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Agnico Eagle Mines Ltd  (NYSE:AEM)
Q1 2019 Earnings Call
April 26, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator --

Good morning. My name is Karina and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle First Quarter Results 2019 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Sean Boyd, you may begin your conference.

Sean Boyd -- Chief Executive Officer

Thank you, operator and good morning everyone and welcome to our first quarter 2019 conference call. We're going to be going through some forward-looking statements today, so please be forewarned.

Just to sort of step back and look at 2019 as we've said we expect record production at 1.75 million ounces at cash costs in the midpoint of the range of $645 and all-in sustaining cost of the midpoint in the range of $900. After the first quarter, we're tracking extremely well toward that target and will be revisiting those numbers in our second quarter update in late July as we move through the commissioning both Meliadine and Amaruq. So the other thing that I think we've been focused on this year is just simply the execution of those two projects, because what that does in the second half of the year, it drives a significant bump in production in earnings per share and also in cash flow per share.

From a quarterly perspective, we produced almost 400,000 ounces of which about 18,000 ounces came from Meliadine in the pre-commercial stage report, our first part Meliadine in the third week of February. Our cash cost in the quarter were very good. We'll talk about some of the components of that at $623, all-in sustaining cost at $836. At Meliadine, as we mentioned, we're very close to commercial production. We will expect commercial production in May. At Amaruq, we would expect commercial production in the third quarter of this year. So everything is tracking well. Both projects are ahead of the original schedule and we would expect both projects to come in slightly below the total budget for both projects which was $1.23 billion.

We also had some exploration results in our press release. We continue to get good results at Amaruq. In the underground, we've got some interesting new results at Santa Gertrudis, what looks like a higher grade structure in the area of past mining small pit and at Kirkland Lake and Upper Beaver were extending the mineralization there. So these are three projects that we've talked about providing an update as we move through the balance of this year and the update we'll continue obviously the exploration, but also will give you a project update on potential development scenarios for those projects as we move through the balance of this year.

Looking at the specific properties and the contribution to production of almost 400,000 ounces. If we look at the Abitibi and look at LaRonde, Goldex and Canadian Malartic, we produced a combined a little over 200,000 ounces. The weighted average cash cost of those mines for the quarter was $544 an ounce, so we're getting good performance and good cash generation coming out of our operations in the Abitibi. We also had good production at Kittila, almost 50,000 ounces. We continue to produce good quantities of gold at Meadowbank as we continuing to mine in Portage, so that's extended a little bit longer than we had expected and we talked about the 18,000 ounces roughly coming out of Meliadine in pre-commercial production.

In Mexico, combined cash costs for those operations, below $600. So those mines continue to generate good cash flow. So if you think about roughly 400,000 ounces of production in the quarter, that's roughly what we've been averaging per quarter for the last several years plus or minus, but as we move into the second half of this year and into 2020 when we expect to produce 2 million ounces and then go beyond 2 million ounces post 2020, we'll have quarters of 500,000 ounces plus, which is really the inflection point that we've been talking about in terms of both earnings per share and cash flow per share.

Just going to the earnings and cash flow for the quarter, normalized was $0.14. So good quarter from an earnings perspective. Operating cash flow, $0.63. But as we said, as we go into the second half, we would expect to see improvements in both of those financial metrics. The balance sheet, we closed the quarter with about $200 million in cash. Good position as we move forward given the financial flexibility that we will have moving into the second half as we ramp-up production.

We will talk a little bit about the assets, talking about LaRonde, produced 77,000 ounces in the first quarter. We would expect to see higher rates in the second half of this year. That's just simply due to mining sequence and the mine. We will have about a 10-day maintenance shutdown in May of this year, will be offsetting some of that with material from the LZ5 Zone net storage. LZ5 continues to generate good cash, but I think the importance of that particular operation is the testing of the automated equipment. So good cash flow, good return on investment there, but also allowing us to test our automated mining equipment and communication system.

Canadian Malartic, over 80,000 ounces, work on the Barnat Extension is going according to plan. We would expect to begin production in late 2019 on Barnat. So no change to that schedule. We have a very active exploration program ongoing at Canadian Malartic, focused largely on underground opportunities and zones there, but it's still early there. Still a lot more work to do. Nothing has been approved in terms of additional capital to move forward there, but all we can really say at this point is there's active exploration going on there. We continue to add to our land package there. We continue to fill-in the blanks and open spaces on that belt and the partnership just picked up the Rand Malartic property, which is immediately to the east of the Canadian Malartic ground and there is potential for the zones to continue onto that ground.

