Agnico Eagle has continued to grow their portfolio through acquisitions. The company acquired TMAC Resources in early 2021.
The gold price has taken a hit. But how have miners adapted to this new environment? Is it a new environment or is it still the same? If you consider all the macroeconomic forces, Sean Boyd, CEO of Agnico Eagle is back with us to discuss this and his plans for his company. Sean has a privilege speaking with you today.
It's not often we have you on the show. Welcome back. Great to be here. Thank you very much. Let's start with updates from your company. The big news coming out of Agnico Eagle, uh, up till now in 2021 is your T-Mac acquisition, which you made earlier in the year. Tell us about that deal and tell us why T-Mac well, we like it from an exploration upside potential.
There's two major trends that about 80 kilometers long. The resource and reserve is over 7 million ounces. And we expect that to continue to grow. And as a result of that, we've got about a $16 million exploration program, uh, laid out for this year. So we're going to draw a lot of targets. Um, so by this time, next year, we would expect that, uh, overall mineralized envelope to continue to grow while we're drilling, uh, we're going to study opportunities to expand out.
But there we do feel that at some point, um, there is an expansion scenario. That'll work. That'll make good sense. And we just see this as another high quality project that we can put into an already solid project pipeline. Okay. And can you give us an update on some of your existing projects? Absolutely.
Um, in addition to, uh, the announcement earlier this year of whole pay, we also announced the go ahead on to construction projects. One, the Amarok underground. Uh, which will, uh, add, uh, high quality higher grade tonnage, uh, to our open pit operation. And Amaruq, that will allow us to increase output as we move forward, uh, in none of us, but, uh, the biggest project than the one with the biggest potential long-term impact is the Canadian Malartic underground opportunity that, uh, we share with our partner Humana.
At Canadian model, as we announced, uh, this will be, uh, once it's up in, uh, full running at full potential, it'll be Canada's largest underground gold mine. It'll be operating daily tonnage rates around 19,000 tons a day, uh, producing over 500,000 ounces. Uh, the nice thing as well is that it significantly increases the mine life, that a Canadian Malartic.
So. What we really like about it is not just those economics and the returns that we will get is our study is only incorporating about half of the known mineralized envelope there we're using 7 million ounces. The overall combined resource exceeds 14 million ounces. Those zones are wide open. Uh, so this is a significant, uh, positive event for both, uh, Agnico Eagle and Humana.
And we're going to continue to optimize that going forward. As well, the exploration budget there this year is $30 million. So lots more drilling to come. We would expect that deposit to also continue to grow well. Let's bring it back now to the macro economic environment and talk about gold and how it relates to your environment.
As you know, like I started this interview as you know, the gold price has come down from its highs in August, as this all concerns you from a producer standpoint. No, it's a long-term business. I've been at this for 36 years. We've seen a lot of ups and downs and, um, we were running a business without a hedge book when gold was below $300.
So, uh, you can't really pay too much attention to what the gold price is going to do. Uh, what's really important is thinking long-term, uh, setting your business up so that. You're in a strong relative position to take advantage of opportunities. And so we look out at this price environment, um, we see an ability to, uh, continue to invest in the future.
As we said, uh, we're not only advancing key projects. We're also increasing our exploration budget by about 40%. So in 2021, we're spending $160 million. So we still see tremendous opportunity. In our current portfolio, we're going to continue to do that regardless of the gold price. And so that's where our focus is.
And I think, uh, January that's where the industry's focus is, is looking for opportunities to improve the quality of the business and take advantage of, of even these gold prices are really good. The industry can still generate significant free cash flow at the current spot price of gold. This is well price of gold affect your cap ex budgeting at all for your exploration.
Uh, no, it doesn't. Um, we laid out an exploration, um, and cap ex strategy a few years ago, working within an envelope and that, uh, envelope allows our internal projects to compete for capital. And it was designed really to ensure that we have a significant investment in the future of the business, which is, uh, important.
And that's been a really the basis for our successful strategy. But also while doing that, uh, we can still provide really strong returns to our shareholders. We increased our dividend last year twice. Um, we've paid a dividend for 30 S 38 now consecutive years. We've increased the dividend each and every year, since 2015.
