Special from The Northern Miner, July 18, 2018.
Agnico Eagle Mines hosted a site visit in late June to its advanced-stage Meliadine gold project in Nunavut, which is expected to start production in the second quarter of 2019 — about three months sooner than initially planned. Meliadine is Agnico’s largest gold deposit in terms of resources (3.1 million measured and indicated ounces and 2.7 million inferred ounces) and is expected to produce about 170,000 oz. gold in 2019 and about 385,000 oz. gold in 2020.
At the Rankin Inlet airport, 25 km from Agnico Eagle Mines’ Meliadine gold project in Nunavut, from left: Agnico chairman James Nasso and Agnico vice-chairman and CEO Sean Boyd. Photo by Trish Saywell.
The high-grade project, 25 km from Rankin Inlet near the western shore of Hudson Bay, is part of a strategic operating platform that the gold miner is building in Nunavut, where its Meadowbank mine, 300 km west of Hudson Bay, is expected to produce 220,000 oz. gold this year, and where it is also developing Amaruq, a satellite deposit 50 km northwest of Meadowbank.
Sean Boyd, Agnico’s vice-chairman and CEO and The Northern Miner’s Mining Person of the Year for 2017, spoke with senior staff writer Trish Saywell during the tour about the company’s northern business strategy and the importance of developing the region.
The Northern Miner: Construction at Meliadine is on budget and a little ahead of schedule. What’s the secret?
Sean Boyd: A lot of that was to do with solid preparation. We were pretty comfortable and confident that we were going to go ahead and build this mine, and what we did, even with the volatility in the gold price, was we kept the underground development going. And that was critical to allow us to open up the deposit, extract two bulk samples, get confident with the orebody, and allow it to grow. And while we were doing that we were completing an internal economic analysis to update the board of directors in February 2017. In July 2016, the board went to Nunavut and spent a couple nights there to get a sense of the project and we got them to sort of give us a quiet approval for additional capital to get prepared.
By the time we greenlighted the project, we had positioned Agnico employees to take over the underground development. We had pre-ordered some of the equipment, which was originally not supposed to be on the barge until 2018. It showed up in 2017. So it was a project that we were well prepared to execute on. We had it much further engineered than what you’d normally have when you greenlight something. And our timing was really good. When you think about giving the go-ahead on a project when there wasn’t a lot of other projects competing for contractors, and labour, and that allowed us to position ourselves with the best contractors, so it’s not surprising that, given the strength of our team, and the strength of the contractor group, that we find ourselves tracking ahead of the original schedule.
TNM: What is the trick to putting a mine into production in the Far North?
SB: The key to managing up here is to get your logistics, support and planning properly done because you’ve got a short shipping window and you need to make sure you get everything up here, and that allows you to work efficiently for the balance of the year. We’ve been operating up here and planning barge seasons for the last 10 years, so it’s that skill set that we were able to draw on and utilized. And we don’t allow a third party to be our general contractor. We build mines ourselves so it’s that internal experience that allows us to execute these things.
As far as a Nunavut location is concerned, this is pretty good, because you’re basically on the western shore of Hudson Bay, you’re 32 km from the second-biggest population centre in Nunavut: Rankin Inlet. So it’s a lot less challenging than Meadowbank, which is 110 km north of an inland community. Meliadine is a three and a half hour flight from Toronto. It seems far and remote, but the fact is it’s very manageable, particularly given that we have a production base here already, and we’re really leveraging off our skills in the Abitibi, and drawing on a lot of really broad experience from that region up here.
TNM: Agnico has a northern and a southern business strategy. Can you talk about your northern business strategy more broadly?
SB: Our northern business is a different opportunity set. It’s a larger and longer life business but the deposits tend to be more complex. The question is where should the emphasis be? We’ve got a pretty mature base in Quebec and we’ve now decided that a really great place to allocate more capital is here in Nunavut. What we see here in Nunavut is a place where there’s tremendous mineral potential, really untapped in our view, and an ability to do business. It’s not perfect. You know there are things that take longer than we would expect them to take, but ultimately we’re not faced with a situation where there’s anti-mining bias.
