Agnico bets on high grade gold as it digs in Canada’s remote north

TORONTO (Reuters) – Agnico Eagle Mines is doubling down this yr on Nunavut, Canada’s least developed territory, betting that the high-grade gold ores and slim competitors there’ll offset the dangers of digging within the distant location within the far north.

FILE PHOTO: A view of the Portage pit at Agnico-Eagle’s Meadowbank mine in Nunavut, June 28, 2011. REUTERS/Euan Rocha

For miners determined to shore up reserves, the selection is commonly between safer jurisdictions with inhospitable geographies and easier-to-reach ores in politically difficult areas.

Traders have been rewarded for backing Agnico’s technique.

The corporate’s shares have surged 71 p.c over the previous 5 years, trouncing the zero.three p.c achieve within the benchmark S&P/TSX International Gold Index. They consider the corporate is making the correct transfer once more, because of high-grade ores in Nunavut and Agnico’s 12 years’ expertise within the Arctic territory.

“Primarily based on the geological potential, and the power to develop the scale of the deposit… and given there hadn’t been plenty of exploration work carried out, we concluded it was a great place to do enterprise,” Agnico CEO Sean Boyd advised Reuters in an interview.

“But it surely actually hasn’t been simple.”

The Toronto-based firm begins working the Meliadine mine and Amaruk, a satellite tv for pc deposit close to its closing Meadowbank mine, this yr, lifting output to a report 2 million ounces by 2020 from 1.6 million final yr.

Meliadine is situated near Nunavut’s japanese shore on the Hudson Bay, about 25 kilometers (15.5 miles) north of the hamlet of Rankin Inlet, whereas Amaruk is additional inland, 300 km west of Hudson Bay and nearly 150 km of the closest hamlet of Baker Lake.

Meliadine will yield about 7 grams of gold (zero.2 ounce) per tonne of ore, in contrast with the corporate’s 2.5-gram common, whereas Amaruk is anticipated to yield between four and 5 grams, Boyd mentioned. The gold ore grade within the new mines is larger than at Meadowbank.

“The excessive grade permits them to make up a number of the floor misplaced to larger prices,” mentioned Craig Jerusalem, portfolio supervisor at CIBC Asset Administration, which owns Agnico shares. “And one other firm wouldn’t have the ability to transfer into the area and have the success that Agnico has had with out investing appreciable money and time.”

Agnico shares commerce at 11 instances ahead money circulate, in contrast with Barrick Gold Corp’s eight.6 and Newmont Goldcorp’s 9.1, in response to Refinitiv.

Nunavut will not be on Canada’s hydroelectric energy grid, so diesel-powered vitality is the largest ongoing price, at 30 to 35 Canadian cents per kilowatt hour. That compares with about 5 cents at Agnico’s Quebec mines, which account for over half the corporate’s manufacturing, Boyd mentioned.

The corporate is hopeful of driving down vitality prices.

A push for C$1.2 billion ($898 million) energy line extension north from Manitoba province has yielded few outcomes, however the federal authorities’s approval of a two-year research in February is elevating some hopes.

Agnico has additionally been researching wind energy however Dominique Girard, vp for its Nunavut operations, mentioned it might want authorities funding.

With temperatures that plunge to as little as -50°C (-58°F), all non-perishable provides and tools for the yr have to be shipped between July and October, or be specifically airlifted in at excessive price, Girard mentioned.

And there are extra prices.

FILE PHOTO: A view of the tundra panorama across the Meadowbank open-pit mine in Nunavut June 28, 2011. /File Picture

Agnico has already spent about C$200 million constructing roads, budgeted C$500 million to coach Inuit staff and can pay C$450 million in royalties to Inuit communities over 15 years.

However, with most of its massive growth spending behind it, Agnico can climate a decline in gold costs, though a fall to beneath $1,200 an oz would hit future funding in Nunavut, in response to the corporate. Spot gold was buying and selling at $1,268.76 an oz on Tuesday.

“This yr is the inflection yr,” mentioned Maria Smirnova, senior portfolio supervisor at Sprott Asset Administration, which holds Agnico shares. “They’re transitioning from burning money final yr to those initiatives now contributing to constructive money circulate, regardless of the persevering with prices.”

Reporting By Nichola Saminather; Modifying by Denny Thomas and David Gregorio

Our Requirements:The Thomson Reuters Belief Rules.

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