At Goldex, a record production since restarted at 2013, seeing some high-grade coming under the south zone, which is not unexpected. That is a higher grade area, although small. We'll see continued tonnage coming out of the south zone for the balance of this year. The Akasaba project is still on hold. It's a quality project, but in terms of capital allocation it's one that we've just put on hold for the moment. We would expect at some point to give us the go-ahead given that it meets our investment hurdle rate and we can leverage-off of the existing skills that we have at Goldex.

At Meadowbank, 44,000 ounces. So as we said, we're winding down the deposits in and around the Meadowbank processing facilities, but I think it's important just to stop and reflect on how effective the transition has been in Nunavut from the Meadowbank deposits to the Amaruq satellite deposit. As we roll back two or three years ago, there was an expectation that we would possibly be faced with a 12 to 18 months gap in production and at the time all we can say, it was just allow our people to work through the issues and the opportunities and come up with a plan that narrowed that production gap and also allowed for seamless transition from the Meadowbank deposits to the new Amaruq deposits and they've done an exceptional job because that's had a very positive impact on the workforce, because there is no negative impact of having people without a job for a period of time. So very good work from that team. And we've been transitioning both people and equipment to the Amaruq facility and we've also completed all the mill upgrade work at Meadowbank for the Amaruq material.

So Amaruq is well advanced in terms of dewatering and mining and truck fleet. We're still working on permits for the Whale Tail and the V Zone expansion. we would expect to get those in late 2020. There's nothing special about those permits compared to the permits we've already been issued to start Whale Tail. So we don't see any issue with that. And I think it will be -- we're still very much focused on the underground opportunity at Amaruq and how we can potentially bring that into production at the same time as we're mining the pit, because that could have a significant impact on the production profile for two or three years where they are potentially operating at the same time. So we'll have an update as we move through the balance of this year on our thoughts around the Amaruq underground opportunity.

At Meliadine, we've talked about. It's going well in terms of commissioning. We poured our first bar as we said in the third quarter of February. We're getting good recoveries. We're ramping up the mining rate. There is no showstoppers there. We're confident on our guidance this year. We continue to get good exploration results there, demonstrating that the deposit continues at depth with good grades and decent thicknesses. So I think also looking at that decision back in early 2017 to invest $900 million, that was the right decision. Timing was right. We had slowed the projects down in 2016. We got better prepared and as a result that project is ahead of schedule as we said and low budget. So good decision and I think that decision, how positive that is, is really reflected in the fact that although the economic study was done on 14 years of mine life, we have an extensive resource and we see with the latest drilling at deposit is likely going to continue to grow.

At Kittila, we talked about solid production quarter at 49,000 ounces. We will have a scheduled shutdown to realign the autoclave in this quarter. So that's done every four to five years. So that was in our plan. So it doesn't impact our guidance at all and we continue to push forward on the mill expansion and the shaft project. In the southern business, as we said at the start, very good performance from a cost per ounce standpoint and from a cash generating standpoint. So they continue to operate effectively, generate good solid cash flow while they worked on satellite deposit such as Sinter and Cubiro and Reyna de Plata, effectively just leveraging-off of infrastructure and skills in the region to maximize our investment there. Creston Mascota also good cost performance and good production in the quarter.

At La India, we continue to focus on expanding the heap leach and the ore stacking which is going well and we're drilling the El Realito Satellite Zone which we are going to expect to extend the mine life at La India. From an exploration standpoint before I open it up for questions, just wanted to highlight Santa Gertrudis. We bought that in December, before December 2017 and we've got some nice high grade intersections on an area that had some past small open-pit mining on it. Interesting opportunity because we feel if we extend the drill hole, some of the earlier drill hole did not extend enough to capture what we see as a potential new zone. So already almost 1 million ounces. So we would expect that to continue to grow and that's the type of tailor-made project for our skill-set in Mexico. Right region, Sonora, we know how to operate there with La India. So as we said earlier, we will be providing an update on that project as we move through this year.

So operator, I'd like to open the line for questions.

Questions and Answers:

Operator --

Thank you. (Operator Instructions) Your first question comes from the line of Fahad Tariq with Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse Securities LLC -- Analyst

For Meliadine, you mentioned that mill throughput for the second quarter will be 3,000 tons per day. Curious what was the average in April so far?

And you mentioned that the plan has gone up to 3,700 tons on several occasions, is that the right way to think about maybe the potential run rate or close to that for the second half of the year? Thanks.