So we've been able to create that right balance. So we'll continue to do that. The gold price is going to do what it's going to do. It's going to go up and down. Uh, we're just focused on maintaining that strong high quality low-risk business. Okay. Investors are wondering whether or not minors are moving away from the challenges that COVID has has post last year.
How would you compare this year's operations, uh, relative to last year in regards to the challenges posed by COVID? Yeah, that's a great question. Last year, at this time, um, as the pandemic was we've coming apparent, uh, all of us were dealing with tremendous uncertainty and it was a really complex time because.
Information was changing on a daily basis. And even during the day we were getting, um, you know, different information flows at one point. Um, in the second quarter of last year, we had seven of our eight minds impacted, um, in terms of either shutdowns or significantly reduced activities of those sites.
But we're really focused on three things. They're keeping our employees safe, making sure that. Uh, where we did have a activity, we were making sure our assets were strongly positioned, uh, for the second half of the year. And we had the best six months we've ever had in our 60 plus year history in the second half of last year.
But we're also focused on COVID presented a lot of opportunities for Agnico, but also for the mining industry, uh, given where mining tends to operate or in generally, uh, in much better logistical position. And we have much greater capacity to do things, to help communities. So, um, we found opportunities and none of it where we can really significantly contribute to those communities.
Uh, we took some significant steps about a year ago, where we had all of our interview at workforce go home. We didn't want to run the risk of having, uh, the virus, um, move from the mind, potentially into the communities that would have been devastating. Those workers are still at home because the conditions just aren't right to have them back.
Um, but vaccines are in none of it. Uh, the residents are, none of it are getting vaccinated. We think conditions will improve to be able to get them back to work. Uh, we want them back. They're a big part of our business. Uh, but we've also done things where at one point we were providing food hampers over 2000 families.
So there's a lot of things that we've been able to demonstrate why mining should be considered an essential business because. Of the contributions that are made positive contributions that are made each and every day. And that was certainly demonstrated through COVID. Let's talk about operating strategy.
Uh, can you give us your five-year plan? Well, the five-year plan is a, is really the 10 or 15 year plan. I think that's why we've been successful in creating a lot of per share value over time. Keep the share countdown, uh, keep their risks level manageable. But take geological risk. We've really built this company on the back of a successful exploration success.
We've made significant discoveries. It's been bolstered by an M and a strategy that's designed to go early. Uh, so we get all of that geological upside and, uh, whole pays no different than that. Um, we've really built this company from a single asset company in the late nineties that only had 50 million in revenue to the company.
It is today. Through exploration and early stage acquisition. So there's no change in that strategy because it's successful and as well-matched to our skills. So the focus will be on optimizing the existing asset base. And as we said, we're getting good exploration results at that gold ax at Meliadine at Ketola Canadian, marktech Sandra gruesome, Mexico work, those, um, brownfields opportunities as well as working.
The project pipeline at a very steady and measured pace so that we keep the risk level low in terms of execution and technical risks, but also financial risk and do it in a way we can continue to generate meaningful, free cashflow and continue to move dividends, uh, to our shareholders. We're going to look at your costs now you're all in sustaining cost for some of the properties.
Is around 900 to $1,000. Is that correct? And, um, I, I wonder how this, uh, ranks against your peers. I notice it's slightly lower than some of your peers of your size. And I wonder, I like to ask you about cost control and how is it that you managed to, to maintain competitive costs? What is your strategy around that?
Well, costs will vary by jurisdiction, but the biggest driver of costs are. Is the underlying quality of the ore bodies in terms of the grade and the grade content. So we find ourselves having a, an average grade that's well above the North American peers. And as we move forward and open up, um, our new projects and the new areas within our minds, um, our grade profile goes up and that's the biggest driver in terms of managing that unit costs.
So, um, none of us can be challenging. It's a bit of a higher cost. Um, jurisdiction. So we have to stay focused on managing the cost, but I think the cost question is one. We get all the time, um, and the industry gets all all the time. And it's really from the perspective of, okay, this time around versus 12 or 13 years ago.
In a good goal price environment. Can you deliver the margins? Can you keep the lid on unit costs? And the industry is really well positioned this time versus 12 or 13 years ago. Uh, for two reasons, one, we don't see as an industry, the type of input price pressure we saw 12 or 13 years ago, but I think more importantly, And you mentioned David about a five-year plan.