The way that Nunavut was structured is that the residents of Nunavut own approximately 18% of Nunavut and the Inuit leaders who negotiated the land claim settlement when Nunavut was created chose their land package based on its geological potential. So they clearly are looking for high-quality partners like Agnico to help them with development of the land. And now what we’re sensing as well is that the government at the Nunavut level and the federal government level are also beginning to realize the resource potential and the potential to work together to provide the infrastructure that we’re going to need over the next several decades to take advantage of the resource wealth that exists up here.
If you think about it from the perspective of mining in Canada, we’ve lost Inco, we’ve lost Falconbridge, we’ve lost Alcan, we’ve lost Noranda, and as Canadians, it kind of makes sense to us to have decisions on how resources are developed in the Canadian North made by Canadians with a ton of mining experience rather than by somebody sitting in a head office in another country. We’re perfectly positioned to be at the forefront of that.
TNM: And yet it is taking us, as a country, so long to get our act together in the North.
SB: You’ve got a population in Nunavut of maybe 40,000 people. It’s got one seat in the federal parliament but that doesn’t really do justice to the fact that this is a big part of Canada’s future, so it makes sense to make those infrastructure investments now, think long-term and have sustainable businesses for decades. Agnico just celebrated its sixtieth anniversary, so we think we’re great partners for long-term thinkers and there are solutions to cleaner energy and cheaper energy. Not just for businesses like we build, but also for the communities.
So how do we get that done? You get that done if you have a good solid business to begin with, which we do here. We just feel fortunate to have made a decision to come here back in 2007. It didn’t look like it was a great decision in 2010, because we struggled trying to get that Meadowbank mine plan working, but our people persevered and put us in a position now to take advantage of other opportunities that may be up here. We know we’re going to find other mineral deposits. The key will be to keep the cost structure down so we can turn those deposits we find into mines and productive businesses.
The key will be energy consumption — cheaper and cleaner — and also transportation, because what we think will happen is we’re likely going to find a series of satellite deposits, which will feed centralized processing facilities. We have one at Meadowbank and we’re going to have one soon here at Meliadine, and it will be how does that ore get transported? Are the trucks automated? Are they even trucks? Or will it be something else? Innovation and technology are going to be critical up here to help manage the lack of infrastructure, the remoteness. But there’s no shortage of ingenuity and skills and a willingness to work together. You generally don’t see that a lot in parts of the world where you’ve got mines. So you’ve got to keep working hard, you’ve got to earn your licence to operate. We’ve done a pretty good job of that.
TNM: In terms of keeping costs down, energy is a big part of that. Meliadine’s gen-sets cost about 26¢ or 27¢ per kilowatt power and energy costs make up about 15-18% of the project’s current costs, is that correct? Can you talk about the various options for generating cheaper and cleaner power?
SB: We’ve looked at all sorts of alternatives, from a power line from Churchill, Manitoba, to liquid natural gas, compressed natural gas, wind turbines, and turbines in rivers.
SB: Yeah it’s a bit more difficult for solar, but they’ve used wind at Raglan, and at one of the diamond operations. The question is you’ve always got to have back-up. Ultimately we hope and believe it’s feasible to run a power line from Churchill, Manitoba. We’ll see. But we think the best precursor to that is to develop an alternative to diesel in the interim, like a wind farm, not only to benefit Meliadine, but also to benefit Rankin Inlet and maybe some other communities.
TNM: Some of the power generators you’ve purchased for the power plant are actually dual-fuel capable — diesel or natural gas.
SB: Yes, you’ve got to keep your options open. If you look at Meadowbank, we’re shipping roughly 65 million litres of diesel up there. We’d love an alternative and I think the federal government is quite interested in that angle, but there isn’t a cleaner alternative for us at the moment. If we can work with the federal government and invest together to create that alternative, then everybody wins.
As we’ve said in the last couple of weeks, this is the first time we’ve seen a receptive federal government that’s looking at the things that we’re working on from a prospect of maybe partnering on some of these. And part of that discussion revolved around the carbon tax that the federal government has been talking about. The carbon tax is designed to force businesses to alternative sources of energy. At present there is none in Nunavut other than diesel.
And so we’ve got a number of proposals on the table around investing in alternatives, the primary one being a wind farm and possibly a power line running from Churchill. As far as the actual cost-savings, it’s hard to quantify those because you’ve got an initial investment that goes with it as well. But that’s the number one opportunity we have in terms of creating a cost template that has staying power in this part of the world.