Sean Boyd -- Chief Executive Officer

Yeah, I think we're targeting about 30 to 50 for the rest of the year roughly and the plant has been averaging close to 3,000 tons per day and it has operated at the higher throughput that you quoted.

Fahad Tariq -- Credit Suisse Securities LLC -- Analyst

Okay, great. And then just switching gears for a second, more on capital allocation. As the free cash flow profile gets better in the second half of the year and certainly in 2020, How do you think about higher dividend, debt repayment coming due in 2020 and maybe keeping dry powder for potential asset acquisitions from the other large M&A divestitures, maybe some color on the way you're thinking about that strategy?

Sean Boyd -- Chief Executive Officer

Yeah. I think it's a balance. It will clearly be given the track record of paying a dividend for 36 years. We'll certainly be looking to increase the dividend. The dividend in fact in total dollars has gone up in each of the last five years. So that was done during a period when gold was relatively flat at $1200 and we were in a biggest capital program in our history. So we've clearly indicated that that's important. And as we also said we're working on some key projects in terms of development opportunities in Kirkland Lake at Upper Beaver, Santa Gertrudis, the Amaruq underground. So certainly, there'll be capital at some point allocated there and that capital will be allocated at a time when we start to wind-down the capital in Finland, but the shaft in mill expansion. So I think those are timed fairly well. Debt repayment is also a focus. We have a maturity next year. So certainly, we'd like to improve our financial flexibility. So looking at all those three options and as we said, we're in that sweet spot in terms of capital coming down dramatically from the average over the last two years when production is rising significantly in the second half of the year. So good position at the end.

Fahad Tariq -- Credit Suisse Securities LLC -- Analyst

Thank you.

Operator --

Your next question is from Stephen Walker with RBC Capital Markets. Please go ahead.

Stephen Walker -- RBC Capital Markets -- Analyst

Thank you, operator Good morning. Just a follow-up question on Meliadine. When we were there last fall and had a look at the plant, given the excess capacity that's been built into the back-end of that plant. There was talk at the time that with a modest investment you could get the plant up to 4,500 maybe 5,000 tons a day plus where are you in the planning process as far as the further optimization and do you have a sense of the capital number that might be required to get it up to these higher levels?

Sean Boyd -- Chief Executive Officer

At this stage we're entering our next life of mine planning phase and before we complete the commercial production decision, that specific tonnage number we'd like to be in a position to be testing. So we will probably test total capacity of the plant in the next two weeks and we will evaluate as we continue to ramp-up the underground mining and potentially advance some small bits, try to see what's the best scenario, advance the expansion with the bits as originally planned or simply invest in just stripping and accelerate the development underground to maximize the current capacity of the plant. So these are scenarios we are going to be evaluating over the next few months.

Stephen Walker -- RBC Capital Markets -- Analyst

Just a follow-up on Meliadine as well. In the testing that you're doing so far, with respect to the grinding and residency time in that part of the plant and then the leaching times and the recoveries that you're seeing, is there anything in the metallurgy or the grain size that is different from the original test that suggests that recoveries could be improved or there could be challenges with respect to recoveries or throughputs?

Sean Boyd -- Chief Executive Officer

No, not at this stage Steve. Front-end and the back-end of the plant have actually responded very strongly. No surprise in that area. We've had some, we've had to adjust in the -- on this ionization circuit introduced slight nitrate in the circuit, but so far recoveries are on plan and there is no concerns about grains or other elements at this stage.

Stephen Walker -- RBC Capital Markets -- Analyst

Great. And if I might on the Whale Tail ore that you're getting into now, is there anything visible in the metallurgy that wasn't picked up in the drilling, is there anything in the way of additional minerals or types or grain size that wasn't picked up in the original test work? And then secondly, presumably, you're going to start batching that through the Meadowbank plant, when will that occur and if it has occurred already, how is the batch recoveries being or how is the reactivity of that ore through that plant at this stage?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, we have commissioned the -- we're in the process of commissioning the gravimetric metric in addition to the Meadowbank plant. So that's ongoing now and say exclusively on Meadowbank ore, recovery is actually going up. We will probably processing some wealthier ore quite later in Q2 because we're sort of progressing with the ramp-up there. And as far as the questions on mineralogy, no surprise at this stage. I think the only area that we've been pleasantly surprise is that the block model on surfaces responded quite well and in grades, in fact these grades have been little bit better in some areas. So that's the encouraging part.