Well, the next five years for all companies in this industry and in terms of production or costs are delivered off of the reserve base and the reserves for the industry have been calculated at 1200 1250 for the last seven or eight years. So these are high quality reserves calculated conservatively. We were not seeing significant dilution.
And the underlying quality of the reserve base that drives the industry likely software over 13 years ago, where the reserve price assumption was going up each and every year, which was really diluting the business. So the industry is well positioned and that gives the industry, um, a great opportunity to deliver the free cash flow and deliver that margin that investors are looking for.
Yeah. I've spoken to some economists about the outlook on the economy and. One of the concerns people have is rising inflation in the wake of unprecedented debt levels from the, from the government. Are you, are you concerned about inflation on the front of raw materials, energy costs, wages, what that effect your Aldean sustaining costs?
Have you factored that into your guidance? Yeah, well we're, as we said, we're not seeing the type of pressure we saw on input says are these like 12 or 13 years ago where we were getting letters from suppliers. In the second quarter of the year already having agreed on the price of key inputs for the balance of the year, looking for 20 to 30% increases.
So it's nowhere near that. I think there is inflation, um, coming. Um, that's certainly going to be, um, negative in a way on costs, but also positive we think on the overall goal price. And, um, so we're a natural hedge, um, in terms of an industry. Um, to deal with that inflation. So, um, as we said, I think we've got to keep an eye on it.
Um, but we're not in the position where we were as an industry 12 or 13 years ago, where we saw tremendous, tremendous price pressure. Okay financing. Now, can you, can you talk about, um, how you finance the T-Mac acquisition and just more broadly speaking, uh, whether or not low interest rates right now is, uh, are conducive to raising debt or would you prefer to raise equity or neither of those options?
Well, we pay cash, uh, for tea Mac. And so we didn't want to dilute. So we see a tremendous upside in that asset in terms of overall our reserve resource and then production for us. After 60 years, we only have 245 million shares. Outstanding. So it's all about per share value. How do we create that? How do we increase our owners exposure?
To production per share to reserves per share. So we're in a position to use cash. Um, we see each and every quarter, our net debt levels will come down. We're generating free cash flow, as we said, and still invest in, uh, in the future. Um, but I think what we've done successfully over 60 years, we're still here.
Um, and I've seen over my 36 years, many of our peers, uh, disappear because they took largely in most cases, too much financial risk. So. We're very mindful. I'm an accountant. So I watched that carefully. We're very mindful of ensuring that we have a significant financial flexibility to continue to invest in the future, not increase the overall risk profile of the business in terms of interest rates.
Um, I think that's one of the headwinds for, for gold at the moment. In addition to a high stock market and high us dollar is interest rates are moving up. Those are three headwinds. At the same time, you can argue that goal's actually done pretty well in the face of those three headwinds. And so, um, I just think we're in a position where as an industry, uh, you stay focused, you stay disciplined, you focus on adding ounces, uh, through exploration and building out your pipeline.
And I think the gold price is going to look after itself. And, and, and before, do you think those headwinds are likely to stay in the market for a considerable amount of time? Sean? Um, it's hard to say, but I think that, you know, the stock market's been going up for a number of years, I think interest rates, uh, given the debt levels and you're referred to them, David, I think you need to step back.
And I think the conditions that got gold to 1700 prior to the pandemic are still very much in play where debt levels continue to rise economies, uh, can keep pace in terms of the rate of. Economies to the rate of growth, a debt. And it's really about hard assets versus paper assets at the end of the day.
And, and, and hard assets, uh, will win that. Um, and it just may take some time. So I think that's why companies just need to stay focused on keeping their businesses, uh, high quality, low risk. And take advantage of opportunities, um, to just improve the quality of the underlying. I'm wondering for a minor, do you consider, uh, monetary policy or the direction of interest rates as a consideration for changing the capital structure of your firm?
So the percentage of debt versus equity on your books? Yeah. Um, not really. I think we look at it we're investment grade, um, and that's, uh, really the. A key parameter. We always look at back in 2014, when we partner with Humana to, uh, acquire, Oh, Cisco, we had to write a half a billion dollar check, uh, in addition to issuing stock.