We know there are more deposits out there to be found. The opportunity for us is to keep our costs down, particularly around the energy side, which represents about 20% of doing business up here, and then ultimately we can turn those deposits into mines. A number of us have met with senior cabinet ministers over the last little while, and for the first time, we’re seeing a receptive audience. And they’re looking at it as a potential partnership to work with us, to create the conditions for more resource development in Nunavut.
It’s a comprehensive proposal not just to benefit our business here, but also to benefit the communities, because those communities are operating off diesel generators that are in some cases, 50 years old, and that’s been the attraction. We get words used like ‘sovereignty,’ ‘northern development,’ ‘helping indigenous communities,’ ‘infrastructure,’ ‘a greener alternative,’ you can connect all these dots, and I think that’s the attractiveness at the government level, including the Nunavut government level and certainly local communities.
There are a number of parties that could benefit here and our people have been working on different concepts for a number of years and finally, we’re getting a lot of reception at the government level because they are connecting these dots as well.
TNM: Agnico has a first-mover advantage in the North.
SB: When we bought Cumberland Resources back in 2007, it came with a 40,000-hectare land package, and we now have more than 500,000 hectares. That’s a large land package that covers a lot of significant greenstone belts and we’re only just getting started. We’ve been more focused on Meliadine and Meadowbank, but now we’re starting to step out on the broader land package and there’s no shortage of targets. If there are deposits out there, we’ll find them. Then it’s: do we have a cost structure that allows us to turn those deposits into meaningful cash-flow generators?
TNM: What is Agnico’s exploration budget this year?
SB: Our total exploration budget is US$157 million for 2018. Of that, we’d be spending about US$50 million in Nunavut, and some of that is for a ramp at Amaruq. And that budget is just based on results. We would expect that we’ll continue at those types of levels for the next few years because of the quality of the targets.
TNM: How onerous is permitting in Nunavut?
SB: Fairly straightforward, but it is a lengthy process because you’re basically dealing at the federal level, at the local level, at the government of Nunavut level, you’re working with the Inuit business associations and Inuit partners, so it’s a lot of work, but it’s a very understandable process. It’s a process that doesn’t come with a lot of negative surprises. It’s a lot of work but we’ve gotten better at it. We’ve permitted Meadowbank and we’ve permitted Meliadine.
TNM: The timing seems right for developing the north. Prime Minister Justin Trudeau seems interested in northern issues and making up for lost time.
SB: I think it’s more than that. We’ve discussed this with senior members of the federal government. If you look at Canada from the outside, it’s not always viewed as a great place to invest dollars. And as we’ve explained to the government, 75% of our shareholders are not Canadian. One hundred percent of our debt holders are not Canadian. Essentially right now, we’re acquiring capital from outside and spending it largely in Canada. How great is that?
We’re investing in a region that’s only going to grow in terms of its importance from a wealth-generation standpoint. I think the government campaigned on the north, on infrastructure, on indigenous people, and that’s something we do every single day up here, so all we’ve been doing in the last couple of years is just reinforcing and communicating the potential we see and we’ve reached out to the government at the highest levels. I think they’ve concluded that we’re covering a lot of bases here, something that as a government they need to follow up with investment dollars towards, because if you can come up with a cleaner and cheaper source of generating the energy that’s needed, not only for the communities but also for the resource business, then you’re just going to open it up. But you’ve got to do it responsibly and in conjunction with the people of Nunavut.
We think as Canadians it’s time to send the message that the North is open for business and as Canadians we should be investing in the north because it just gives us tremendous potential not just in business but in the people in the north.
One of the things that our chairman, James Nasso, has been at the forefront of, is the need for a university up here. He thinks that Agnico could put up $5 million to help that process along because we think it’s time and it just makes sense. You need to bring communications up here, you need to broaden the education, you need to create the conditions for people to be successful, and not just work for resource companies but develop their own businesses. It’s exciting.
Next year we’ll have two mine openings. We’ll be opening up Meliadine and we’ll be opening up Amaruq. And that’s creating a tremendous number of jobs up here and if you’re a government that’s looking to invest in infrastructure, why wouldn’t you want to get involved with something like this. I think that’s what they’re also seeing. The combined investment here is US$1.2 billion for Amaruq and Meliadine over three years.
TNM: Do you sleep well at night?
SB: Oh yes, because I’m in good hands up here.