Stephen Walker -- RBC Capital Markets -- Analyst

Thank you very much Yvon.

Operator --

Your next question is from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

Thank you. Congratulations on all the progress (inaudible).

Sean Boyd -- Chief Executive Officer

Thank you.

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

One of the other companies are selling things, I was kind of wondering how you might react if you're looking at considering acquiring a property what rate of return would you require? Or second, would you simply not evaluate the things, because why distract yourself from your good projects to look at someone else's losers or how much should they pay you to look them, I don't know.

Sean Boyd -- Chief Executive Officer

Yeah. That's a good question. I think that we -- let's have a laugh for a minute. So we see the press release, Newmont Goldcorp and several of us are in the office are quite early, before 6:30 and we had people running around saying, there could be some things coming out of here and I think the message was everybody just got to relax, have a cup of coffee and calm down. We've been doing this for a long, long time and there's no bargains out there. We've never been a company that sort of bought things as fixer uppers, because that doesn't really pay, and it's hard to get a return. The things we tend to pay attention to are those things that we've assessed have geological potential. So we've built this company on assessing geological opportunity and then proving that theory very patiently through consistent drilling and mine building. So that's the framework that we sort of used to determine whether we spend any time on things. So we do have a group that looks at things. But I would say the things we're looking at are more sort of smallish development opportunities in regions and belts rather than buying production to say we're a bigger producer.

And if you look at the M&A dance that's going on for the last sort of six months or so or nine months and even going back to 2014 with Barrick and Newmont. If you look at the top five market cap companies we were sort of sitting at number four with Goldcorp following to number five, Newcrest at 3 and then Barrick and Newmont. Every one of those other four companies had talked to each other in some form or another. At Agnico, we typically just minding our business and focused on sort of executing and none of it bringing these projects online, because we could see the inflection point coming in EPS and cash flow per share. And our audience is very much a generalist investor audience and we spent a lot of time focused on that market and that market sort of wants discipline. So that's sort of going on here. I'm getting ready for the AGM. It's at 11 O'clock this morning. So I'm sort of getting pumped up. But I think that the answer is we're going to continue to sort of be disciplined and move forward in a way that drives cash flow per share for our shareholders.

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

Thank you.

Operator --

Your next question is from the line of Mike Parkin with National Bank Financial. Please go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Guys, just a quick question. With the Kittila Q2 shutdown that you mentioned there earlier on the call, how many weeks will that roughly be and should we expect -- what should we kind of expect for sustaining CapEx for that quarter?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, the shutdown will -- is presently scheduled for 60 days. As far as the CapEx on the quarter, we'll have to get back to you on that number. I don't have that number specifically at this stage.

Mike Parkin -- National Bank Financial -- Analyst

Okay. No, I appreciate that. Congrats on the quarter and all the best with Nunavut. Thanks.

Operator --

Your next question is with Anita Soni with CIBC. Please go ahead.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Good morning. My question, a little bit more on some of the grades. Let's start with Goldex. It outperformed on grade this quarter versus your guidance, I think substantially. I think it was 1.77 versus about 1.57. Do you expect that to sort of average out over the course of the year or is that just a bonus for Q1 and move on with the rest of 1.57?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

I think the -- as they continue to accelerate the -- and get maturity on the Rail-Veyor system we've -- on this quarter, we've had a larger proportion of work from Deep 1 sectors, which have contributed the portion of that. We're also mining about a stope per month from the higher grade South Zone, so all of these factors are sort of contributing. And South Zone, this tendency will continue for the rest of the year. And I think we should continue to see pretty regular grade profile for the next little while at Goldex.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Okay. That sounds great. And then on Malartic, a similar question. I think the guidance was about 1.16 and you start at 1.18. And as I recall, as you get down to the bottom of the pit, the grades continue to get better. Is that, again, something that we should expect to have better grades than what was probably anticipated at the beginning of the year?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, quarter-over-quarter we'll have slight variance, but the grades in certain periods tend to go up. But at this stage, it will meet -- you will meet the guidance for the end of the year. And as we get into Barnat late in '19 and early 2020, it will be additional grade improvements.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Additional grade improvements, but does this start out higher grade at start, because you were sort of higher up in the pit it's going to start out a little bit lower and then progress as you go down.

