Meadowbank marks production milestone

As the Meadowbank Mine, Nunavut's sole operating gold mine, approaches its one-year anniversary of commercial production, Agnico-Eagle Mines Ltd., the mine's owner and operator, acknowledges that it is still a work in progress.

But the 600-employee, open-pit operation, which achieved commercial production March 1, 2010, has cleared some major hurdles in the nearly 12 months since its startup. Despite significant setbacks in ore processing and safety, the mine is delivering substantial value not only to Agnico-Eagle, but also to the people, governments and Inuit-owned organizations of Nunavut.

Slow production ramp-up

Though it posted record earnings and cash flow for 2010, Agnico-Eagle Feb. 16 said overall production was down about 1 percent from its yearly forecast, largely due to a slower-than-anticipated ramp-up to full production at Meadowbank.

Located in the Kivalliq Region of central Nunavut 110 kilometers, or 68 miles, north of Baker Lake, the mine has 3.5 million ounces in proven and probable gold reserves from 34.1 million metric tons grading 3.2 grams per metric ton. An additional 300,000 ounces of indicated gold (9.1Mt grading 1.0 g/t) resources are within currently contemplated pit limits.

Agnico-Eagle reported payable gold production at Meadowbank in the fourth quarter of 75,990 ounces of gold at total cash cost per ounce of gold of US$745. Payable gold production for the entire year totaled 265,659 ozs, including 1,084 ozs before March 1. Cash costs/oz of gold for the full year totaled US$693.

Mine-site costs decreased to C$91/t in the fourth quarter, but averaged C$95/t since March 1.

Meadowbank's costs, which were significantly higher than the industry average in 2010, is expected to decline dramatically in 2011 as the mine's throughput improves.

Payable production also is expected to climb to 362,000 ounces of gold this year with cash costs/oz averaging US$597.

The mine's higher cost start-up phase in 2010 resulted mainly from lower-than-planned throughput in the mill, largely due to temporary crushing issues.

After seven months of operation, Agnico-Eagle also cited low equipment availability as a problem that it expected to become less of a factor as the mine commissioned larger, more efficient haul trucks and shovels.

The Meadowbank mill processed an average of 6,659 metric tons per day in the fourth quarter essentially unchanged from the third quarter of 2010 as the new mine continues to operate with a temporary secondary crushing arrangement using two portable crushing units. Throughput averaged about 19 percent less than planned in the fourth quarter mainly due to the crushing issues.

Agnico-Eagle Vice Chairman Sean Boyd said the mine's performance is steadily improving.

"Meadowbank is having a good February with mill throughput of roughly 8,000 tpd," he told investors during a conference call Feb. 17.

Boyd said the company expects to see a dramatic improvement in performance at the mine in the second half of 2011, after a permanent secondary crushing facility is installed in the third quarter. The mine's design processing rate of 8,500 tpd is expected to be achieved at that time. Meadowbank's mine site costs also are expected to decrease by nearly 14 percent in 2011 to average C$82/t.

In addition to resolving the mine's processing issues, the company also anticipates upgrading and expanding Meadowbank's gold resources in 2011.

During the 2011 drilling season, conversion and expansion of the 300,000 ozs (2.3Mt grading 4.4 g/t) of indicated resource and 200,000 ozs (800,000t grading 5.6 g/t) of inferred resource around the southern end of the deposit will remain a priority.

Also, a study considering construction of an underground exploration ramp under the pit to access the gold resource at Meadowbank is expected to be presented to Agnico-Eagle's board of directors in the second quarter of 2011.

The slower-than-anticipated ramp-up and higher costs aside, Meadowbank still generated a higher actual rate of return than the company's mine planners envisioned five years ago, thanks to much higher gold prices, Boyd said.

"We used a gold price of US$525 per ounce in evaluating the opportunity at Meadowbank," he said.

The mine is expected to quickly become the company's biggest producer, averaging 399,000 ounces per year from 2012 to 2015 with average cash costs of US$511/oz, once it reaches and maintains full production capacity.

