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In a year that tested even the
largest, and seemingly strongest, companies, I am particularly
proud of Agnico-Eagle’s 2008 performance.
Not only were we faced with the same difficult economic circumstances as every other organization, we were also at a crucial stage in our development, with six gold mines in various stages of construction. Despite these formidable challenges, we more than persevered – we came out stronger.
Agnico-Eagle entered 2009 with an improved balance sheet, two new mines in operation, further increases in gold reserves and resources and four new internal growth opportunities under evaluation. I firmly believe that our success is a testament to the merits of our strategy and the quality and experience of our people.
For more than two decades, we have adhered to the same disciplined strategy for building the company. As part of this strategy, we have focused on producing more gold by constructing new mines. Mine building is difficult work and we certainly encountered our share of issues in 2008, with cost increases, technical challenges, equipment delivery delays and labour shortages. Nevertheless, we poured our first gold at the new Goldex mine in May and achieved commercial production in August. The first gold concentrate was produced at the Kittila mine in September and the first gold was poured in January 2009. Our mines at Lapa and Pinos Altos are on track for commissioning in 2009, and the Meadowbank mine is expected to begin production in early 2010.
As these new mines come on-stream, we expect to set a series of gold production records for our company over the coming quarters. With each milestone, we will move closer to our goal of increasing annual payable gold production to approximately 1.2 million ounces by 2010, a fivefold increase over 2007 levels. We will also generate internal cash flow to finance new growth projects and continue our 27-year track record of dividend payments.
Growing gold reserves, on a per share basis, is also integral to Agnico-Eagle’s strategy and critical to the long-term success of any gold company. Our focus is on adding gold reserves at our existing properties. These orebodies are good quality in our industry – they are large, 100%-owned gold deposits located in regions of low political risk and they continue to grow.
In 2008, we invested more than $72 million in exploration, largely on proven land positions within our portfolio. At year-end, the company’s gold reserves totalled a record 18.1 million ounces, an increase of 8% over 2007 levels. Indicated gold resources rose to 3.2 million ounces, an increase of almost 375,000 ounces (13%) compared to last year, and inferred gold resources rose to 5.8 million ounces, an increase of over 1 million ounces (21%) compared to last year.
We have identified four compelling growth opportunities on our existing properties. Scoping studies are under way at Goldex, Kittila and Meadowbank, each of which would significantly increase production rates. At Pinos Altos, we are evaluating the possibility of putting the new Creston Mascota area into production as a stand-alone operation. Results of these studies will be available in 2009, and may very well drive Agnico-Eagle’s superior growth beyond current 2010 projected levels.
Even as we pursue an aggressive growth program, we run a quality business. Good metal output and cost control at the LaRonde mine contributed to solid operating earnings and cash flow. With the additional contribution from Goldex, we achieved record gold production of 276,762 ounces at total cash costs per ounce of $162. These costs place Agnico-Eagle’s gold production in the lowest quartile of cost in the industry.
Our growth projects remain well funded. At year-end, we had a cash balance of approximately $100 million, including proceeds from a flow-through equity issuance and a $290 million private placement. The company also had approximately $340 million available under its credit facilities.
While project capital expenditures are expected to total roughly $450 million in 2009, they will drop to about $150 million in 2010 as the new mines are completed. Over this period, we expect to generate significant internal cash flow from the sale of approximately 1.8 million ounces of gold and byproduct metals.
At the same time, I should point out that our sights have been, and always will be, firmly set on delivering shareholder value. We have grown the company without significantly diluting our shareholders’ equity. We have paid consecutive annual cash dividends since 1981. We have provided investors with outstanding leverage to the gold price. And, most significantly, we have managed our company in such a way that our share price has risen approximately 300% since 2003.
We enter 2009 with quiet confidence. We know that the economic climate will continue to challenge us and that there is still work to do to bring our new mines to completion. We also anticipate that prices for our byproduct base-metal production will remain low. However, there are good reasons for optimism.
First of all, Agnico-Eagle is in the gold business, and we believe that more and more investors will come to see gold as a safe haven in these uncertain times. Gold actually performed very well in 2008 during a period of significant financial instability and massive wealth destruction. In fact, it is our view that gold will continue its outperformance of all major asset classes in 2009, reaching record prices.
Secondly, our construction projects are nearing the finish line and we are poised to double gold production in the coming year. Finally, we have confidence in our people. We have an experienced management team and a tested workforce, all of whom are committed to our goals and eager to prove themselves once again. I am truly grateful for what they accomplished in 2008 and the spirited way in which they did it.
Sincerely,
Sean Boyd
Vice-Chairman and Chief Executive Officer
March 18, 2009
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