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Sorry, I didn't hear the question, Anita.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Sorry. With the Barnat start-up is that immediately higher grade than what you're -- than what the average is for the year or what you would see at the bottom of the pit at Canadian Malartic or is that start off with a slightly lower grades?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, it will start probably at average grade and build up to what the grade in Barnat is. I think the average grade there is about 1.2 or so.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

All right. And then the last question is with regards to LaRonde, on the byproducts. It seems like some of the recoveries for lead and zinc, I think in particular, maybe even copper -- sorry, not copper -- and silver were, I guess, a lot better than expected. Is that something that you expect to continue or was that just something you're not willing to predict at this point?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, we've had quite a bit of variability on some of our base metal streams as some of our zinc is cyclical, depending on the mining sequence. Copper has been quite steady. But, overall, the performance and the finalization circuit have been pretty strong both on the gold and silver side. So I think what you see now should be close to what you should see going forward. But it's highly grade dependent.

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Okay, thank you very much.

Operator --

Your next question is with Carey MacRury with Canaccord Genuity. Please go ahead.

Carey MacRury -- Canaccord Genuity -- Analyst

Hi, good morning. Just a question on Upper Canada -- Upper Beaver. You've talked about evaluating different scenarios there. I'm just wondering if you can provide a little more color on what specifically you're looking at there at the stage?

Sean Boyd -- Chief Executive Officer

Well, actually, we're mostly focusing on upgrading our resources model, fine-tuning the resources for year-end, adding some more interest. I mean, in the meantime, as you mentioned, we're looking at what could be done at both Upper Beaver and Upper Canada. And recently we've been paying attention to the near surface portion of Upper Beaver where we see potentially an opportunity to end scenario at Upper Beaver. And we'll get a better grasp about potential scenario as 2019 goes by and we should be in a better position by year-end to provide more color on that.

Carey MacRury -- Canaccord Genuity -- Analyst

Thank you.

Operator --

Your next question is with Ralph Profiti with Eight Capital. Please go ahead.

Ralph Profiti -- Eight Capital Management -- Analyst

Thanks, operator. Thanks for taking my question. I don't want to jump again on Kirkland. But you are seeing these deeper intercepts down to 400 meters and in this recent drill hole then you're seeing mineralization down even further. Can I assume that the work that you're doing includes both open pit and underground options? And then what's the plan for the copper at Kirkland? Is it significant enough that you'd potentially want to monetize that as a credit?

Sean Boyd -- Chief Executive Officer

Well, to answer maybe the first part of your question, we were at first, obviously, investigating how much we can grow that resources and we know that it's always nice to have confidence that we can continue to grow. So we've been testing both the deep extension that have been successful, demonstrating that keeps on going for another 400 meter of depth. But in the meantime, we know that closer to surface through a ramp potentially that we could track the near surface portion of the deposit. But we're not that point in time for Upper Beaver. It is very unlikely that we'll do anything from an open pit. And for Upper Canada, we don't know enough about it yet to figure out what is the best development scenario for Upper Canada.

Ralph Profiti -- Eight Capital Management -- Analyst

Right, got it. Okay. And maybe just to follow up. I'd like to just talk a little bit about opportunities to control costs in Nunavut. Can you talk maybe a little bit about the lessons that you've learned? And as you potentially try to manage costs there, are there opportunities in the area of, say, power or logistics that you're going to continue to look at? Where are the opportunities?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Well, I think on the power side, there is several ideas that are under way to look at adding cleaner energy and wind turbines. The rest is -- I think, we -- lot of discussions with the government on infrastructure that would be quite helpful down the road in trying to reduce the overall logistic reality of dealing in Nunavut. But at this stage, we'll be more focused over the next year and a half on trying to get the plant up to -- plants and the mine up to speed, but also focus more on productivity to keep the cost structure down. I think that'll be mostly our focus.

Ralph Profiti -- Eight Capital Management -- Analyst

Yeah, yeah. Got it. Okay, thanks for that. Very helpful.

Operator --

Your next question is with Steve Butler with GMP Securities. Please go ahead.

Steven Butler -- GMP Securities L.P. -- Analyst

Thank you, operator. Guys, just coming back to Amaruq, where you had this slightly higher grades reported in the Whale Tail from pit initial ores. I guess, obviously, it's still very early days. But maybe you can make a -- do you have a, say, general comment on how slightly higher grade it is percentage wise, if you can share that? And if you're considering to any changes to your top cut factors or it's obviously, still early days?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Yeah. Since it's certainly early days, Steve, I'll get back to you on that part in Q3, Q4.

Steven Butler -- GMP Securities L.P. -- Analyst

Okay. And then the ore sorting, you talked about ore sorting at Pinos Altos and Sinter. Obviously, again, it's still at preliminary stages there. But can you comment on what you're seeing in the Sinter results and where do you see ore sorting going next in terms of pilot studies at the other assets?