Economic engine for region

Since the Meadowbank gold project began development in 2007, Agnico-Eagle has spent more than C$1.3 billion on construction and operation of the Meadowbank Mine. Of that amount, about C$350 million was spent with Nunavut-based suppliers, of which C$261 million went to companies registered with Nunavut Tunngavik Inc., and a total of C$520 million, or 41 percent, to northern based companies.

Nunavut Tunngavik Inc. is the Inuit-owned authority that coordinates and manages Inuit responsibilities set out in the Nunavut Land Claims Agreement of 1993. It also ensures that the Government of Canada and territorial government fulfill their obligations under terms of the settlement agreement.

Meadowbank has three ore deposits - Portage, Goose and Vault - situated on Inuit-owned lands. The claims under the Portage and Goose deposits are grandfathered and thus royalties are paid to the Government of Canada under Canadian mining regulations. The federal government then forwards the funds to NTI.

The Vault Deposit is not grandfathered and thus a royalty is paid under terms of a production lease from NTI with payments made directly to NTI. It is currently estimated that royalties to be paid from all three deposits over the life of the mine will total about C$35 million.

In addition to the royalties, Agnico-Eagle must make payments under terms of a Water Compensation Agreement and a Commercial Production Agreement that it negotiated with the regional Kivalliq Inuit Association. Over the life of the mine, payments to the association under these two agreements will total about C$6.6 million. The gold producer has agreed to pay the first three-years of the agreements in advance and those payments have already been made.

Also, Agnico-Eagle pays a form of an annual municipal tax to the Government of Nunavut that amounts to about C$2 million annually.

In addition, millions more has been invested in Meadowbank's work force.

"We currently have approximately 600 Agnico-Eagle employees at the Meadowbank mine of which almost 40 percent are Inuit of Nunavut," said Dale Coffin, Agnico-Eagle's corporate director, communications.

Since the project began in 2007, Inuit employees at Meadowbank have earned a total payroll of about C$23.5 million.

It also is estimated that over the life of mine, Meadowbank will generate some C$500 million in payroll, income and mining taxes for federal and local governments.

Safety challenges

Operations at Meadowbank suffered a safety setback in January when a worker conducting routine maintenance in the mine concentrator building suffered a fall in which he was seriously injured.

"Anytime there's an accident, it's serious, and we take it very seriously," Coffin told reporters at the time.

The worker, a resident of Abitibi, Que, was transported by air to Rankin Inlet, Nunavut, then to a hospital in Winnipeg, Manitoba

In late February, Agnico-Eagle reported that the worker's injuries have left him with a permanent disability.

An investigation into the cause of the accident is underway with members of Meadowbank's health and safety committee as well as representatives from the Workers' Safety and Compensation Commission Northwest Territories & Nunavut.

"At Agnico-Eagle, we consider the health and safety of people working at our sites to be a core value," Coffin said.

Overall, Meadowbank has a good safety record, reporting a combined injury frequency rate of 2.49 in 2010, up slightly from 2.42 in 2009. By comparison, the average combined injury frequency rate in 2010 for all six Agnico-Eagle operations was 3.32.

Prospects for Meliadine

In July 2010, Agnico-Eagle completed the acquisition of the Meliadine gold project near Rankin Inlet, Nunavut. The initial reserve estimate at Meliadine is 2.6 million ounces of gold from 9.5Mt, grading 8.5 g/t.

In addition to the initial gold reserve, the Meliadine Project contains 1.5 million ounces of indicated gold resource from 8.8Mt, grading 5.2 g/t. It also includes about 2.6 million ounces of inferred gold resource from 11.8Mt, grading 6.9 g/t.

Agnico-Eagle expects Meliadine's reserve to grow rapidly as the project's large gold resource is drilled extensively over the next 12 months. The company plans to spend about C$65 million on exploration, including 90,000 meters of drilling, at the project in 2011.

With the resource up 34 percent since we acquired Meliadine, "it has quickly become our most exciting exploration story next to Kittila (Mine)," Boyd said.

It is also evaluating the possibility of accelerating underground ramp development at Meliadine to facilitate exploration and development of the growing deposit.

The ramp study and a reserve and resource update are expected to be completed in the third quarter of 2011.

A final feasibility study for the project is expected to be presented to Agnico-Eagle's board for a production decision in 2013 and gold production, at the earliest, is expected in late 2015.