Um, but we quickly made sure, uh, the following two years after writing that check, uh, we made sure we reduced, um, our credit lines, which we drew on there. So it's always about managing financial risk and. Um, you never want to put yourself in a position where you have too much debt. Our net debt to EBITDA is dropping, uh, we're in a strong financial position.
Uh, we're risk averse when it comes to, uh, when it comes to debt and debt levels. Okay. And, uh, finally, I'd like to talk about, uh, well, two things, um, your outlook on the mergers landscape, you talked about T-Mac and I'd like to get sort of your outlook on whether or not more M and a activity is expected in the mining sector, given where the gold price is currently and given, uh, sentiment in the gold market.
First of all, do you usually see more deals done at a lower gold environment or a higher gold price environment? Um, I, I think generally higher, uh, I think the experience has been in, in all our resource spaces, uh, when you tend to get commodities pricing, move, whether it's oil or gas or, or gold or base metals, you tend to get more consolidation.
I think from a gold industry perspective, it's pretty fractured in terms of ownership, relative to something like base metal. So there's far too many players relative to the number of high quality opportunities that exist out there. We've been saying that for years. So the industry actually needs smart consolidation.
Uh, so that assets end up getting into stronger hands, uh, because the business isn't getting any easier, it's getting much more complex as we like to say, mining's tough enough. So you've got to keep the risk levels low and focus on the basics. So I think you'll likely see more consolidation. Um, and I think for the most part, it'll be disciplined where you're combining things and, um, that actually strengthened and end up with a better business overall.
So that's what we look for going forward. I don't think you're going to see rampant consolidation, but I think there's a, there'll be more as you move out over the next one to two years. And what about the, um, the technological innovation experienced by the sector? Investors have, have pointed out that.
Oil, the oil sector, for example, has seen, has seen many phases of technological innovation. They've had the fracking moment. Where is, where is mining there? Where's the gold mining fracking moment. And why have we not seen tremendous progress? Yeah. Yeah. That's a, that's a great question. Um, uh, you know, I don't see, and the industry doesn't see.
Um, you know, this fracking moment where the whole industry is, um, turned upside down because of some, uh, innovative breakthrough. I think people point to the last time this happened, uh, would have been heat leach technology, where the industry took very low rate deposits and turned them into important parts of the business.
I think these are sort of moderate, uh, steps that we'll see as, uh, from, uh, an industry perspective, things like. Uh, using more automated equipment, uh, that's a safer way to go a more cost effective way to go. Uh, there's still, um, a bit more to do from the technological perspective, particularly in underground context, when you've got multiple pieces of moving equipment.
Um, let me put it to you this way. Sean, if a tech company were to approach you and say, Hey, Sean, I have, I have, I have technology at my disposal. I could build you whatever you want. Uh, list me the dream technology that you would need, that you would want to have at your disposal. Let's say it's Christmas, it's coming up.
What would you want to have that could significantly bring down your all-in sustaining cost and perhaps even a significantly increased production at a much faster, faster pace, and perhaps even make exploration much easier. What would you, what would you like as the that's that's a big wishlist, but I think the trend in the industry has been declining grades.
So we're basically seeing nature where a lot of the easy deposits have been found. And so that's the challenge over the next 10 to 15 years to, um, not only grow, but grow in a way where you're actually adding quality to your business. So anything that could, um, uh, improve our ability to recover gold from low grade deposits, um, We're working on technology around or sorting, um, so that we can take a lower grade deposits and make them a higher return project.
So it's really what technology will allow us to take lower grade deposits as an industry and turn them into, um, significant businesses. And that's what happened back with heat leaching technology, where there was a lot of material in Nevada, which just didn't work, uh, to put it through a conventional mill, but we, each technology basically.
Um, turn that into an extremely successful businesses, uh, business and look at the two big companies in our industry, Barrick and Newmont have a strong base in Nevada. So, um, uh, belly to improve recoveries and extract gold low-grade deposits, uh, could be a potential game changer. John, I want to thank you so much for coming a kick out today and giving us your update on both the economy and your company.
Thank you very much. Great. Thanks, David. Nice to be here and thank you for watching Kitco news. Stay tuned for more coverage on David Lynn.