Jean Robitaille -- Senior Vice President of Business Strategy and Technical Services

Hi, Steve, Jean speaking. We have a process presently and this is a pilot plant and we have -- it's following the result that we are obtaining to exactly in line with what we were expecting, but it's really early stage. So eventually, throughout the organization or on the other side, we have some plan and we have to do the demonstration at -- of those first. But it's encouraging up to now, but it's really early stage.

Steven Butler -- GMP Securities L.P. -- Analyst

Okay. Better head on the questioning there on two fronts. Thanks guys.

Operator --

And your last question comes from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek -- Scotiabank -- Analyst

Hi, everybody. And congratulations on the good quarter. A lot of my questions have been answered. I just wanted to come back to Yvon and maybe Dave Smith on Amaruq and Meliadine. Just on the commercial production, let's start with Amaruq. Yvon, how are you going to define that? It appears that you are already going to be putting some ore and have been putting ore through the Meadowbank mill. So could we potentially have production in Q2? I know, Sean mentioned production and commercial production in Q3. So I'm just kind of wondering the definition of commercial and whether we have ore -- pre-commercial production in Q2? Sorry I can't hear you.

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Sorry, the microphone was closed. The definition of commercial production in this case will mainly be on profitability and the commissioning of the plant were already been done on the Meadowbank ore. So I think once we've processed about 30 days of Amaruq ore, we'll probably be in a position to declare commercial production there.

Tanya Jakusconek -- Scotiabank -- Analyst

So sorry -- again, you're breaking up, is it like 30 days -- is that what I heard?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Yeah.

Tanya Jakusconek -- Scotiabank -- Analyst

Because I think your pre-commercial production guidance for Amaruq was 40,000 ounces. And I think that implies about 1.5 to 2 months. Is that about correct?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

Correct, yeah. But we might be processing some ore in June as well, so -- we'll in Q2, so we'll thread that reality going forward.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. So that one might be a bit conservative then. And just on the Meliadine, I think there was 60,000 of pre-commercial production there. If you look like you're going commercial in May that would imply more 30,000 to 40,000 ounces of pre-commercial. Is that about right?

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

It could be, yes. But I think at this stage, we're probably targeting a little bit higher than that and you'll find out over the next several weeks, I guess.

Tanya Jakusconek -- Scotiabank -- Analyst

Yeah. Also a good news though. Okay. Thank you so much.

Sean Boyd -- Chief Executive Officer

Yeah. Just as a follow up on that, Tanya. Ultimately, if it -- is it 60,000 credited on Meliadine or 40,000 credited on Amaruq, it's too early to say. We're certainly getting closer on Meliadine. So that impacts where we land in terms of capital on the projects. But I think we're comfortable enough to say, if we're early and we don't have the credits of 60,000 against Meliadine and 40,000 against Amaruq, because we've come to the commercial production earlier, we should still be in a position where the total -- and in Nunavut collectively for both projects is slightly under budget. So we're just working through a lot of those parameters as we commission both operations.

Tanya Jakusconek -- Scotiabank -- Analyst

Absolutely. And also you would be closer to actually having free cash flow.

Sean Boyd -- Chief Executive Officer

Yeah.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay, thank you so much.

Sean Boyd -- Chief Executive Officer

Thank you.

Operator --

(Operator Instructions) We have no further audio questions at this time. I now turn the call back over to you, Mr. Boyd.

Sean Boyd -- Chief Executive Officer

Thank you, operator and thanks, everyone for the good questions. And hope to see some of you at our Annual Meeting this morning at 11 O'clock. Thanks again.

Operator --

This concludes today's call. You may now disconnect.

Duration: 38 minutes

Call participants:

Operator --

Sean Boyd -- Chief Executive Officer

Fahad Tariq -- Credit Suisse Securities LLC -- Analyst

Stephen Walker -- RBC Capital Markets -- Analyst

Yvon Sylvestre -- Senior Vice President of Operations-Canada and Europe

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

Mike Parkin -- National Bank Financial -- Analyst

Anita Soni -- The Canadian Imperial Bank of Commerce -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

Ralph Profiti -- Eight Capital Management -- Analyst

Steven Butler -- GMP Securities L.P. -- Analyst

Jean Robitaille -- Senior Vice President of Business Strategy and Technical Services

Tanya Jakusconek -- Scotiabank -- Analyst

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