and use our technical team to expand in our backyard, which is northwestern Quebec, and also to look internationally,” Boyd said.

So in 2005, AEM decided to build the Goldex underground mine located within the northwestern Quebec town of Val d’Or. The mine has been in production for around two years. The other still-new Quebec mine is Lapa, located several miles from LaRonde.

Acquisitions between 2005 and 2007 resulted in the development of the Kittila mine in Finland, the Pinos Altos mine in Mexico and Meadowbank in the Nunavut Territory of the Canadian Arctic.

“For the first time last quarter, we had all six mines running. As a result, we had record production and cash flow,” Boyd said.

AEM’s second-quarter earnings, reported on July 28, listed cash from operating activities of $161.6 million. This was due to both increased Gold production and substantially higher gold prices, AEM said. Second-quarter gold output of 257,728 ounces was up from 119,053 in the year-ago period.

Meanwhile, Boyd said, efforts are under way to further expand output at AEM’s mines in the foreseeable future.

The company is developing infrastructure deeper underground at LaRonde to gain access to a higher-grade ore body, Boyd said. The company anticipates mining from this higher-grade area by the end of 2011. Output at the mine should rise to a little more than 300,000 ounces by 2013 from an estimated 180,000 to 185,000 this year, Boyd said.

The company is increasing the amount of ore mined at the Goldex mine and the project is ahead of schedule, Boyd said. Thus, output for the current year is now projected around 180,000 ounces rather than the originally anticipated 160,000.

Commercial production began at the Meadowbank mine in March, and AEM is looking to increase the amount of ore mined daily to boost gold output from some 300,000 ounces this year to full capacity of more than 400,000 within a few years.

Mining continues to be ramped up at the Kittila mine, which began commercial production in May 2009. Expectations are for some 130,000 to 140,000 ounces this year and then 150,000 to 160,000 in future years. The company is conducting a study, expected to be finished in about a year, on a potential expansion.

Meanwhile, the Pinos Altos mine in Mexico achieved commercial production in November and is in the final stages of the commissioning process. Production is estimated at 130,000 to 140,000 ounces this year. After plant upgrades that should be done by year-end, coupled with commercial production that should begin at the Creston Mascota project next year, future output is projected to the 175,000 to 200,000 ounces annually, Boyd said.

Agnico-Eagle last month completed a transaction to acquire the Meliadine project in the Nunavut Territory and is embarking upon a $129 million exploration and road-building effort.

“We would anticipate that has the potential to come into production in the second half of 2015,” Boyd said.

The CEO said the company is poised to keep growing with internally generated cash flow and relying on projects already in hand.

“We continue to look at things,” he said in reference to any possible acquisitions. “But we’re not forced to go out and buy things just to grow…We’ve got a reasonable production base that has grown dramatically over the last couple of years but can still grow based on the projects that we have, based on the people who are in place, and based on the balance and net free cash flow that is being generated.”

Author: Allen Sykora of Kitco News: asykora@kitco.com

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